Firms slow to respond to Corporate Manslaughter Act - Chartis

Companies could be laying themselves open to directors’ and officers’ (D&O) claims by failing to bolster their corporate governance policies in response to the Corporate Manslaughter Act, according to Chartis Insurance UK.

Chartis polled the 130 clients and brokers that attended its 13th annual corporate governance seminar on Thursday for their views on the changing risk environment. To find out how firms were responding to the first company being charged under the Corporate manslaughter Act, Chartis asked delegates what actions they were taking. Only 18% said that they are making changes to their corporate governance processes, while 40% said they are keeping a watching brief.

“It is notable that, more than a year after the first company was charged under the Corporate Manslaughter Act, half of those who responded to our questionnaire are still either taking no action or keeping a watching brief,” said David Walters, vice president, financial lines, Chartis. “This raises the spectre of possible future D&O claims if companies do not already have robust corporate governance processes in place.”

When delegates were asked to name their biggest concerns, the majority (68%) said that investigations by official bodies such as the Financial Services Authority (FSA), Health & Safety Executive and Serious Fraud Office (SFO) were their overriding concern. This was followed by actions by shareholders (22%), and insolvencies (7%).

“Regulatory investigations are a genuine cause for concern, particularly in the UK where the OFT, the FSA and the SFO are increasingly active,” said Walters. “Significantly, as these bodies get more active, they are pursuing individuals as well as their companies with the possibility of fines and even imprisonment.”

Chartis also asked delegates what is keeping their boards awake at night. The main concern for 42% of the respondents was being covered for all the boards on which they sit, while 39% mentioned their insurance being compromised by the actions of other directors as the chief worry.

When attendees were asked to rank certain key risks in order of importance to their businesses and directors, regulatory risks emerged as the clear winner, followed by reputational risks, environmental risks and employment issues.

Chartis also asked delegates to state the number of exclusions in their company’s D&O policy. Sixty-two percent of respondents did not know, 22% had between 6 and 10, 12% had 11 to 15, while 5% had more than 20.

“From the beginning, underwriters had a very broad view of what was included in a D&O policy, and then shaped it by adding in specific exclusions, so it is not unusual to find upwards of 20 exclusions in a single policy,” said Walters. “We believe that this needs to change and are always looking for ways to include more for our clients, to give them greater certainty.”