Alex Wanj ohi Alex Wanj ohi Managing Director, Uganda Managing Director, Uganda
Directors & Officers (D&O) Liability Directors & Officers (D&O) Liability ( ( ) ) y y • Management Liability M M Management Liability Li bili Li bili
What is D&O (Management) Liability? What is D&O (Management) Liability? ( ( g g ) ) y y Legal responsibility borne by organisations’ Legal responsibility borne by organisations’ directors, senior managers & officers directors, senior managers & officers arising arising from decisions and actions taken (or not taken) from decisions and actions taken (or not taken) whilst managing the organisations’ business. whilst managing the organisations’ business.
Sources of Management Responsibilities Sources of Management Responsibilities • Statutes Statutes • Regulations Regulations g • Case Law (Largely Common Law) C Case Law (Largely Common Law) C L L (L (L l C l C L L ) )
Responsibilities (Duties) of Management Responsibilities (Duties) of Management • Duty of Care & Skill Duty of Care & Skill • Fiduciary Duty • Fiduciary Duty Fiduciary Duty Fiduciary Duty • Statutory Duty Statutory Duty
Aggrieved Parties in Aggrieved Parties in gg gg Management Liability Claims? Management Liability Claims? Organisations’ Stakeholders, i.e., Organisations’ Stakeholders, i.e., • Shareholders Shareholders Shareholders Shareholders • Creditors Creditors • Government & regulatory bodies Government & regulatory bodies Government & regulatory bodies Government & regulatory bodies • Employees Employees • Auditors Auditors Auditors Auditors • Liquidators Liquidators • Customers Customers Customers Customers • Suppliers Suppliers
Aggravating Factors, the Aggravating Factors, the gg gg g g , , Changing Environment… Changing Environment… • Increasing regulation Increasing regulation • I I Increasing stakeholder awareness Increasing stakeholder awareness i i t k h ld t k h ld • Soaring shareholder demands Soaring shareholder demands • Elevated employee awareness Elevated employee awareness • Success stories Success stories Success stories Success stories • Global village Global village • • ? ? ? … ? … our learned friends the lawyers! our learned friends the lawyers! our learned friends, the lawyers! our learned friends, the lawyers! “No win, no fee” deals… “No win, no fee” deals…
Risk Management for D&O Liability Risk Management for D&O Liability g g y y • Identify Identify – stakeholder expectations stakeholder expectations • Avoid – training, consulting, hiring, … Avoid training, consulting, hiring, … • Control Control – comply, document & comply! comply, document & comply! • Transfer Transfer – Insurance; “small loss today Insurance; “small loss today for an unknown future titanic loss” for an unknown future titanic loss”
Aggravating Factors Aggravating Factors Aggravating Factors… Aggravating Factors… Principle of separate or joint responsibility between Principle of separate or joint responsibility between Principle of separate or joint responsibility between Principle of separate or joint responsibility between directors & officers; and the organisation itself directors & officers; and the organisation itself Personal responsibility of directors & officers for any Personal responsibility of directors & officers for any decisions made and/or actions (or lack of) taken on decisions made and/or actions (or lack of) taken on behalf of the company behalf of the company Risk to directors & officers personal assets Risk to directors & officers personal assets Risk to directors & officers personal assets Risk to directors & officers personal assets Prohibitive defence costs even where a claim fails Prohibitive defence costs even where a claim fails Prohibitive defence costs even where a claim fails Prohibitive defence costs even where a claim fails
Liability Categories Liability Categories Liability Categories… Liability Categories… 1. 1.Awards, judgments, Damages, Awards, judgments, Damages, Settlements Settlements - - against any director / against any director / officer / employee for liability for any officer / employee for liability for any Wrongful Act Wrongful Act 2. 2.Defence Defence Costs Costs
Wrongful Act Wrongful Act Wrongful Act… Wrongful Act… Actual or alleged breach of Actual or alleged breach of care & skill, statutory and fiduciary care & skill, statutory and fiduciary duty, trust, neglect, error, duty, trust, neglect, error, misstatement, omission or breach of misstatement, omission or breach of authority authority committed by a director, officer or committed by a director, officer or employee. employee.
Reasons to Buy/Demand Protection Reasons to Buy/Demand Protection Against Management (D&O) Liability Against Management (D&O) Liability • Personal responsibility for directors & officers Personal responsibility for directors & officers • Unlimited personal liability Unlimited personal liability • Risk of personal assets Risk of personal assets Risk of personal assets Risk of personal assets • Defence Defence costs are expensive costs are expensive • Protection of company assets Protection of company assets Protection of company assets Protection of company assets • Regulatory requirements Regulatory requirements • Operating environment is more litigious Operating environment is more litigious • No protection in bankruptcy/insolvency No protection in bankruptcy/insolvency • The The organisation organisation may refuse to protect you may refuse to protect you • • Attraction of Attraction of The Right Attraction of Attraction of The Right The Right directors & officers The Right directors & officers directors & officers directors & officers • Multitude geographical & regulatory jurisdictions Multitude geographical & regulatory jurisdictions • Listing on securities exchanges Listing on securities exchanges g g g g
False Security Myths… False Security Myths… y y y y Directors have limited liability… Directors have limited liability… y NO THEY DO NOT! NO THEY DO NOT! I don't have a title director, so I can't be held liable… I don't have a title director, so I can't be held liable… , YES YOU CAN! YES YOU CAN! The company can defend me… The company can defend me… The company can defend me… The company can defend me… HOW & WHY? HOW & WHY? ; & NOT IF IT GOES BUST! ; & NOT IF IT GOES BUST! We are only a small company… We are only a small company… We are only a small company… We are only a small company… THE SAME LAWS APPLY! THE SAME LAWS APPLY! They cannot touch my personal assets They cannot touch my personal assets They cannot touch my personal assets… They cannot touch my personal assets… YES THEY CAN! YES THEY CAN!
Historical examples of incidents where Historical examples of incidents where management could be held liable… management could be held liable… Collapse of banks & insurance companies Collapse of banks & insurance companies Collapse of industries Collapse of industries – – airlines, manufacturing, etc airlines, manufacturing, etc Skewed & overpriced development contracts Skewed & overpriced development contracts Destruction of institutions & life, e.g., by fire… Destruction of institutions & life e g by fire Destruction of institutions & life, e.g., by fire… Destruction of institutions & life e g by fire Loss of shareholder (stakeholder) value Loss of shareholder (stakeholder) value Negligent shortage of public services & goods Negligent shortage of public services & goods Import of substandard items Import of substandard items Inflation issues & currency devaluations Inflation issues & currency devaluations
Th Th Thank You & End Thank You & End k Y k Y & E d & E d Institutional Compliance p East Africa East Africa
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