What are the risks of false accusations?
Increased regulatory enforcement leads to increased claims. Even historically good companies that have invested considerable time and resources establishing robust compliance programs are at risk when incentives to serve as a whistle blower are so rich. Compounding this risk exposure is the requirement that a public company must disclose it is being investigated or has received a subpoena. Increasingly, these announcements are triggering hungry plaintiffs’ lawyers to file shareholder derivative lawsuits. Settlements in these cases are becoming larger and larger, resulting in unpredictable drops in a company’s stock price, which can unleash securities class action suits.
There’s no avoiding such risks, as directors and officers cannot diminish the complexity of the business, legal and regulatory environment in which they operate. A company’s ability to attract good, ethical corporate leaders is only complicated by the threat of unfounded legal action. Solutions do exist, as a great deal can be done to protect the personal assets of directors and officers through a combination of strong corporate governance, broad corporate indemnification and a risk transfer program that includes a customized D&O liability insurance program.
What should companies do going forward?
The days of a ‘see no evil; hear no evil; speak no evil’ approach to compliance are over, because what you don’t know can hurt you. As organizations move from a mentality of erratic compliance validation to one that uncovers and addresses risks head-on, several benefits can be realized: improved planning, cost savings from elimination of redundant programs, increased morale and the attraction of top talent.
Best of all, a culture of compliance allows an organization to invest greater quantities of managerial time and resources on business-critical functions, which can only improve bottom line performance.
Edward X. McNamara is a senior vice president at Aon Risk Solutions, a leading risk management and insurance brokerage firm. Reach him at [email protected] or (216) 623-4146.
