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Canadian directors worried about lawsuit risks
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Contact:
Daniel Shapiro, CIBC Centre for Corporate Governance, 604.291.5155, dshapiro@sfu.ca
Keith Old, Bishop Phillips, 604.899.1750, oldk@bishopphillips.com
Daniel Shapiro, CIBC Centre for Corporate Governance, 604.291.5155, dshapiro@sfu.ca
Keith Old, Bishop Phillips, 604.899.1750, oldk@bishopphillips.com
July 10, 2006
Canadian directors of TSX-listed companies say they face a high risk of potential lawsuits from shareholders and institutional investors around issues related to financial accounting disclosure and fraud. What’s more, one-third report that insurance companies offering directors’ and officers’ (D&O) insurance have denied their claims, a much higher rate than U.S. companies.
The CIBC Centre for Corporate Governance and Risk Management at Simon Fraser University’s Segal Graduate School of Business recently surveyed directors’ attitudes toward risk, the nature of the risks they face, and their practices regarding risk management and insurance.
The survey, the first in Canada in 10 years to examine D&O insurance, polled all TSX-listed firms. Seventy percent of respondents were board chair, the CEO, or both.
Respondents say they expect that changes in Canada’s business environment will result in more litigation and mounting legal costs, with the greatest potential claims arising from inadequate or inaccurate disclosure. Respondents say their greatest claimant risk is large institutional investors, which runs counter to the situation in other countries, where the risk from institutional investors is quite low, according to centre director Daniel Shapiro.
Four insurance companies currently provide the majority of D&O coverage and many TSX-listed firms use more than one insurer. Over the past three years, 14 percent of respondents reported actual or threatened claims, with one-third of those claims disputed by their own insurance companies.
“That’s extraordinary,” says Paul Reynolds, a director of Bishop Phillips Consulting Canada, a leading risk management consulting firm which commissioned the survey. “The equivalent claim dispute rate in the U.S. is just seven percent.”
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The CIBC Centre for Corporate Governance and Risk Management at Simon Fraser University’s Segal Graduate School of Business recently surveyed directors’ attitudes toward risk, the nature of the risks they face, and their practices regarding risk management and insurance.
The survey, the first in Canada in 10 years to examine D&O insurance, polled all TSX-listed firms. Seventy percent of respondents were board chair, the CEO, or both.
Respondents say they expect that changes in Canada’s business environment will result in more litigation and mounting legal costs, with the greatest potential claims arising from inadequate or inaccurate disclosure. Respondents say their greatest claimant risk is large institutional investors, which runs counter to the situation in other countries, where the risk from institutional investors is quite low, according to centre director Daniel Shapiro.
Four insurance companies currently provide the majority of D&O coverage and many TSX-listed firms use more than one insurer. Over the past three years, 14 percent of respondents reported actual or threatened claims, with one-third of those claims disputed by their own insurance companies.
“That’s extraordinary,” says Paul Reynolds, a director of Bishop Phillips Consulting Canada, a leading risk management consulting firm which commissioned the survey. “The equivalent claim dispute rate in the U.S. is just seven percent.”
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