Potential Board Members Beware!

By John Riley

Over the past five years, I have had an opportnity to join a Company Board of Directors on three occasions. Usually, I have responded quickly and decisively in the negative. However, I reluctantly accepted the last offer because of friendship and now I want to be replaced.

Boards, as you know, have been under attack  by stock holders and the media almost consistently for several years. And you also know that nearly all companies pay directors to serve, but much more importantly, the companies need to provide Directors and Officers (D & O) Insurance, whose cost is usually in the stratosphere. Otherwise, the companies would find it much more difficult to recruit Board members.

In my situation, the companies were medium to small size and finding the money to pay for D & O insurance was a problem. So I declined their offers. In today’s environment, it would be foolhardy to serve without the protection of D & O liability insurance.

A person  assumes a level of responsibility for the organization (“duty of care”) when they become a Board member. This exposes him or her to claims of mismanagement  for not running or managing the company in an acceptable manner.

Two categories of claims are the most frequent: bodily injury (physical harm) and non-bodily injury.(such as mis-management of funds,  termination or discrimination)  Bodily injury accounts for the most claims, but they are not covered by D & O insurance. Non-bodily injury claims are.

My friend asked me to serve on her Board and I agreed to do so temporarily. She wanted to fill the slot with a family member, but she had already appointed two family members and there was no one else to turn to…except her consultant.  Now I am waiting for her to find someone to serve and then I will bow out. 

Ironically, there have not been a plethora of reported cases, but there have probably been cases settled out of court and others dropped. So when you are asked to serve on a Board, be sure that D & O insurance is present and accounted for.

Explore posts in the same categories: Management

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