Corporate directors, officers, and their changing responsibilities
Directors and officers of companies and nonprofit organizations have responsibilities to their shareholders, employees, members, communities, and third parties. These responsibilities are constantly evolving because of the macroeconomic conditions that impact our day-to-day.
Beyond the basic principle of responsibly and effectively executing the mission and vision of its entities, the members of the Board of Directors have a fiduciary duty that extends far beyond. Making decisions about the insurance programs of the entities to ensure their assets (tangible and intangible) are among the primary responsibilities of these executives.
Choosing an insurance program as part of transferring risk goes beyond the budgetary element. While placing an insurance program, directors and officers must evaluate if the program contemplates their exposure, if the coverage has been updated to match the organizational structure, whether values have been updated when evaluating limits, and whether they have a protocol to handle insurance disbursement.
The consequences of an oversight from these individuals could be devastating, not only for the organization’s financial stability but for the individuals whose personal assets may be at risk.
Similarly, it is essential to recognize that claims against a director will not necessarily be limited to their responsibilities. There is the inherent risk of a claim for unfounded, malicious, and defamatory accusations causing reputational damage, which is not always contemplated when assuming a position like this.
Finally, with the increased scrutiny of regulators, we have seen an increase in complaints following regulatory interventions regarding the review of the responsibilities of directors and officers and their approach to corporate culture. These emerging risks are complex and challenging to manage in many cases.
A practical tool to manage this risk and protect yourself from third-party lawsuits is acquiring a directors and officers insurance, which offers coverage for legal fees, settlements and financial losses when the insured is held liable.
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