Your business is undoubtedly familiar with the nuts and bolts of your disaster recovery plan due to the current pandemic. It’s a much-changed landscape for risk. So how can you use your insights to better plan for the implications of possible management liabilities in the current climate?
Management liability exposures include, but are not limited to:
- Allegations of mismanagement
- Employment Practices (harassment, wrongful dismissal, etc.)
- Crime (employee fraud or dishonesty third party crime, etc.),
- Statutory Liability (can include fines & penalties related to OHS workers compensation, etc.)
- Tax Audit Costs (the costs associated with receiving a tax audit)
- Identity Fraud Expenses (obtaining new documents, etc.)
Ongoing management liabilities
Not managing risks appropriately will expose your company’s directors and officers to claims against their decision-making and disaster planning. Added to this is the increase in reporting obligations about how your business maintains its resources to deal with the unfolding crisis. This will also include the strategic planning on how the pandemic will affect financial performance.
So here’s how to build on your recent experience with supply-chain disruption, fickle or reduced consumer demand and public health orders impacting upon your workplace and its operations.
Risks to directors and officers
As a manager, owner, director, or officer of a company, here are some of the ongoing challenges you’ll need to consider as part of usual operations:
- Disseminating false or misleading information
- Not supervising your employees
- Breach of privacy and confidentiality
- Having patchy communication to staff
- Struggling with inadequate processes for staff to access company servers and systems to keep your business humming while key staff have to self-isolate
- Failing to manage and monitor workplace health and safety as per laws and regulations, including when staff work remotely
- Not offering alternative technology to communicate with clients when face-to-face meetings aren’t an option
- Risking your business reputation if you haven’t increased your cyber resilience capabilities when staff work off-site.
You may believe your contingency plans and management responses are adequate, but your staff, customers, investors, shareholders, and even regulators may question the adequacy of your leaders’ plans and responses. Public companies are subject to continuous disclosure laws and you’re compelled to comply with them where necessary or face legal risks regarding financial and non-financial issues.
This checklist of considerations may help:
- Impacts of capital raising and corporate transactions from the pandemic and risk disclosures
- Effects on your company’s financing arrangements
- Less revenue and customer numbers due to cancelled events if you’re in the tourism, retail and entertainment sector
- Business operational changes to comply with social distancing rules
- Impacts on contracts, such as force majeure clauses, financial covenants and material adverse change conditions for sales
- Complying with laws and regulations for health security, employment and workplace safety.
That’s where directors’ and officers’ (D&O) insurance policies (or management liability policies for private companies) can help protect against the risks of doing business. This offers cover for claims brought against a company’s directors or officers for wrongful acts committed or allegedly committed in the course of their duties. It’s yet to be determined if insurance policies will respond to COVID-related events.
Typically, D&O policies cover wrongful acts committed – or allegedly committed – in their capacity as corporate officers. They are designed to protect company directors’ and officers’ personal assets.
However, this policy generally won’t cover:
- Bodily injury such as from COVID-19
- Dishonesty or misconduct where directors and officers are in wilful breach of a statute, acting dishonestly or fraudulently, even ‘wilful blindness’ to COVID-19 laws, and
- Trading while insolvent.
Management liability policies are broken down into several sections that cover off a range of risk exposures involving the directors of private companies. Generally, a management liability policy covers risk relating to statutory liabilities, workplace health and safety and employment practices.
The pandemic also has insurance implications for business interruption and continuity, travel insurance, among other areas.
Protect your business with these extra measures:
- Establish processes so your board, staff and operations can comply with the ever-changing regulatory context
- Report suspected COVID-19 outbreaks promptly
- Refine your business continuity planning, incorporate your lessons from managing the impact of COVID-19 on your operations
- Proactively manage risk and regulatory compliance with clear reporting lines within your business.
We can also keep you up to date on government and regulators’ changes of reporting requirements and procedures. It’s time to review your insurance cover and update us about any potential claims.