The challenges facing Directors and Officers in uncertain times

It goes without saying that the COVID-19 pandemic continues to present unique challenges. Businesses and onward supply chains have seen huge disruption, and business travel is almost non-extinct.

With lockdown measures and quarantine restrictions changing daily, working practices are likely to continue to be disrupted until at least Spring 2021.

Businesses have faced a number of difficult decisions in the last 6 months, many completely out of their control, and at Real Insurance we have seen a rise in Directors and Officers insurance enquiries.

Even before 2020, tougher legal and regulatory environments have meant Directors face greater scrutiny of their actions. Whether it’s health and safety, equality in the workplace, new laws or acquisitions, Directors are working in ever more complex environments – and they need to be fully aware of their duties and obligations.

Increasingly, the management of businesses is being personally bought into the litigation process on the ‘someone must take the blame’ culture. Directors and officers should not become complacent about the risks they could face and should proactively manage risk accordingly in a balanced manner.

What effect do your commercial decisions have on your staff, clients and other stakeholders?

Directors should work with employees to ensure business continuity and health and safety are correctly balanced.

Directors continue to be under significant pressure to make critical decisions involving employees, clients and other stakeholders, as well as having to comply with new found legal and moral obligations.

Decisions taken in good faith now could subsequently result in wrongdoing.

Directors of a company are in a position of responsibility:

(1) Directors can face allegations and claims for which they may be personally liable.

(2) Directors are under increasing scrutiny, and it is commonplace for allegations of wrongful acts to be made.

Even in a company with Limited liability status, personal liability is unlimited.

Directors and Officers insurance offers liability cover to protect them from claims which may arise from the decisions and actions taken within the scope of their regular duties.

A Directors and Officer’s policy, often known as D&O, is intended to protect a Board of Directors against claims, investigations and associated defence costs relating to decisions made and actions taken in the course of managing a company.

Claims can be brought by almost any organisation or individual which the business has dealings with including:

(1) Customers
(2) Creditors
(3) Employees
(4) Regulators
(5) Shareholders
(6) Suppliers

Responding to a change in working practices

Any allegations of wrongdoing by a company Director need to be investigated and defended, and this can cost a significant amount, even if the case doesn’t reach court.

A Directors and Officers policy can also pay the costs or financial losses from a number of events such as employee dishonesty, lack of data protection, employee claims, those from other shareholders and many more.

If you run a business, ask yourself:

(1) Have you made any decisions that you think could result in a backlash from employees?
(2) How have the changes in demand from customers or products been impacted during this disrupted period?
(3) Is the company experiencing supply chain impacts?
(4) Are there employee compensation matters that will result in material costs to the company as a result of quarantines or redundancies?

Directors should always remember that a legal entity may have limited legal liability, but their own personal liability is unlimited.

In an uncertain world it’s difficult for Directors to ensure they respond effectively to key business decisions, but equally protect themselves and their personal liability.

Find out more about Directors and Officers Cover

The purpose of Directors and Officers insurance is to provide financial protection against the consequences of actual or alleged “wrongful acts” when acting in the scope of their managerial duties. A Directors and Officers insurance policy will fund defence costs and financial losses. Extensions to cover are also available for other costs and other specific covers are available such as Employment Practices Liability.

We are advising businesses that don’t currently have Directors and Officers Insurance in place to give it some serious consideration. For more information about the various levels of cover available to protect Directors and Officers please click here or contact a Real Insurance specialist on 0330 058 0260 who can provide a tailored advice for the needs of your business and fellow Directors.