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Column
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Evan Rosenberg
Senior Vice President
Chubb
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A D&O Liability Wish List for 2010
Whether troubled times continue or calmer seas lie ahead, here is how
boards can best navigate the way.
By Evan Rosenberg
At the end of each year I take time to reflect on the previous year’s
management liability market and how it will influence trends in the
year ahead.
This past year, the tumultuous economic environment, the truly global
and interconnected nature of business, the evolving regulatory
landscape, and the sheer complexity of conducting business gave me more
to think about than in previous years.
As I lapsed into a state of wishful thinking for the management
liability industry and corporate governance, I thought to myself: If I
could wish for anything this year that would truly help boards navigate
in these turbulent times, what would it be?
Here is my “wish list” for the year ahead:
- I
wish companies would comply with both the letter and the spirit of
governance requirements and strive to work for the true owners of the
corporation — the shareholders.
- I
wish that institutional shareholders would take a more active role in
driving better corporate behavior — on compensation, the environment,
board independence, and transparency.
- I
wish that I would never hear the phrase “a merger of equals,” and that
transactions would be thoroughly vetted and valued to prevent
post-acquisition “surprises.”
- I
wish board members would learn everything they can about their
company’s business and industry, and that they would obtain sufficient
expert advice so that they would understand and spot the signals that
could indicate financial distress.
- I
wish senior management would be alert to emerging issues — such as
cyber risk — that are having an increasing impact on D&O liability.
- I
wish boards would establish executive compensation programs that reward
exceptional performance — when shareholder value is increased and
earnings are positive — and that when granting bonuses and incentive
compensation it would be because management exceeded performance
targets. (Remember that the Latin word bonus means “good.”)
- I
wish that active CEOs would serve on no more than one or two boards
given the significant time commitment running their own companies,
especially in today’s economic climate.
- I
wish boards would allocate the time necessary to review their D&O
policy’s terms and conditions, so they understand how the coverage for
independent directors has been diluted by expanded coverage for the
entity and how the costs of defending some criminal matters erodes
their limits.
- I
wish there was more trust and cooperation between insurers and their
customers to ensure a strong and coordinated defense strategy that
achieves an optimal outcome for all parties.
- I
wish board members would seriously consider having “Side A” D&O
liability coverage, as well as consider whether there should be a
dedicated limit for independent directors.
- I
wish risk managers and general counsel would consult with their broker
and D&O insurer to craft policy language to the specific exposure
of the insured, that they meet with the insurer’s claims
representatives in advance of a claim, and that coverage expectations
and responsibilities are understood by all.
And, finally, I wish companies that are only concerned with the price
of their D&O liability insurance coverage would realize that
sometimes you get what you pay for.
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