Head honchos are feeling the heat.
That’s according to Price Waterhouse Cooper’s study which has found that an increasing number of CEOs are getting fired because of ethical lapses like scandal or improper behaviour. Heads of companies were dismissed 36% more for unethical behaviour during the 2012 to 2016 period than from 2007-2011.
The study points to a heightening risk profile – something a good D&O policy will respond to, according to Dario J. Nalli, director of executive lines at Burns & Wilcox.
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“D&O policies will defend the leadership team in situations where their management actions are called into question,” Nalli said. “When leaders leave organizations, it does not change how D&O policies respond. Oftentimes, a senior executive will step down after a major scandal to try to distance themselves from the issue.
“Coverage is not affected, and the D&O policy will respond to cover defense costs incurred by the organization and individual members of leadership, whether or not they were involved in the scandal. Most D&O Policies have a severability clause which allows the policy to respond to defend leadership who were not party to fraudulent acts, but bars coverage for the director who committed them.”
“Essentially leaders never know when someone might come to the table with a claim that management decisions are poor, which is why D&O is so important,” added Nalli. “Leaders should well-document themselves in all major decisions and provide good business cases for decisions made.
“For example, if new software is being implemented that is critical to a business process or the security of the company, the proper research and due diligence should be performed with the new software provider. We actually see more claims against non-profits than against private companies, in part because non-profit boards are often staffed by volunteers and typically lack traditional management experience.”
Despite the seemingly rapid rise, CEOs being dismissed for morality-related reasons still only accounts for 3.9% of all successions and overall CEO turnover is down from 16.6% in 2015 to 14.9% in 2016, due to a decline in mergers and acquisitions.
Price Waterhouse Cooper’s report analyzed the incoming and outgoing leaders of 2,500 of the largest public companies.
