‘Disconcerting’ lack of concern surrounding D&O lawsuits
Nearly one-in-four (23 percent) of public companies surveyed in a Chubb Public Company Risk Survey have been sued, but that may not be enough to make executives grasp the risk.
The Chubb survey found that despite the odds they may be facing, more than 80 percent of public company executives believe their directors will not be sued in the next 12 months.
“This general lack of concern is disconcerting especially in light of the fact that the directors and officers of nearly one in four (23%) of the public companies we surveyed already have been sued,” said Evan Rosenberg, senior vice president and global specialty lines manager for Chubb in a release.
Rosenberg said that corporate activities are increasing the risk. Mergers and acquisitions increased more than 14 percent last year and 62 percent of survey respondents said they had been involved in a merger, acquisition or restructuring in the last two years. “Despite a 90 percent chance that a company targeted for acquisition will be sued by its shareholders, the survey found that many companies are not fully prepared for managing the risks. More than one-quarter of companies (26%) do not have documented merger and acquisition protocols and have no plans to develop them in the next 12 months,” said a statement from the company.
“While M&A-related lawsuits may be covered by the company’s directors and officers liability policy, documented protocols may help improve the company’s defense in court or result in a lower settlement amount,” added Rosenberg.
In the United States, executives are also paying attention to “more aggressive” enforcement of the Foreign Corrupt Practices Act (FCPA) in recent years by the U.S. Securities and Exchange Commission and the Department of Justice. The FCPA makes it illegal for companies to bribe or otherwise make payments to foreign officials or companies either directly or through third parties to obtain or retain business. Seventy-eight percent of respondents in the U.S. said they are not worried about an investigation due to an FCPA violation, even though such an investigation can cost a company millions of dollars and fines can levied.
“D&O policies can cover directors’ and officers’ defense costs for an alleged FCPA violation and fines for non-willful violations of the act,” said Rosenberg.
The Chubb Public Company Risk Survey was conducted by Pollara, an independent public opinion and market research firm. The firm conducted telephone interviews with decision makers at 145 public companies in the United States and Canada.
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