Sage Advice - Relentless Recovery 

5 tips to avoid D&O liability

On Behalf of | Jul 2, 2021 | D&O Insurance

D&O accusations are always a serious threat. In a D&O claim, your company could lose a significant amount of money and future corporate opportunities. That is why D&O coverage is always helpful to have, as the insurer can pay for any defense, government investigations, administrative actions and criminal proceedings in the event of a lawsuit.

However, there are several preventative steps that company officers and board-members can take to avoid such concerns:

Attend all (or most) board meetings

Inform the board of your decisions and reasoning. However, clarity with direction is only half the battle. You must also keep impeccable records If you have made an executive decision, provided the board with your reasoning and plans, and documented everything, accusations of “acting without board-approval” are far less likely.

Identify potential conflicts of interest

Having a good relationship with the other board members is fine, but a tight relationship can raise red flags among your colleagues. To avoid suspicions, outside directors should make every decision affecting the board members, such as compensation arrangements and employment contracts. Another common mistake is for the board members to serve as plan fiduciaries, as some may consider this a conflict of interest situation. Setting a written conflict of interest policy may also be in your best interests.

Be careful about securities’ information

Most board members and company officers get in trouble if they give out wrong information about their securities. In this case, investors who traded in your company would sue you if they suffered financial damage because of the misleading information.

Take care of your employees

A company is nothing without its employees, so the leaders of a company should ensure the fair treatment of their employees. A good Human Resources team must stick to the company’s guidelines and fight against sexual harassment and discrimination in the workplace. Choose your human resources representatives with great care, as they will be responsible for maintaining a good relationship with your employees.

Reread financial statements and transactions

Stakeholders must all read and completely understand budget proposals, financial statements, transactions, and other reports. In financial records, keep an eye out for numbers that don’t match or make sense. Transactions also need to be reviewed carefully: the terms, purpose, effects and structure must be clear to all board members and based on an informed decision.