Does D&O do justice abroad? It is no small order to have sufficient coverage for your executives in businesses outside the U.S.

AuthorZacharias, Carol A.N
PositionRISK MATTERS

NOT LONG AGO, foreign directors and officers of U.S.-based multinational organizations could rest assured that their potential management liability paled dramatically in comparison to that of their American counterparts. As recent regulatory activity and litigation indicates, this assurance is now misplaced.

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In the wake of the financial crisis and several financial scandals, dozens of countries have passed or amended laws that more clearly set forth the duties of directors and officers, increase their standard of care, and require attestations as to the effectiveness of the organization's internal controls over financial reporting and disclosures. New risks have been created from new laws, e.g., rules to prevent bribery and money laundering. And in some countries, new laws are on the books to permit class actions and derivative actions to be filed.

Corporations are indeed in the crosshairs--some countries have implemented corporate manslaughter laws, and in others new litigation-funding companies have been created to fund a plaintiff's fees needed to pursue a case. Meanwhile, new courts have been created solely to hear cases involving financial transgressions. Not surprisingly, historical deference to management has eased, and directors are being held to greater account for actions that contribute to a company's problems.

Recent years have witnessed a rise in civil actions, such as securities-related actions in the wake of the financial crisis. Much more numerous are the number of criminal and regulatory proceedings against executives around the globe, accompanied by considerable publicity and consequent reputational fallout.

In the face of this rising litigation, ex ecutives in the United States would expect and generally receive corporate indemnification, based on permissive state codes. That is not the case for executives in companies outside the United States, however. Some countries do not permit corporate indemnification, some allow for more limited indemnification as found in the United States, and others are silent on the issue of indemnification.

Increasing liability in the face of unclear or limited indemnification makes directors and officers liability insurance of paramount importance to executives of companies organized outside the United States. Nothing new here, but the linchpin to this protection is local compliance.

Dozens of countries require that local companies, including subsidiaries of U.S.-based...

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