MF Global is just another example in the latest dealings in which billions of dollars of clients’ money has been lost. Furthermore, as of yet there has been no accountability on behalf of the company’s CEO, former New Jersey Jersey Governor Jon Corzine, and others. MF Global filed for Chapter 11 on October 30, 2011, and investigators are looking into wire transfers from customer accounts and other areas to see where the money went.
This and other mismanagement issues by directors and officers make the solid case for Directors and Officers insurance (D&O). This insurance provides protection when shareholders, competitors, suppliers, or even employees sue a company’s directors and officers for alleged wrongdoings. Lawsuits may stem from unfair business practices, breach of fiduciary duties, wrongful termination, discrimination and various other alleged infractions. These claims could run into the millions and greatly damage or effectively could ruin a company.
Big corporations are not the only ones affected by D&O claims. NERA Economic Consulting reported that in first half of 2011 about 160 securities lawsuits were filed against publicly traded companies in the first half of this year, with more of the same expected in the second half. This trend, according to the article, doesn’t just affect publicly traded middle-market companies but also closely held private companies “who may forget that they have exposures beyond shareholders, such as family members with disputes that can be difficult to resolve”. Middle-market companies involved in mergers or acquisitions also become engaged in litigation filed by shareholders who are concerned that they may be paying too much or getting too little out of the deal.
The risks you take by not having proper directors and Officers insurance can be monumental and yet avoidable. Taking an objective look at the various available D&O plans, and choosing which one best suits your current needs is a great way to avoid costly lawsuits. While you may currently have Directors and Officers insurance it’s a good idea to ensure that what you have meets the criteria for what you may need in any event.
You can only avoid risks if you know in advance what those risks and exposures are that you face on a daily basis, and taking the proper steps to avoid costly litigation.