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“US Executive Working Abroad Faces Charges Related to Protection Scam and Bribery”
This headline means much more than embarrassment for the American company in its overseas operations. It means exposure to enormous financial liability if the foreign court finds the executive culpable, along with associated defense costs, even if the court finds the executive innocent of the charges.
The facts in this case: An organized crime syndicate abroad approached the US manager in charge of quality control and told him that insider local employees would sabotage product quality unless the manager paid the syndicate a significant amount of money. The executive consulted his company’s local insurance representative, who contacted local authorities. The local agent asked for a reward prior to providing assistance. Unsure how to proceed, the company agent took this demand to his executive and both now face charges. In addition, the company now faces negative publicity, operational delays, increased scrutiny and legal charges.
Perhaps this specific scenario could not happen to your executives based overseas; nevertheless, all businesses operating in foreign countries face difficult and growing challenges regarding their global Directors & Officers (D&O) policy protections. These include increased scrutiny from boards, lenders and stakeholders, as well as volatile and sometimes adverse legal and regulatory environments. In the first part of this two-part article, we’ll explore the current challenges facing organizations’ directors & officers while the second part will address how an independent risk adviser can help minimize risk and provide senior leadership of the firm with piece of mind.
Two Main Risks for Directors and Officers
Two main risk areas are emerging for a company and its directors: management liability risk and compliance risk. Both, ultimately, threaten an organization’s personal assets. Management liability arises out of exposures resulting from financial activities and employment practices. Compliance risk includes ensuring that an organization observes laws, regulations, contractual obligations and customs in each jurisdiction it operates.
The above example highlights just one of the many dangers business expatriates face when operating abroad.
A Global Risk Management Perspective is Vital
D&O has received a great deal of press lately. The complexities associated with implementing a true global D&O program that will not run afoul of local regulations cannot be underestimated. Any kind of non-compliance can lead to costly fines and taxes or to the loss of coverage for foreign executives.
A recent survey conducted by Advisen, Ltd., revealed the 10 costliest securities class-action cases overseas. These case values ranged from $63.2M to $396.4M clearly illustrating apparent need for a program that adequately protects multinational companies.
Structuring a global program that effectively mitigates risk and protects company’s directors and officers is as much an art as it is a science. As part of our risk review we examine local admitted requirements and how the law defines the roles and obligations of director and officer. This is important as certain countries can hold officers personally liable for their acts which could, in turn, affect the entire organization and land an officer in prison.
At ALS, we stay current on any changes in political, insurance and economic environments for the countries in which our clients operate, thus providing their leadership with transparency they need to make informed business decisions.
About The ALS Group
Albert L. Sica is the Founder and Managing Principal of The ALS Group, an independent insurance and risk management consulting firm focused on helping their clients reduce insurance and risk related costs. E-mail Al at asica@thealsgroup.com, or call (732)395-4251 for more information.