Some managers can go through their entire career without so much of a mild disagreement. Unfortunately, many others won’t be so lucky and may encounter the full brunt of an investigation or lawsuit. Below, we take a look at what it feels like to be held personally liable for your actions.
When discussing directors and officers liability, insurance professionals are often quick to point out the importance of being protected by a good insurance policy. Conversations generally focus on how claims arise, how much it can cost to defend them, and why purchasing D&O insurance is an ideal solution.
While there is certainly nothing wrong about this line of discussion, often the personal implications of D&O litigation aren’t conveyed very well. That is, what being held personally liable means for an executive and their family, and how such a situation will affect their life.
Because the reality is, that if an executive is confronted with an investigation into their actions or a fully-fledged lawsuit, the journey is likely to be one of the most stressful experiences of their professional career.
What does it feel like to face a claim?
So what does it feel like to confronted by a claim? As an executive is guided through the legal process of defending a claim, they are likely to experience months (or years) of uncertainty, anxiety and fear, as sleepless nights become the norm.
They will work closely with lawyers to recount their version of events, spending countless hours responding to queries and providing documentation to support their position, all to explain how and why they made the decisions they did.
Whether they believe that they are guilty of the allegations made against them or not, executives are required to undertake the necessary and often expensive steps to defend and settle any claim made against them. Unfortunately, this may also include claims that they believe are unfounded or frivolous, as these incidents must be treated with the same seriousness as those with merit.
While not too many company executives speak publicly about their experiences, there have been a few people that have described the process in a commercial setting. Internet expert, Neil Patel, posted about what it’s like to face a class action, while Matt Warren, the owner of an online retailer, was interviewed about how it felt to be sued by some of the world’s largest watch companies.
Either way, it’s certainly not a pleasant experience. Even if you’ve been given tips on how to cope with it.
Enjoying the article?
You’ll love The Beginner’s Guide to D&O. It includes everything you’re reading and much more.
Alright, let’s take a look.A long, tedious process
The claim process will take its toll financially and emotionally, on the organisation and the executives involved. As a claim is defended, legal expenses will begin to mount. Even moderate claims can involve thousands of dollars of fees, per executive involved.
Lawyers are required to be paid throughout the duration of a claim. If an executive is lucky, these costs may be passed onto their organisation or an insurance company. Otherwise, the funds will need to be sourced through personal means.
Financial risks
If an executive has no financial support, their personal assets are at risk, as they draw down on private resources to fund the costs associated with defending and settling a claim. This leaves an their wealth exposed to the outcome of proceedings, which adds stress to an already unpleasant experience.
In these situations, once personal savings have been depleted, an executive will need to consider other forms of financing and necessary sacrifices. To fund proceedings, they may cut back on discretionary spending, take out a loan, or even consider selling personal assets such as the family home.
It’s not all about the money
While the financial implications of personal liability are certainly nothing to shirk at, the emotional effects can be just as devastating. Being at the centre of a claim places an executive in an extremely difficult position, and the subsequent challenges will be felt throughout their daily life.
Personal and professionals relationships will be strained, as executives lean on the people around them for support. Additionally, due to their involvement in a dispute, they may suffer reputational damage, especially if the details of the incident receive unwanted media attention.
By the time a claim reaches conclusion, either through successful defence or by reaching an agreed settlement, the entire process may have taken years. As many grievances are resolved through mediation and other methods of dispute resolution, the claim may never see the inside of a courtroom.
If a claim requires court adjudication the process will be longer and even more expensive; probably adding an extra year or two of grief, and a few more zeros to the overall cost of the claim.
