Many owners and managers of small or private businesses believe that directors and officers (D&O) insurance is only for publicly traded or listed companies. This is not true, and the misperception could prove to be a very costly exercise, both personally and professionally.

There are many external and internal exposures within a small or privately-owned business where management can be held accountable - including misuse of company funds, misrepresentation of company assets, fraud, failure to comply with labour laws, corporate governance failures, data breaches of sensitive employee or client information, among other issues. A business of any size will usually have officers and directors who can be targeted by litigants over their management of company affairs,” explains Rendani Mulaudzi, Client Service Manager for D&O Liability at Aon South Africa.

Directors and Officers liability claims affect directors, officers, managers and employees serving in a managerial or supervisory capacity in a company of any size ranging from large to small, public and private, even non-profit organisations and membership associations. They all need comprehensive cover for liabilities that could arise from them being held liable for wrongdoings in conducting their managerial responsibilities.

“In fact, statistics over the last decade show that D&O claims against privately-owned SME businesses and non-profits are as prevalent as they are in large listed entities, yet research by Datamonitor suggests that 70% of SMEs do not have any D&O cover despite the increased regulatory scrutiny and litigious nature of society,” adds Rendani.

Here are the most important reasons to talk to your professional Aon broker about Directors and Officers cover:

• Typically, in private companies, the directors often invest their own personal wealth in the business, which means their net worth is directly tied to the financial health of the company. Defending a claim without D&O cover could directly impact your family’s financial security and personal assets and is a costly undertaking.
• D&O claims are stressful and long-tailed, with the legal process often taking years to come to conclusion. This can distract the directors from running the business effectively. Having access to quality attorneys with the relevant knowledge and expertise to defend you will give some comfort in these trying times.
• Bad business decisions are likely to be more visible in a poor economic environment thus attracting the increased attention of shareholders and other third parties who are looking to recover losses.
• Unforeseen and unexpected investigations by government and regulatory agencies can generate enormous defence costs even if no wrongdoing is found.
• Bankruptcy situations can lead to claims by lenders, creditors and bankrupt trustees.
• D&O insurance takes care of costly defence costs, thereby ensuring that a company’s cash flow remains unaffected. The cost of defending corporate lawsuits may exceed the net worth of most private companies. In some cases, the company may not be able to pay the defence costs as it may be prohibited by law.
• A comprehensive D&O program can attract good talent on the board of directors of the company.
• Directors and managers may be held criminally liable for the death of staff members if accused of not providing a safe work environment. A D&O policy will provide defence cost to protect you.
• Cyber breaches are an ever-growing risk. Should directors be held liable for a breach that affected the share price, they could be held liable by shareholders or a third party who feels that the directors did not have the necessary security in place to protect their information. The policy would respond to protect you.
• If the director or manager is held liable for unfair labour practice the policy would respond.

Talk to a professional Aon broker with a deep specialisation in the D&O liability environment backed with the right D&O cover to protect your directors, officers and employees acting in a managerial or supervisory capacity. Aon has driven the progression of Directors’ and Officers’ (D&O) liability insurance for over 20 years and developed many products that are now accepted industry standards. Globally, Aon places more than $2.6 billion in D&O liability premiums annually. By drawing on our global capabilities, reach and professional expertise, Aon is supremely positioned to advise you in protecting your business, reputation, personal assets, colleagues and financial sustainability with appropriately scoped D&O cover coupled with risk mitigation strategies.