Public companies feel the brunt of regulatory and shareholder scrutiny. It’s no secret. With changing legislation, investor demands and competitive marketplace, managing your business risk is a delicate balancing act. A D&O policy protects public companies and their leadership from direct shareholder or investor and derivative suits. What you may not know is that a public company D&O policy also covers current and past directors, officers and employees if named in a lawsuit that is brought against them personally or against the company. You can consider a D&O policy personal asset protection.
Here are the three top public company D&O liabilities.
Shareholders wield a lot of power over how you and your board make decisions for your company. Because shareholders create the largest financial risk to your company and to your personal assets you need to ensure that you and your leadership are protected.
The Securities and Exchange Commission (SEC) and Department of Justice (DOJ) are your greatest regulatory concern. When accusations of poor decision making from shareholders become known, the SEC and DOJ will investigate. These investigations will be costly in time, resources and money.
No personal protection
In the unfortunate event that your company experiences bankruptcy and there’s no D&O policy, your board and leadership may not be protected from creditors or others seeking to recoup their money. With no cash to pay for defense costs your personal assets are fair game.
Executive of a publicly owned toy company is indemnified by the business’s D&O policy
A toy company on the verge of bankruptcy couldn’t afford to pay its biggest creditor. Because the company lacked the capital to pay, the creditor went after the company’s CEO. The CEO asked the company to pay his defense costs, but the company couldn’t — it no longer had the capital. Instead, the CEO made a claim on the company’s D&O policy, which responded, provided a defense and indemnified him.