NATIONAL POST: D. Udo Nixdorf, Financial Post

The growth of Directors and Officers Insurance is a cornerstone tool to improve corporate governance, which is necessary to satisfy the demands of corporate and organizational stakeholders and legislatures alike.

The old-time boards of directors are often pictured as a cozy group of insiders who were theoretically entrusted to look out for shareholders and provide objective diligence on the actions of management. But in practice, many may have had a hard time doing so. Dissatisfaction led to both federal and provincial legislation that made directors personally vulnerable for certain organizational economic losses.

Currently, more than 160 separate statutory provisions in Canada impose personal liability on a corporate director, many without requiring wrongdoing or fault, even a breach of a standard of care or bad faith. For organizations to attract quality directors, directors need protection, especially since directors fees are completely out of proportion to the risk and liability they assume.

Directors and Officers Insurance, introduced some 20 years ago, protects directors from legal actions or suits regarding management decisions of which they may not even be aware. Certainly they need protection for liabilities such as wages, accrued vacation pay and taxes that the organization cannot pay. Stakeholders today are demanding, even threatening legal action to get improved governance.

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