Personal risks facing board members in Asia Pacific



FW moderates a discussion looking at the personal risks faced by board members in the Asia Pacific region between Murray Wood at Aon Risk Solutions, Cameron McLisky at Chartis Asia Pacific Pte Ltd, and Chris Sharrock at Kennedys.

FW: Broadly speaking, what recent trends have you seen in director and officer (D&O) related litigation across the Asia Pacific region? 

Wood: Within the region China stands out as the one country that has witnessed a significant uptick in litigation. Nearly 25 percent of the class action claims filed against US listed companies in the first half of 2011 were against companies based in China. It is noteworthy that most Chinese companies being sued were taken public in the US through a reverse takeover (RTO). The frequency of claims for Chinese companies is now five times higher than their US based counterparts. However, it is still too early to know if these claims will result in large settlements. Leaving aside the well reported increase in Australian securities class actions, the other regional hot spot has been in Taiwan. The Taiwanese Securities & Futures Investor Protection Center (SFIPC) has been a game-changer in the litigation landscape for Taiwanese directors and officers and, as a consequence, the D&O insurance market. Before 2007, most civil lawsuits were parallel to criminal proceedings alleging D&O fraud. Owing to legislative change to the Securities Investor and Futures Trader Protection Act, SFIPC is now entitled to file an independent civil lawsuit against directors and officers and as a consequence dramatically increase the number of civil cases being filed.

McLisky: It is clear that no longer can any country claim to be immune from D&O litigation, and we have experienced claims across the entire region. However in terms of frequency and severity three trends clearly stand out. First, the explosion in securities class actions against Chinese US issuers, particularly the reverse merger companies. These claims have often been triggered by negative reports issued by internet-based analysts who also hold short positions in the company stock. A clear theme in this litigation is the difference between US and Chinese standards of corporate governance and transparency of financial reporting. Second, Taiwan has a unique local class action environment, driven by the Securities and Futures Investor Protection Centre (SFIPC) – a statutory body which has the power to bring actions on behalf of investors. Finally, there has been a significant increase in the frequency of regulatory investigations and prosecutions in Hong Kong by the SFC and also the Independent Commission Against Corruption (ICAC). 

Sharrock: In Hong Kong we have seen two recent trends. The first, which is actually not that recent, is that the Securities and Futures Commission (SFC) has been extremely active in regulating market conduct. We have seen it exercise extensive powers to obtain court orders to freeze the proceeds of an IPO and, in another case, for a company to issue legal proceedings against its directors. The exercise of these powers has recently been subject to legal challenge where the court struck out the SFC’s application for declarations that directors had committed the offence of false trading. In terms of more recent trends we have seen a lot of activity this year in relation to US securities class actions against Chinese companies following the listing of their shares on US markets, often via a process known as a reverse takeover or merger. However, because regional economies have remained fairly robust following the global financial crisis, we have not seen a spate of D&O litigation emanating from corporate insolvencies, as has happened elsewhere in the world.

FW: What types of claims are being brought against D&Os?

McLisky: What stands out to me is the variety of D&O claims we are now seeing. The US class action litigation has seen allegations ranging from misleading statements in financials through to outright fraud and allegations the company is nothing but a shell. I have mentioned the regulatory claims in Hong Kong where claims range from corruption in property transactions through to breaches of Hong Kong Exchange disclosure rules. Recently we have seen an increase in Insured versus Insured claims, where in particular the company is suing former directors alleging conflicts of interest and breaches of the duty to the company, often post a merger or acquisition.

Sharrock: In the US securities class actions the claims are very wide-ranging and include claims for fraud, misrepresentation and breach of fiduciary duty, often focusing on alleged untrue statements or representations in the company’s financial statements and SEC filings. In recent years in Hong Kong we have seen criminal proceedings against directors resulting from false statements, false accounting and market manipulation. It remains to be seen whether the recent spate of investigations by the SFC will also result in criminal proceedings being launched. Civil proceedings often flow off the back of successful convictions. In Singapore, we are seeing greater activity from the Monetary Authority of Singapore (MAS), Singapore Stock Exchange (SGX) and Corrupt Practices Investigation Bureau (CPIB) in the regulation and investigation of the activities of company directors and officers. Claims against company directors range from breaches of the SGX listing rules to insider trading. 

Wood: Within the Chinese US class action segment of regional claims activity, the allegations will typically assert that some form of fraud has been committed by management. 

More specifically fraud around financial misstatements – overstating revenues, not reporting liabilities, inflating asset values, and so on – are the primary basis of wrongdoing. We have experienced increased claims activity dealing with more intense regulatory oversight, intellectual property right disputes, a range of data privacy legislation, and international laws including the US Foreign Corrupt Practices Act and the more recent UK Bribery Act.

FW: Would you say that the personal risk to D&Os is generally increasing? If so, how much of this is due to the changing legal and regulatory landscape? 

Sharrock: I think the personal risk to D&Os is increasing in parts of the Asia-Pacific region. This is in large part due to increased regulation combined with a determination by regulators to use their powers to stamp out abusive activity. There is also a wider acceptance of the need for D&Os to be more accountable for their actions. Part of the increased risk in Hong Kong results from its recently-acquired status as the leading global location for hosting IPOs. There is more risk because there is more IPO activity, and therefore greater regulatory scrutiny. In Singapore, the increase in risk of actions against D&Os largely stems from increased corporate governance. On 14 June 2011, the MAS issued details of 15 key proposed changes to the Code of Corporate Governance for companies in Singapore. One of the proposed changes provides that at least half of a company’s directors should be independent. The changes will not only lead to more independent directors on company boards, but may ultimately lead to an increase in claims against this class of director.

Wood: We looked at the global financial crisis as somewhat of a watershed event in Asia with a pendulum shift in litigation trends. Since 2008 that trend has continued. As always though, it is a matter of perspective and when we compare Asia with Australia or even the US, we still live in a more benign litigation environment with a lower frequency of D&O litigation events. This perspective has perpetuated a false comfort that being an Asian domiciled director is free of risk. The risk environment is dynamic, new laws come into play, new opportunities develop taking companies in new directions both geographically and strategically, which combine to create new risks including new risks for management. Few predicted the 2008 global financial crisis in the two years beforehand. The same logic applies to the D&O claims trends experienced in China and Taiwan – it was unexpected and rapid.

McLisky: An increased awareness of D&O insurance will in itself lead to more claims against individuals. This makes choosing the right broker, insurer and coverage more important than ever. I think the increase in regulatory investigations against individuals is another area to watch. Directors should ensure their policy covers not just prosecutions, but all manner of investigations including those elements of a regulatory enquiry such as dawn raids. I also see the increase in criminal prosecutions increasing individual exposure, as in some circumstances company indemnities or D&O policies may not apply. The emergence of Hong Kong as one of the world’s leading IPO markets – and to a lesser extent Shanghai and Singapore – has also increased director exposure, given directors are responsible for signing off on the statements contained in the offering documents.

FW: What kinds of prosecutions, settlements and penalties have you seen imposed upon Asia Pacific D&Os? Are there any particular cases worth highlighting? 

Wood: India’s Satyam settled a class action claim against the company for $100m plus costs earlier this year. This is by far the largest settlement in Asia to date. There have also been a handful of D&O settlements in China that have exceeded limits well above $10m and we are also aware of other jurisdictions with a similar settlement quantum.

McLisky: Two recent cases in Hong Kong are typical of the increased regulatory focus on listed companies there. In the first a senior executive is being prosecuted for insider trading, the allegation being he traded in company securities immediately prior to the disclosure to the market of foreign exchange losses. In the second the ICAC is prosecuting the CEO and former CFO of a listed company for allegedly inducing the company to buy a property at an inflated price; a property that was owned by these individuals, a fact the company was unaware of. In Taiwan I have seen a number of successful prosecutions alleging insider trading in the context of a merger or acquisition.

Sharrock: There have been a number of successful prosecutions for insider dealing and market manipulation in Hong Kong. In 2009, a former managing director of a prominent investment bank was jailed for seven years and fined over HK$23m for insider dealing. He was also ordered to pay the SFC’s investigation costs. The SFC also frequently obtains disqualification orders against both executive and non-executive directors of listed companies which prevents them from acting as a director or being involved in the management of any listed company for up to 15 years. In one recent high-profile case in Singapore three former directors were found guilty of violating Singapore’s securities laws by issuing false and misleading statements through the SGX in an effort to downplay a probe by the CPIB into another director for alleged bribery. One of the directors was also charged with insider trading. All of the guilty directors received hefty fines, with one receiving a prison sentence. All of the directors charged were disqualified as company directors. 

FW: What affect is the general increase in corporate regulation, and associated penalties, having on D&O liability insurance? 

McLisky: Generally speaking across the region the market is still competitive, albeit rates have stabilised. 

However, where a clear segment can be identified as being distressed, such as in China or Taiwan we have seen substantial premium increases, reduction in capacity and increases in deductibles. Given the relatively small premium pool in these segments such changes will need to be sustained for insurers to achieve any sort of margin in the long term. 

Sharrock: There remains a large amount of capacity in the region but with the increased risk of claims and exposures in the US, we may well see a hardening of the market with higher premiums, higher deductibles, and a reduction in limits.

Wood: The market for D&O has definitely hardened for US listed companies based in China. All of the typical characteristics of a hard market are evident: insurance rates have increased by 200 to 300 percent, capacity is reducing, retentions are increasing, coverage is decreasing, and in some cases insurers have exited the market. Taiwan is experiencing similar market conditions. Both markets are relatively young and suffering from shallow premium reserves, and this has caused more underwriting pain to those insurers with established or dominant market share positions. The severity of country specific hard markets is somewhat neutralised by new capacity entering the Asian market and herein lies a continuing market dynamic for the Asian general insurance industry, D&O included. Global insurers remain enthusiastic around medium and long term prospects for the region which continues to fuel an oversupply of underwriting capacity relative to demand. The oversupply of D&O underwriting capacity balances out the possibility of more severe hard market conditions and certainly prevents any contagion D&O hard market for the rest of Asia.

FW: What advice would you give to D&Os on selecting a policy that is appropriate for both the individual and the company? How important is it to properly assess the terms, coverage and pricing of available policies? 

Sharrock: My advice to D&Os would be to instruct a broker with proven expertise in D&O liability insurance and to arrange for one or more insurers to present their products to the board, asking them to highlight what distinguishes their product from those offered by their competitors. Directors need to understand how the local corporate governance regime applies to them, what their exposures are likely to be and what liabilities the policy covers. Directors need to know that the insurance coverage can be constructed in such a way as to ensure that there will always be an element of coverage reserved specifically for each of them individually, so that claims made by other directors or the company will not affect their entitlement to indemnity.

Wood: Irrespective of the market cycle, the policy should match the needs of the buyer. We expect that the insurance policy will perform when a claim happens. Our philosophy is to make the policy as broad as possible so, if and when a claim happens, the policyholder is in a leveraged position with coverage working for them personally at the time of settlement. With those buyers experiencing hard market conditions, it is extremely important to understand the consequences of some of the unique exclusionary language insurers are trying to impose. Coverage innovation under D&O policies has broadened risk transfer significantly, often insuring what could be described as non-core risks including, for example, an increasing number of company risks. A core D&O risk is where the insurance policy responds to claims being made against directors and officers. It may also be argued that a core D&O risk includes claims against the company involving shareholder securities litigation, though a purist would argue otherwise. The D&O policy also needs to comply with the local insurance laws for all the jurisdictions that require coverage. If your company operates in more than one country, it is recommended that you ensure your D&O is able to respond to claims in both countries and that the insurer can pay claims in both jurisdictions.

McLisky: Most policies now provide broad coverage, although buyers should engage brokers who can demonstrate a clear expertise in this area to advise on their individual needs. As much focus should be placed on the record the insurance company has in handling and paying claims. Directors should enquire of their insurer as to their tenure in that country, their experience in handling complex D&O litigation, their multinational capabilities and the quality and network regionally and globally of claims handlers. In terms of policy coverage and structure most policies now include a significant element of cover for the company itself, particularly for securities and employment disputes claims. Directors should ensure that in the event of a claim or claims that the policy is structured such that there is always an element of cover ring-fenced or protected purely for their individual liability.

FW: Looking ahead, do you expect to see more Asia Pacific companies taking a proactive approach to risk management tailored specifically to protecting board members?

Wood: There is a shift to a more proactive risk management culture in Asia and whilst that continues to gather pace, it has yet to gather sufficient momentum to be called a trend. There are, however, a growing number of advocates and policymakers calling for greater transparency, increased accountability, new laws, corporate social responsibility and shareholder protection, just to name a few trends. The emergence of board risk and corporate governance committees is gaining popularity with some Asian companies. Our expectation is for the continuation of these developments to the point where it becomes not just a trend, but the norm. Ultimately it is the shareholders who win – the board does their job, stock prices rise, litigation claims are avoided and D&O costs are minimised.

McLisky: Since the global financial crisis there is no doubt that the investing public expect directors and officers to be held to account more than ever before. Taken in conjunction with the increasingly heavy regulatory burden and the number of high-profile claims against directors I think there is no doubt that board members – executive and non-executive – will focus more closely on risk management. Any director who has experienced a D&O claim will attest to not only the direct costs of the litigation but the indirect cost in terms of management time lost, negative publicity and uninsured exposures. A D&O policy is a critical piece of this risk management, but not the only piece. As well as ensuring company indemnities are in place and as broad as possible, companies and directors should ensure policies and training programmes including those on corporate governance, stock exchange listing rules, conflicts of interest, anti-corruption, antitrust and insider trading are reviewed and regularly updated.

Sharrock: I expect to see a more proactive approach to risk management, firstly because of regulatory changes, and secondly as a result of the general increase in awareness of the risks faced by D&Os. In order to attract talented individuals to serve on their boards, I think companies increasingly recognise the need to offer protection to their board members. If permitted by the laws of the country where the company is incorporated, this can be achieved by a combination of indemnities offered via the company’s articles of association or bye-laws for any breaches of duty which are not wilful or fraudulent; specifically negotiated deeds of release and indemnity executed before each director’s appointment; and D&O liability insurance. It is fairly common in Hong Kong for recently retired professionals, such as accountants and solicitors, to take up positions as non-executive directors. These individuals will be highly attuned to risk management issues and will expect companies to offer them protection as the quid pro quo for their serving as a board member.


Murray Wood is the regional managing director for Asia at Aon Risk Solutions. He has worked in the insurance industry for over 25 years, 20 of which have been with Aon in Sydney, London, Hong Kong & Singapore. Mr Wood has maintained a dedicated focus on the financial lines insurance market since 1988 and has had high level exposure to a full range of client, broking and claims issues for many leading corporations throughout Asia Pacific. He is responsible for Aon’s Financial Services & Professions Group for Aon Asia. Mr Wood can be contacted on +65 66 45 01 16 or by email:

Cameron McLisky is a vice president of Chartis Asia Pacific Pte Ltd. He is in charge of the Financial Lines division for the Asia Pacific Region. Mr McLisky has been with Chartis/AIG for over 12 years, and has held roles in the UK as regions manager and COO for Financial Lines based in London, Australian Financial Lines Manager, and New Zealand Financial Lines manager. He has also worked as a reinsurance underwriter for General Re and a broker for Marsh and has over 16 years experience in the Financial Lines market. Mr McLisky can be contacted on +65 63 19 77 72 or by email:

Chris Sharrock is a partner at Kennedys’ Hong Kong office. He acts for international insurers and provides them with coverage advice in relation to a range of financial lines insurance products including Directors’ and Officers’ Liability, Banker’s Blanket Bond, Financial Institutions Professional Indemnity and Professional Indemnity across a range of professions. Mr Sharrock can be contacted on +852 2848 6349 or by email:

© Financier Worldwide



Murray Wood

Aon Risk Solutions


Cameron McLisky

Chartis Asia Pacific Pte Ltd


Chris Sharrock


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