The Government has outlined how it plans to carry out its corporate governance and audit reforms, which include the establishment of a new corporate reporting and audit regulator.
The aim is to prevent situations such as the collapse of the construction giant, Carillion, arising in the future and establish more control over the biggest audit companies.
However, the announcement of the new arrangements also carries a warning that directors of the biggest companies who breach their legal duties to be open with auditors or who lie about the state of their firm’s finances, will face sanctions such as fines.
This is another example of an increasing desire to increase the accountability of directors and officers of companies and one that those who make key decisions within businesses need to take extremely seriously. The personal liability of directors and officers for the errors, mistakes and lack of controls within their businesses, can sometimes be overlooked by those in charge of companies. Some leaders believe that Limited Company status protects them from any financial responsibility for company matters. It does not.
For this reason, a type of insurance that sits well alongside the title of director, or the status of being a manager with key responsibilities within an organisation, is that of Directors & Officers insurance (D&O), alternatively known as management liability insurance.
This insurance protects directors and managers who find themselves having to mount legal defences, whether these are brought by regulators, competitors, other companies, shareholders or employees. Defence costs, even if found innocent of charges, can be hugely expensive. Should a case be lost, the financial loss might need to be covered through the sale of a director’s personal assets, impacting on their family and their lifestyle.
Regulatory investigations can be equally expensive and time intensive, leading to more potential losses for directors who are judged to have neglected the duties imposed on them by the 2006 Companies Act and many other laws and regulations.
D&O insurance is considered to be an important part of a company’s risk management and is bought by companies that recognise that directors and key managers can make mistakes that have major consequences. It is not a cover that will protect directors who commit fraudulent actions but is a very important one for many other aspects of running a business.
With more corporate governance each year, the responsibilities of directors and officers are considerable. Talk to an insurance broker about this element of risk management and let them guide you through what D&O insurance can do to protect both you and your business. If you need help finding a broker, use our contact details and we will make the introductions.