D&Os ARE FACING A SHIFT OF RESPONSIBILITY

THE ENVIRONMENT and landscape that directors and officers (D&Os) navigate daily is becoming more complex and risky.

Investor and public expectation of boards continues to intensify, and the personal accountability for not meeting these expectations is well on the increase. The shift from corporate responsibility to personal responsibility continues at a steady pace and it is advisable to note that if these expectations are not met, then the propensity to litigate is now given extra “fuel”.

This would be due to the following factors: further emergence of collective actions, increased capital flow into shareholder activism and the growth of litigation funding. Boards operate under this spotlight in uncertain economic and political times where equity and asset price volatility is the norm. Below are global and regional trends that D&Os need to know:

◆ Board culture is in the spotlight more than before. Boards are expected to set the tone for an organisation’s culture and a poor culture is a key indicator for potential D&O claims. A major factor in the many claims that we see is compliance failings.

◆ A failure of boards to recognise, manage and mitigate a number of emerging risks will result in both personal liability and securities claims. These include managing company cyber risk, protecting intangible assets and reducing intangible liabilities, protecting brand and reputation value, and addressing climate change disclosures. For example, there have already been incidents where investors have sued boards for a lack of oversight following cyber events.

◆ Cross-border trade, supply chains and international co-operation of regulators continue to make the cost of defending and settling D&O claims more complex and costly. At the same time, global rules around trade are in flux.

◆ Boards face an increasingly digital world where efficiencies and productivity are being measured, as well as strategic decisions and investments being made, through the Internet of Things, blockchain and Artificial Intelligence. Shareholders will scrutinise these decisions and investments.

◆ International programmes are growing in popularity and need, as cross-border risk evolves with collaboration among regulators, insurance and tax entities. Ensuring the D&O insurance policy is fit for purpose in the local market can be crucial at the time of loss. This is of critical importance when a nonindemnifiable claim is made against a director in a country where nonadmitted insurance is not allowed.

◆ There has been a recent trend towards shareholders seeking to hold directors liable for losses as a result of negligent or reckless conduct. The statutory underpinning for such claims is the Companies Act, which codifies directors’ liability in South Africa.

◆ South African businesses and its directors need to be aware of General Data Protection Regulation (GDPR), as well as the Protection of Personal Information (Popi) Act. For companies that comply with the Popi Act, complying with the GDPR should not be an issue.

◆ Claims teams and legal counsels will increase in value as D&O exposures evolve and increase, and experience is critical at these “moments of truth”.

Nobuhle Nkosi is a D&O expert at Allianz.