Recent court decisions, including one involving Mainzeal, have set legal precedents that have spilled over into corporate governance. Photo: CC BY-SA 3.0 / Schwede66
- Legal, economic and litigation uncertainties are increasing risks for directors.
- Directors and officers insurance (D&O) claims are expected to rise.
- Ninety-five percent of directors now have liability insurance.
- Climate and AI risks are a new frontier.
Company and organisation directors are facing a growing storm of risks driven by legal uncertainty, rising company liquidations and the rise of litigation funding according to a new report from the Institute of Directors.
The D&O Insurance- the Shifting Sands of Risk report said claims were likely to increase in the future, and the recent fall in the cost of directors and officers liability (D&O) insurance appeared to have bottomed out.
Recent court decisions involving Mainzeal and Whakaari/White Island have set legal precedents that have spilled over into corporate governance, particularly in the fields of health and safety, climate change and the use of artificial intelligence.
"From boardrooms to courtrooms the expectations on directors have expanded significantly," the institute's general manager Guy Beatson said.
He said uncertainty was being fuelled by how the 30-year-old Companies Act would relate to solvency and the duties and personal liabilities of directors.
The Act is due for a review and make over to bring it up to date.
Beatson said directors of incorporated societies, non-profits and trusts, were also at risk.
And the rise of class action litigation funding, as seen in the current high-profile action against ANZ and ASB, presented another legal risk, regardless of the merits of the case.
Beatson said the risks and uncertainty have resulted in directors loading themselves with more liability insurance, with about 95 percent of board directors covered.
Such insurance paid the bulk of the penalties imposed on the Mainzeal directors after the company's collapse.
The list of risks is also growing - ranging from decisions about trading and insolvency, responsibility for managing and assessing climate risks, natural disasters, and now artificial intelligence and whether boards have put in sufficient safeguards and human oversight.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
