You have probably heard this famous quote already. “With great power, comes great responsibility.” However, what the quote did not say is that great responsibility also comes with great risks.
Especially when you work in risky industries like oil and gas, construction, and lumber industries.
When you have been offered a seat on the board, it may seem like a dream come true. A little celebration could not hurt. Although, after that, you should be aware of the greater risks you have as a board member.
What risks do I have as a board member?
As a director or officer, you are not only in charge of your responsibilities. You are also in charge of the responsibilities of your subordinates. Let us say accusations of wrongdoings are made against your company. It will be directed upon the individuals on the board of directors and officers. It does not matter if it is your fault or not. Usually, it is easier to blame someone than to solve the problem. In addition, the blame often goes to someone on the board of directors or officers.
Wrongdoings may include bribery and insolvency. It may also include asset stripping and breach of duty. Directors can be held liable for accusations of corruption and negligence.
Other common claims filed to directors and officers include:
- Underperformance of stock/company
- Failure follow laws and regulation
- Unauthorized decision making
- HR issues
- Fraudulent financial statements
In addition, there could be so much more.
Corruption and Mismanagement of the Iranian Petroleum Sector
One of the most important yet dangerous industries in the world is the oil and gas industry. Working in oilrigs and other facilities pose physical threats. The board of officers, on the other hand, are vulnerable to corruption and mismanagement dangers.
Just like what is happening in Iran right now. Their oil and gas organization produces the largest portion of the country’s income. Because of this, corruption in this industry is evident like smuggling to other countries.
A trial took place in the country’s major court. Thirteen individuals were charged with embezzling 7.4 billion dollars in one of the nation’s biggest robbery cases. If you are sitting as part of the board, how safe do you think you are?
Does my company not indemnify me?
The degree of indemnification will vary depending on the terms of your company. Most of the time, a company cannot indemnify you for everything. For example, a company cannot indemnify you for fraud and criminal acts. This means that your personal assets and even your freedom are at risk.
Most significant D&O claims result in big losses. This can give rise to board or management conflict. If this is the case, the company may choose not to indemnify you. Especially in allegations of fraud, dishonesty, misrepresentations and breach of duty.
In cases where a company is willing to indemnify you, they might not have the money to do so. Either way, you may have to expect costly and lengthy legal battles to clear your name. Moreover, any damage that is awarded may have to be covered personally.
Coverage of D&O insurance
For you to mitigate this liability, you must have D&O insurance. This insurance will cover you in terms that are not covered by your company. The following are some of the coverages of a director and officer insurance:
- Wrongdoings. This includes violation of a statute, improper self-dealing, a tort, etc.
- Improper management. The inefficient administration of a company that results in losses where it is not warranted
- Judgment errors. The D&O insurance will detail the specifics of this coverage. Nevertheless, this may include disseminating false or misleading information and disclosing material facts.
- Negligence of duties. Examples are failing to file annual reports and failure to supervise. Regular absence from meetings are covered as well.
- Fines, penalties and other legal costs. A D&O insurance can cover for investigations and attorney fees.
Leading D&O insurance companies that you can trust
According to a survey conducted by Statista, these are the top three leading premium writers of 2017.
- American International group -. With more than 925 written premiums, AIG was the leader of D&O insurance
- XL Caitlin America Group – This company boasts its flexible approach to policy construction when it comes to D&O. This landed them 665 premiums in 2017
To maximize whatever insurance company you choose, you need a reliable COI tracker. This tool will help you in optimizing and maintaining not just your D&O insurance but many other insurances as well.