Directors and Officers Liability

Directors' & Officers' Liability

A few years ago, when serving on the board of a company, directors' did not shoulder the same concerns as they do today. The situation has changed dramatically with the introduction of new definitions in fiduciary liability, increased legal responsibility of Directors', public awareness of their rights, hostile business climate where many are asked to be accountable, ramifications of non compliance to such new regulations as Sarbanes-Oxley Act, to name but a few. Added to this is the important increase in the quantum and frequency of claims over the past decade.

The Responsibilities, The Perception

Greater responsibilities are imposed on corporate directors' in most jurisdictions and this, often by statutes such as:

Canada Business Corporation Act, Consumer Protection Act, Retail Sales Act, Corporations Tax Act, Sarbanes-Oxley Act (SOX) and/or its Canadian equivalent, etc.

Add to this the pressure and demands of the stakeholders, the public and the corporations themselves, for:

Greater “best practices” and raised standards.
The need to make sound judgments in the company’s best interest.
Adherence to the disclosure responsibilities now advocated by SOX and/or its Canadian equivalent.
Evidence of transparency.
Execution of corporate governance; and the list goes on.

Other effects:

Scandals of 2002 have a direct impact in the courtroom;
The statistics on the history of this segment (see below).

A violation of their duties could subject the director to personal liability. Whether the Director is actually found at fault or not, substantial costs can be incurred in his defence.