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5 Tips to Avoid Directors and Officer Liability Claims

Directors and Officers of private firms can be held personally liable for a host of activities, including misuse and misappropriation of funds, knowledge of illegal acts, supplying improper loans, fraudulent activity, and transactions or decisions that have not been approved by the bylaws of the corporation. This is why it is important to not let things like informality and a lack of prudence in your decision-making process creep into your boardroom.

Here are five tips to help you and your firm avoid D&O claims:

1. Follow the Rules

Board members are required to know and understand the company’s bylaws. Make the bylaws available and easy to access for everyone involved. Follow all voting and election policies and procedures.

2. Keep Bylaws Current

Stay on top of any changes and conduct semi-annual reviews of all governing documents. Review any law changes with a lawyer to understand the impact they may have on your organization. Be sure to always have the bylaws memorialized and amended properly to avoid confusion.

3. Hire or Elect Responsibly

Be sure that those who are new to the position know without a shadow of a doubt what their position entails and provide them the training they need to discharge their duties. Require them to read all bylaws before their position begins. Whenever you hire or elect someone new, it would also be a good time to refresh all board members as a group on all of your bylaws.

4. Practice Good Record-keeping

Document board minutes accurately and precisely so that there will be no question as to what was discussed. Record communications with everyone involved with your day-to-day business (members, vendors, insurers, etc.). Keep concise financial records, and always be sure to log complaints and responses for future reference.

5. Stay Professional and Unemotional

Avoid personal conflict and clashing personalities, because not only can these actions lead to future problems, they can also cause you to lose a great deal of valuable time better spent on your core operations. Ensure that all procedures are followed and that every member is heard and respected. Operate like a responsible business and keep it that way.

Though these preventative measures can only assist you in avoiding a claim, the bottom line is that claims will happen, and when they do, having accurate information and all the facts available to give to the insurer is imperative for risk management and a quick resolution of situations and claims. For more information on how to protect your firm from D&O claims, please contact a TechAssure member.

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