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What You Need to Know: D&O Insurance for Public Companies

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Publicly traded companies and their directors and officers are under increasingly greater scrutiny every day. In an age of social media, increased competition, short sellers, wary investors and societal pressures, decisions made by the brain trusts of public companies of all sizes are under the microscope of a litigious public eye. One that may decide to “sue first” and ask questions later. And with directors’ and officers’ personal assets also at stake, without D&O insurance, public organizations are faced with the challenge of filling board seats and officers’ chairs with the right persons for the job.   

When combined with proper risk-management guardrails and a clear indemnification policy, D&O insurance for public companies can drastically reduce your company’s exposure and that of it’s board members. D&O insurance is for public companies of all sizes and can be scaled up or down as needed.

Duties of Directors and Officers of Public Companies

D&O Insurance for Public Companies
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The Insurance Bureau of Canada describes the basic duties of directors and officers of public firms this way:

“Directors and officers have a duty to exercise due diligence in overseeing the management of the organization that they serve. This involves 3 basic duties:

  1. Duty of Diligence (Duty of Care): Act reasonably, in good faith and in the organization’s best interest.
  2. Duty of Loyalty: Place the interest of the organization before your own.
  3. Duty of Obedience: Act within the scope of applicable bylaws.”

and expresses directors’ and officers’ liability in this way:

“In addition to basic duties, a director or officer may be held liable for:

  1. Failure to act as stated under a statute.
    For example, if a statute requires directors to file a report or maintain certain records, and these reports or records are not maintained, the director may be liable for an offence under that statute.
  2. Non-compliance of the organization with a statute.
    For example, directors may be liable for financial losses, wrongful dismissal, employee discrimination or failure to remediate risk environment damage. Be aware that directors can be held personally liable and that:
  • Ignorance is not a defence.
  • Resignation is not necessarily a defence.
  • Company indemnity may not be enough.

Consult a lawyer for more information on directors’ and officers’ legal liability.” 

Additionally, recent changes to the Canada Business Corporations Act (CBCA) have added further pressure on directors and officers of publicly traded organizations to “consider the interests of shareholders, employees, retirees and pensioners, creditors, consumers and government, the business environment, and the long-term interests of the corporation”.

Risk Management for Publicly Traded Companies

Here are a few risk-management steps publicly traded companies can take to help mitigate some of the liability risks faced by officers and directors:

  • Educate directors and officers on their duties, guidelines, negligence and the civil and criminal liabilities they face
  • Run conflict of interest checks
  • Have safeguards/procedures in place for sensitive information
  • Utilize sophisticated cybersecurity measures
  • Have clear and strict financial management and reporting policy and guidelines
  • Have a robust and detailed HR policies for all levels of the company
  • Make employee, consumer, stakeholder and visitor personal safety a priority
  • Establish efficient top-down and bottom-up communication channels including “whistleblower” channels
  • Establish a detailed, decision-making documentation process
  • Make consultations between directors and professional advisors i.e. lawyers, accountants, mandatory to establish due diligence
  • Establish a clear indemnification policy for directors and officers and  ensure it’s communicated to them

Reasons Why Your Public Company Needs D&O Insurance for Public Companies

D&O insurance for publicly traded firms offers protection for directors, officers, their personal assets, and your organization that is not available in other insurance policies like a commercial general liability policy or even an employer liability insurance policy. These are some of the reasons for having D&O insurance for public companies:

  • Directors and officers are in a unique liability position in that their personal assets are potentially at risk without D&O coverage
  • Without D&O insurance, publicly traded companies may struggle to find talented individuals to serve as officers and on the board
  • D&O insurance for public company can cover costs of regulatory investigations and fines
  • Smaller publicly traded companies may not have in-house counsel which leaves them exposed to greater risk
  • Coverage for lawsuits or class actions commenced by competitors, employees, shareholders, customers, etc. who claim that directors and officers were negligent in their decisions and/or actions
  • D&O insurance for public companies indemnifies directors, officers and the organizations for legal and defence costs which adds stability to a company’s finances

D&O Insurance for Public Companies Brokered by Commercial Insurance Specialists

The advocates at ALIGNED only deal in commercial insurance products and work with Canada’s top insurers. Contact an ALIGNED broker to discuss D&O insurance policy for your public company’s needs or get started by using our online tool.

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