D&O Risk & Liability 2013

February 2013  |  RISK MANAGEMENT

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Financier Worldwide canvasses the opinions of leading professionals around the world on the latest trends in D&O risk & liability.



Ann Longmore


“Sadly, we are in a world where the desire is for individuals to be held liable for the actions – or inaction – of organisations that result in harm. In some places around the world this is facilitated by the fact that the ‘corporate shield’ is tissue thin. In others, like the US, the Securities and Exchange Commission (SEC) ranks its efficiency, in part, on its ability to seize and freeze the assets of individuals.”



Marcelo Mansur Haddad

Mattos Filho

Although it is possible to say that such risks have increased in Brazil, it is difficult to measure as there are no trustworthy statistics to support the assertion. However, this analysis must be made considering two different scenarios – on the one hand, companies performing regulated activities and, on the other, companies performing non-regulated activities. It is doubtless that, under regulated activities, the increasing oversight of local authorities has increased the risks facing directors and officers. In some cases, such as those regarding settlement agreements executed between directors and officers and the Brazilian Securities and Exchange Commission – the Comissão de Valores Mobiliários (CVM) – we can see a clear increase in exposures. With regards to the Brazilian insurance regulator – the Superintentência de Seguros Privadors (SUSEP) – the recent tendency to impose penalties on individuals, on top of penalties imposed on the regulated entities themselves, has led to a substantial increase in such risks. Environmental authorities and public prosecutors are authorised to pursue directors and officers in cases of damage to the environment. As far as non-regulated activities are concerned, such increases result from the efforts of the Brazilian government to assure easy and cheap access to justice, as well as the tendency for judges and governmental authorities to disregard legal entities. Although this tendency is stronger in labour and tax matters, since the 2002 Brazilian civil code the disregard of legal entity theory has been foreseen with regards to civil and commercial matters. Naturally, these factors also have an impact on the risks of directors and officers of regulated entities.”



Julian Elms


Increased risks are most apparent arising from the financial crisis – particularly in the banking sector, which has attracted a high level of scrutiny following years of ‘light touch’ regulation. This has been further impacted by the matters of rogue traders, money laundering, PPI mis-selling and LIBOR rate fixing. The lessons learnt from these failures all point to poor management supervision, as well as insufficient control and governance. Increased regulation and changes in the law will ensure that greater accountability will be put in place. Much of this is still in debate, with a parliamentary commission on banking standards and Basel III capital requirements both on the horizon. Of note is the recent extradition to the US of a UK businessman who has subsequently been found guilty of illegal activity via phone and email whilst in the UK. This must worry any senior executive who deals with US-based customers or associates.”



Diederik Sutorius


According to our claims experience in the last few years and our D&O survey for 2012, which surveyed 200 D&Os of German SME companies, we have seen a clear pattern emerge showing an increase in personal D&O risks. Our survey shows that 87 percent of D&Os are aware of the personal risks they face. Especially interesting is that 72 percent of D&Os said that the level of their personal risk has increased in the last five years. This outcome corresponds with our claims experience, which has shown a steady growth in the frequency of D&O claims in the SME market.”



Vladimir Kremer


In Russia there has been a marked increase in risks facing board members. This can mainly be attributed to the fact that shareholders are demanding higher profits and, therefore, the amount of pressure and attention on board members is rising accordingly. Furthermore, as corporations recover from the financial crisis they are already nervous to see what the next wave of the crisis is going to be – anticipation of this adds to directors’ risk profiles.”



Chris Sharrock


We have seen a general legislative trend in holding directors and officers of companies personally responsible for their companies’ breaches of rules and regulations. In particular, the Securities and Futures (Amendment) Ordinance 2012, which came into force on 1 January 2013, brings with it a codified regime on disclosure of price sensitive information which can hold directors and officers personally responsible for regulatory fines of up to HK$8m. The new Companies Ordinance – effective in 2014 – also codifies common law duties of directors and officers, and imposes a new, wider category of ‘responsible persons’ in the company who may be held liable for breaches by the company.”



Quinton Kotze


The changing regulatory environment in South Africa continues to make it easier for a multitude of stakeholders to bring actions against company directors or officers. It is also important to highlight that these defined risks no longer only rest in the boardroom – the changes made to the Companies Act 2008, extends the term ‘director’ to include alternate directors, prescribed officers and persons who are members of a committee of a board of the company. Further, within Section 77 of the Act it provides a detailed list of the circumstances in which a director may be held liable for losses sustained by the company. Notwithstanding current legislation in the form of the Companies Act and the recent Consumer Protection Act, the proposed enactment of bills such as the Protection of Personal Information (POPI) will see additional and ‘non-traditional’ risks and exposures imposed on board members. Mitigation of these exposures will be key for any company and board in today’s changing environment.”



Alexander Blom


Traditionally, Arabic business culture takes a more pragmatic approach to disputes and has proven to be much less litigious than the Anglo-Saxon/American business model. However, with a multitude of highly publicised business dispute cases in the regional press recently, a transformation in legal attitudes is evident. This has raised the awareness of corporate and individual responsibility. As organisations become more international due to globalisation, directors and officers (D&Os) are faced with greater accountability for their or failure to act. Historically, D&Os were mainly focused on servicing shareholders’ interests. Today, D&Os are increasingly required to act more in accordance with the interests of other stakeholders – which can include regulators, employees, creditors, customers, and suppliers. As a result, we have witnessed several cases brought against D&Os in local and international courts.”





Mattos Filho



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