Since the global financial crisis, tougher legal and regulatory environments have meant Directors face greater scrutiny of their actions. Whether it’s health and safety, bribery laws, mergers and acquisitions, insolvency, wrongful trading, corporate manslaughter or equality in the workplace, directors are working in ever more complex environments – and they need to be fully aware of their duties and obligations.
The European Union is currently overhauling its data protection laws, which means directors in the UK will increasingly be held to account over any failures of a company’s privacy and data protection policies.
There are also two pieces of UK legislation, which highlight some of the complex liabilities faced by company directors and officers:
Firstly, the Bribery Act, which came into force in 2011, means that companies (and individuals) can be prosecuted for failing to prevent bribery being carried out on their behalf, inside or outside the UK, by any “associated person”, which could include an employee or a contractor.
Under the Act, companies found guilty of failing to prevent bribery face an unlimited fine and directors convicted of the same offence can be prohibited from future roles. To successfully defend themselves against such action, companies and their directors must prove they have adequate procedures to minimise the risk of bribery occurring, such as clearly communicated policies on giving or receiving of gifts and hospitality.
Secondly, under the Corporate Manslaughter and Corporate Homicide Act 2007, organisations can be prosecuted (with an unlimited fine the maximum penalty) if the failings of senior management are found to have played a significant part in the death of a person to whom the company owed a duty of care (e.g. an employee or customer).
Although punishments under the Corporate Manslaughter Act apply only to companies, directors and officers can be prosecuted separately under the health and safety or criminal law, and face substantial fines or even imprisonment. In addition, the legal costs of defending such an action can also be substantial.
This rise in corporate governance is encouraging more companies to seek robust insurance coverage to protect their directors against claims and protect companies from reputational damage.
D&O insurance can cover the legal costs of defending a director from a claim.