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Archive for category: Directors and Officers Liability


Securities Class Action Lawsuits Against Life Science Firms on the Rise


Executive liability is a large threat for all sizes of technology and life science firms.  In addition to litigation damages and expenses, companies face distractions, and loss of corporate opportunities.  Although a comprehensive executive liability insurance policy will go a long way towards reducing the exposures, they face greater exposures if they have no risk control practices in place.

Reviewing the Claims Data

Upon the release of this year’s Dechert Survey of Securities Fraud Class Action Lawsuits, many Life Science firms have been forced to take a closer look at their risk avoidance strategies. The Survey showed that securities class action lawsuits against life science firms have continued to rise steadily since 2011. 

The survey showed that in 2012, 27 pharmaceutical, bio-technical, and medical companies faced security suits. This number represents over 18% of all securities suits filed during the year of 2012. During the year of 2011 only 17 companies experienced securities suits, reflecting a total of 9% of total securities claims. This information shows that from 2011-2012, securities claims nearly doubled.  Unfortunately, small cap Life Science firms continue to be targets for suits. Those with market caps under $250 million made up 50% of all claims against Life Science firms. In comparison, the survey showed in 2011 these firms accounted for 58% of total claims. 

Over 43% of the total claims dealt with misrepresentations of products and product safety.  In addition, insider trading still appears to be a common part of most of the complaints that are filed.  It is important to develop a comprehensive Directors and Officers Liability program that includes a solid risk control program. Smaller companies must be especially vigilant as the studies show they are at the highest risk.

Directors and Officers Liability and Risk Control

D&O insurance is designed to protect against claims made against them while serving on a board of directors or as an officer.  These policies are written on a claims-made basis, usually contain no duty to defend policy language and the scope of the coverage, pricing and underwriting criteria can vary. 

When a Life Science firm includes risk control into their comprehensive D&O program they can do a lot to reduce the threat of D&O claims.  D&O loss control programs specifically tailored to their company Includes risk control in areas of securities trading, antitrust compliance, financial integrity, managing conflicts of interests, bribes and kickbacks, board appointments and behavior, misappropriation of corporate assets and confidentiality. The goal of any D&O loss prevention program is to sensitize the company’s executives to exposures and place policies and procedures to minimize the exposures.

Working with a TechAssure Association member can help you develop a comprehensive D&O program.  A TechAssure member will help you customize an insurance plan, which will work seamlessly with your risk control strategy.  Please contact us for more information on how a TechAssure member can help your firm.



High Growth Firms, Board Governance and Leadership Succession

Board governance is one of the most important elements in high-growth firms. We often get a wide range of questions on managing risks in high-growth organizations. Adopting risk management best practices early in the development of an organization can put your firm on the path to accelerated growth. If done correctly, high-growth firms have the ability to continue along their successful growth path.

The issue of board governance often comes up as high-growth firms establish their risk management program. Board governance is what really keeps your business moving and growing. Therefore, you must give leadership succession a very high priority. These leaders will move your company forward or backward, depending on their skills and understanding of how your firm operates.

The best way to prepare for succession is for the board to hold several discussions every year about who the best choices for new leaders are. They need to make an effort to get to know these candidates personally and observe how they react in crisis situations. They should also create assignments that will prepare candidates for possible future roles.

Without preparation for leadership succession, board members and investors may find they lack confidence in their inside choices. In such cases, many companies will tend to fall back on outside hires. This isn’t always a good approach, because while the new hires may look good on paper, they often lack the inside knowledge of your company that is necessary for making a smooth and long-term transition. Boards should instead hold leadership succession planning meetings to keep track of candidates and their progress in gaining the needed experiences that will prepare them for their new positions.

High-growth firms should include board governance and leadership succession in their risk management planning. These long-term goals can help prevent potential serious losses resulting from a disruptive transition in leadership. For more tips and strategies on risk management planning for high growth firms, please contact one of our TechAssure Association members today.


Pointers for Technology Firms that are Establishing a Board of Directors

As your company grows, the time may come when you are in need of guidance and direction from a team of experts. Consider the areas of your business where you lack expertise and need some direction or input to continue your company’s growth. Establishing a board of directors may be the solution to maintaining growth and establishing sound direction.

The board of directors, serving as a company’s governing body, is responsible for the overall management of the business. They set policies, establish long-range goals and approve operating budgets, as well as evaluate and hire key managerial staff. Though they are not required to know everything about your specific business, they are required to act responsibly as they carry out their duties.

Establishing a board of directors for a technology firm can be difficult. At times, a less mature technology firm could take many different directions. However, there are some important points to consider when putting together a board.

• Provide a job description for each potential member of the board. It is vital that prospective board members have a clear understanding of what is expected of them and what their responsibilities will be. Without a job description clearly laying out was is expected, the board is sure to be unproductive.

• Be patient when establishing a board of directors. Proceeding carefully gives you the opportunity to learn more about the individuals you are considering, and decide if their motivation to join the board is compatible with your company’s agenda.

• Look beyond your inner circle. It is crucial to recruit the best talent available when creating a board. While you may know people with the skills you require, they may not have the right expertise or experience.

Establishing a board of directors can be beneficial to your technology firm in many ways. Besides bringing expertise and know-how, a board of directors can provide instant credibility to an organization. Having an independent body overseeing auditing procedures and eliminating potential management abuse and fraud can be very attractive to potential investors.

Once your board is in place, your company is properly positioned to go to the next level. However, it’s important to recognize that with a new business structure comes new risks. The members of TechAssure Association can help you manage your management liability exposures. They have the knowledge, tools and expertise to help you respond to a wide range of risks that face your board members. Please give us a call for more information.


Considering a IPO? Don’t Wait to Adjust Your Directors and Officers Coverage



As with any business decision, the decision to offer an Initial Public Offering is an important one that should be carefully considered. When done correctly, an IPO can boost to the company and propel it to even greater heights.

The benefits of an IPO are broad:

  • Fresh liquidity
  • Cash infusion
  • Growth in trust for the company

The fresh liquidity and cash infusion go hand in hand. By offering shares of ownership in the company, investors come in to provide cash to help grow operations. In return, they receive a piece of the company and its future profits, and that activity can lead to greater trust from the public. Giving the public a stake in the company means that they also now have a vested interest in the growth of the operation. That is always a benefit.

There are two types of companies that are in the best position to consider an IPO in today’s market. These are companies that are either larger (approximately $500 million in sales per year) or are growing fast. Companies of these types are most likely to grab enough attention from early investors to make an IPO worthwhile.

Our advice is not to wait until filing an IPO to think about your Directors and Officers Liability program. Generally, a D&O liability contract provides security and certainty to directors and officers by providing certain coverages to protect their risks. It is important to know that purchasing some Directors and Officers coverage as a private firm can position you to build a solid D&O program as you transition from being a private company to becoming a public firm. The coverages under a D&O policy are not universal, but establishing a relationship with the insurance underwriters before an IPO can help you develop an innovative program with clearer policy wording and leverage to receive the most favorable premium.

If your firm is seeking more guidance on planning and preparing an IPO, please contact us today. A TechAssure Association member will begin working with you to transition your insurance and risk management program as you move to public company status.


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.


Ten Tips for Establishing a Board of Directors that Will Ensure Your Company’s Growth

Establishing a board of directors helps take your business to the next level. As a company grows, one may find it needs a board to keep the company running smoothly and efficiently. Being an entrepreneur, it is satisfying watching your company succeed, here are some tips to help you decide how to form the board of directors perfect for your firm.

  • Always plan for the long term. Recruit directors you feel will make it a priority to further company growth.
  • Root out the potential leader. During the establishment of your board, there will be an individual who stands out from the rest as your right hand man or woman. This individual should be a natural leader with exceptional governance skills. If possible this individual should be trained or chartered by the National Association of Corporate Directors
  • Create clear and concise job descriptions for each member. Executive and non-executive directors should have a clear idea of their responsibilities. These job descriptions should help the board tackle issues directly and strategically.
  • Each member should be and integral part of the team. Each should be diverse and well versed in their field of governance, but also be able to work well in a team environment.
  • Pick those who are not afraid to disagree with you on certain issues. Each individual should not be afraid of conflict and should be able to challenge certain decisions they feel will be damaging to the company. The board is not there to agree with you %100 of the time, they are their to help the company exceed expectation.
  • Seek consensus on all issues presented to the board. After discussion, presentation, and analysis, the board should be able to come to important decisions in matters of importance. Majority rules.
  • Be clear about each individual’s specific role on the board and allow each to stick to his or her position. For example do not combine or confuse CEO and the chairman as one in the same; delegate accordingly.
  • Respect the Hierarchy established on your board. It is the board’s collective wisdom and enhanced discipline that will get the job done and your company growing.
  • Always seek expert advice. If you need help deciding on how your board should be set up, don’t be apprehensive about asking for help.

In this tough economy, it is the professionals at TechAssure that understand that it is the entrepreneur who will keep America’s economy on track. Contact a TechAssure member to learn more about the insurance products and services we provide in management liability. Let us help you keep your business growing.