Directors and officers are a liability
While senior leaders play key roles in the success and improvement of an organisation, they also carry a considerable amount of risk to a business.
Mistakes are a fact of life but alleged misconduct or negligence that may be committed by these leaders can result in legal action, government-issued penalties and irreparable damage to an organisation’s finances and/or reputation.
In our experience, it's not commonly known that regardless of a company's trading, Directors, Officers and senior individuals within businesses, organisations and charities can be held personally liable for the actions they take in the course of their role. To add a certain level of protection from the risks and liabilities associated with the decisions you make as a leader, we think it's time well spent getting to understand current trends related to directors’ and officers’ (D&O) insurance and claims.
Take a look at a recent article we wrote on what Directors & Officers Insurance is all about - What is D&O Insurance?
What are the risks to my business in 2021?
There are a variety of different risks and liabilities that may lead to D&O claims being filed. Here are some of the potential issues that could arise and what an organisation can do to minimise the chance of a problem arising or escalating:
- Insolvency— Insolvency has the potential to affect all businesses. Insolvency often results in claims being filed while plaintiffs attempt to recoup losses from directors. With many experts predicting that the UK economy will struggle in 2021 following the downturn in the economy caused by the coronavirus pandemic, insolvency will become a more frequent issue. We’ve gone into a bit more detail about insolvency in another article - Legal disputes on the rise in the construction industry.
- Cyber-crime—Directors and officers may be blamed for not ensuring that proper cyber-security measures were taken in the aftermath of a cyber attack. These leaders may then be targeted by those seeking compensation. As you would expect, with remote work expected to be a permanent element of many workplaces, and the rising importance of technology across many sectors, cyber-incidents are on the rise. Organisations should prioritise cyber-security precautions, such as backing up important information, monitoring internal networks and regularly training employees on how to recognise phishing and social engineering tactics. Our cyber scorecard can give you an insight into your organisation's exposure to a potential cyber-attack;
- Workplace misconduct—Bullying, harassment and misconduct are hardly new issues when it comes to liabilities for employers to address. There is an emerging theme of younger workers taking workplace misconduct more seriously than their older colleagues and are less willing to tolerate bullying or harassment. Regardless of whether someone will tolerate bullying or harassment, it shouldn't happen and if a worker becomes a victim of unacceptable workplace behaviour—whether the source is their superior or a colleague—directors and officers may face prosecution for failing to provide employees with a safe work environment.
- Environmental issues—Our interest in climate change in society has increased in recent years. As such, directors and officers are being held to a higher standard when it comes to making decisions that are conscious of the environment. Organisations and their leaders may be at risk of facing a claim if they are suspected of causing an environmental incident. Leadership must be sure that their organisation complies with any climate-related regulations or requirements.
- Lack of diversity—Many organisations have already been targeted with legal action alleging that leadership has not done enough to encourage and increase diversity in the workplace. Activists against systemic racism have become more vocal in recent years as they demand equal opportunities for people of all races, genders and religions. Furthermore, UK employers with over 250 employees are now required to report gender pay gap information. This creates another potential liability for organisations if they do not actively attempt to address disparities. With all of this in mind, it's clear that it'll continue to be important for employers and their leaders to put equality, diversity and inclusivity high up on the agenda.
2021 has continued to bring uncertainty to organisations of all types and sizes in an unpredictable economy. Even minor legal claims may affect an employer’s ability to make ends meet. As such, it's of the utmost importance that directors and officers are held to high standards and that organisations assess and work to minimise any related risks.
How can I protect the Directors & Officers in my business?
- Policies - Implement, document, follow and periodically review all policies within the business. It's won't be the most fun part of your job but ensuring you have good practices on how to navigate various situations or activities will go a long way to minimising the likelihood of issues arising.
- Management liability insurance - Commonly referred to as a D&O insurance policy, this is there to protect directors and officers, and the business, covering the costs of defending allegations made against them and reimbursing the subsequent settlements, fines and penalties (where acceptable under law).
If you have any questions about the Director’s & Officer's Liability Insurance we can arrange for you, please don't hesitate to get in contact with us. We also highly recommend speaking to your usual contact here at Alan & Thomas if you want to look at extending your existing cover to include Employment Practices Liability, Pensions Trustees Liability and Crime.