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We live in litigious times, and directors & officers (D&Os) are regular targets. The financial crisis has had a hand in ramping up activity against D&Os, as organisations have had to come to terms with new exposures arising from compliance, discrimination, tax, bribery and antitrust rules, among others. However, these have not been the only drivers; much of the risk and liability burden for D&Os has been caused by M&A activity. Cyber risk, too, is a rising risk area. Shareholder activism has played an important role in bringing many of these issues to light. Third-party litigation funding is also helping to drive the D&O litigation market, as these firms become a significant source of backing for plaintiffs.

UNITED STATES

Frances Floriano Goins

Ulmer & Berne LLP

“US directors continue to be protected by the business judgment rule and state liability statutes that generally limit damage actions against corporate directors to intentional conduct or conflicts of interest. However, increasing regulatory emphasis on holding individuals personally accountable for corporate missteps and the expanding definition of ‘risk’ to include not only financial and business risk, but also matters such as cyber security, have increased both defence costs and the types of claims directors may face in litigation. The US Department of Justice’s Yates Memorandum principles put continuing pressure on companies to distance themselves from directors’ actions, and sometimes make it more difficult for directors to secure advancement of defence costs from the company in a timely manner.”

UNITED KINGDOM

Ffion Flockhart

Norton Rose Fulbright

“For a number of reasons, board members face greater legal and regulatory scrutiny than ever before – these risks present a greater risk of personal liability. For example, board members face greater regulatory responsibilities in certain sectors, such as financial services, where individual board members are often subject to specific regulatory requirements – an example being the Senior Managers’ Regime here in the UK. We have also recently seen a number of shareholder claims brought against individual directors in a range of contexts, and the UK Supreme Court recently emphasised the importance of board members acting for a proper purpose when exercising their powers.”

FRANCE

Yannis Lancre

Tokio Marine HCC

“The personal risks that board members face have increased over time and some recently introduced regulations and emerging exposures are currently leading to more scrutiny from regulators and shareholders. The scope of the French class action to now encompass healthcare, discrimination and environmental issues, as well as the Sapin II Law to strengthen anti-corruption compliance programmes within corporations, are but a few examples of how the business environment is evolving. Board members and individuals, acting in a managerial or supervisory capacity, need to adapt to these developments, further exposing their personal liability.”

NETHERLANDS

Pim Van der Drift

Tokio Marine HCC

“The global corporate world constantly has to adapt to a growing number of national and cross-border regulations that are enforced by increasingly active regulators. Directors of large corporate entities are required to comply. In addition, risks related to cyber liability are evolving and expanding. It is not a matter of if but when a company will be attacked and there is clearly a board level responsibility to ensure data security, take crisis prevention measures, create contingency plans and purchase effective insurance. Surprisingly, companies in the region are still reluctant to invest in cyber insurance, relying instead on technical solutions and a patchwork of coverages under various policies, including D&O.”

SPAIN

Belén Vílchez Morales

AON Risk Solutions

“Undoubtedly, D&O challenges have increased. We have observed stricter regulations and laws, tightening supervisory actions, increasing IPO activity due to difficulties accessing bank credit, M&A transactions and insolvency proceedings as a consequence of the financial crisis. For multinational organisations, their activities in multiple countries face different regulation and political environments. It is also worth noting that emerging technologies and cyber risks have evolved as the most important threats in terms of D&O liability. D&Os are being held personally liable for failing in their supervisory duty to protect data of the organisation and its customers, or for a lack of proper controls to prevent cyber attacks and fraud.”

SWITZERLAND

Michael Wyss

Tokio Marine HCC

“In Switzerland, the personal risks of management and supervisory boards have increased steadily, especially in financial institutions. This is mostly due to the increased supervision of regulatory bodies worldwide and their rigorous activity regarding compliance issues and misconduct. Nowadays, regulatory bodies cooperate and share information across borders. They have improved in detecting violations of applicable laws as well as international conspiracies and are taking bolder punitive measures. The level of uncertainty that comes from this changed environment has never been higher and it is very difficult for financial institutions to manage stakeholders’ interests throughout the proceedings that arise from the above factors.”

ITALY

Giovanna Aucone

PG Legal

“The current economic and political situation in Italy has brought changes to D&O liability actions. Specifically, the provisions of European law and national law of primary and secondary legislation, which state the liability of the administrative bodies of companies in relation to various areas, have increased. This has encouraged more responsible company management, and responds to the needs of those prejudiced by the negative effects of management choices taken at the highest level. Within this framework, the need for wronged parties to obtain compensation for damages, and improve their awareness, have led to an increase in the number of requests for compensation, and the number of liability actions brought against D&Os.”

RUSSIA

Vladimir Kremer

AIG

“The Russian way is always a little bit different to the rest of the world. While the number of D&O losses we are seeing from our local insureds has not grown dramatically from year to year, the number of cases which might lead to D&O liability risks have increased considerably. Virtually every other day there is another story describing, civil, administrative or criminal charges against another Russian manager in the press. The D&O insurance market in Russia has never been easy, but even in the most challenging conditions the growth in the number of policies taken out in Russia has been around 15 percent per annum.”

CHINA & HONG KONG

Nathan Dentice

Reed Smith Richards Butler

“Recently, we have seen changes in the legal and regulatory framework in Hong Kong and China which increase the likelihood of claims being made against board members. In Hong Kong, for example, the Securities and Futures Ordinance (SFO) sets out a regime for the disclosure of inside information, which provides investors with a direct right of action against board members for breaches of their disclosure obligations. The Securities and Futures Commission (SFC) has brought claims against board members seeking damages for breaches of duties owed to their company, and we have also seen shareholders making increasing use of provisions enabling them to obtain access to corporate records in order to explore the possibility of making claims against board directors.”

CONTRIBUTORS

AIG

AON Risk Solutions

Norton Rose Fulbright

PG Legal

Reed Smith Richards Butler

Tokio Marine HCC

Ulmer & Berne LLP