Practicing Responsible Climate Policy Engagement in 2022

The 2022 proxy season was another record-breaking year for climate-related shareholder proposals. Shareholders filed 227 proposals, a 51 percent increase from last year, but they also withdrew a record number of proposals after winning commitments from their portfolio companies.

Among those withdrawals were six shareholder proposals that called for companies to report on the alignment of lobbying with the Paris Agreement, underscoring the growing movement among investors looking for insight into whether businesses’ climate lobbying is in step with their climate commitments.

Against this backdrop of successful shareholder and portfolio company engagements, Ceres is refreshing its benchmark assessment of the S&P 100 companies’ engagement on climate policy. A significant majority of companies publicly acknowledge climate-related material risks, and a large majority have governing systems in place for boards to oversee company climate strategy and risk management. Additionally, an even larger majority of companies are setting individual emissions reduction targets.

Responsible Policy Engagement

However, for most of the companies that Ceres has assessed, the persistent misalignment of public commitments and internal climate strategy with public advocacy efforts that work against effective climate policy continues.

When trade associations lobby successfully against regulatory and legislative frameworks, as was the case this year with the defeat of the US House of Representatives-backed Build Back Better proposal, the absence of a level playing field can serve to undermine a company’s climate strategy and amplify risks or negate opportunities. The climate proposals of that earlier, broader bill are still in play and the focus of negotiations in the US Senate while some funding for it remains the focus of trade associations’ lobbying. To address the risks introduced by lobbying misalignment and the increasing focus by investors on that misalignment, there are a key few steps boards can take.

Boards should begin by assessing the impact of climate change on their companies, including the impact of lobbying against climate policy. A cross-functional materiality assessment should be prepared by management and presented to the board for evaluation, ideally by the company’s sustainability team.

Management should conduct internal assessments of direct and indirect lobbying positions on climate policy, also for evaluation by the board. It is often effective for board oversight of climate risk to be organized within a specific climate risk committee or other standing committees. The board committee should work closely with management on climate risk assessments which can then be presented to the full board.

Boards should govern to systematize decision-making on climate risk throughout the organization and on lobbying. This means integrating climate risk analysis and decisions across functions and departments throughout the organization, and likely may include centralizing reporting. It also means that the process of oversight of decision-making by the board should be part of the regular board reporting cycle.

We believe that boards should act to align direct and indirect lobbying with science-based climate policies. The connection between internal climate strategy and external lobbying activity should be clear, fully evaluated by the board and misalignment identified and corrected by management. If lobbying activity is deemed appropriate and necessary, boards should require lobbying directly for Paris-aligned climate policies and expect management to engage with trade associations to align lobbying with climate science.

Ensuring Alignment

The role of the board within responsible policy engagement should begin by clearly defining the difference between the role of the board and that of management. It is the responsibility of management to develop strategies and tactics to ensure the short- and long-term success of the business across its stakeholders. It is also the responsibility of the board to represent the fiduciary interests of stakeholders and to hold management accountable for the successful execution of business strategy, but it is not the responsibility of the board to run the day-to-day operations of a company.

With respect to responsible policy engagement, it is the role of the board to exercise oversight of the lobbying activity of the company and ensure its alignment with company strategy. In the case of trade associations that have lobbied against effective climate policy and regulatory frameworks, it is the role of the board to require communication by management of lobbying misalignment and hold management accountable for the correction of misalignment in support of the success of the company’s climate strategy and mitigation of climate risk.

Yamika Ketu is an associate with the Ceres Accelerator for Sustainable Capital Markets. Todd Miller is the governance manager for the Ceres Accelerator for Sustainable Capital Markets.

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Better Succession Planning Starts with Knowing Your CEO

The average age of CEOs is nearly 60 years of age within the S&P 500. As the average age of CEOs grows older, the average CEO tenure is growing shorter, to about 6.9 years. In this environment, your organization will likely look soon for a replacement, as will many other companies. Are you ready?

Understandably, many companies have been preoccupied with the major economic disruption in the market and may not have invested the time or leveraged the expertise of their board members to focus on effective CEO succession planning.

If you’re not thinking about this topic now, though, you may be in need of a wake-up call, especially in today’s competitive labor market. All signs point to a hiring desert for companies that are unprepared. Some companies are late to the game—but it’s not too late. Boards can act now to ensure their plans are ready to meet the challenges of the future.

Get to Know Your CEO and Plan

The best medicine for healthier succession planning is garnering a deep understanding of what your company needs in a CEO, and that means really getting to know your current CEO and engaging in robust business scenario planning with the CEO and executive team.

Data suggest that many boards of directors are unprepared for engaging in the process of CEO development and succession. A study by The Rock Center for Corporate Governance at Stanford University and Heidrick & Struggles found that only 51 percent of boards can identify their internal successor CEO. Thirty-nine percent say they have zero internal candidates. This isn’t surprising given that when boards do meet to discuss succession planning, they on average only spend 1.14 hours on the topic, according to a separate study by The Rock Center and the Institute of Executive Development.

Robust business scenario planning and CEO succession planning go hand in hand: you can’t have one without the other. Knowing the expected trajectory of the business is a critical ingredient to properly planning for CEO succession. 

Being actively involved and engaged in business scenario planning and fully understanding the CEO role critically informs succession planning and ultimately the hiring qualifications of a new CEO. It’s not enough for one or two board members to be immersed, either. Every board member needs to be deeply engaged, applying unique expertise and perspectives to collaborate with the CEO. To know your next CEO is to know your business.

Consider the Impact of a CEO’s Strengths and Weaknesses on the Entire Leadership Team

Another benefit of being actively engaged in scenario and succession planning as a board is that it gives insight into a current CEO’s strengths and weaknesses, and how those characteristics can impact the entire leadership ecosystem. Of course, a key responsibility of the board is holding the CEO accountable, but beyond that, effectively managing a CEO’s performance provides a window into the dynamics of the entire leadership team.

Established plans for accountability, regular engagement with, and offering feedback to the CEO as well as regular performance reviews should be standard practice, but if lacking, consider incorporating them. The enterprise’s performance will likely benefit, and the board will become keenly aware of characteristics they value in the current CEO and would like to see mirrored in future candidates. Trusted relationships with directors and candid conversations are oftentimes the miracle elixir of success. Through this process, blind spots will become evident. Then the board will move to fill these either through thoughtful CEO succession planning or influencing key complimentary hires on the leadership team surrounding the CEO.

Additionally, thoughtful accountability plans and performance reviews can highlight systemic problems early and, if need be, accelerate succession planning action. Likewise, a current CEO’s strengths can help boards think about the positive characteristics they not only value in the role but also how that should cascade through the organization—and be present in the next CEO.

Use Scenario Planning to Inform the Succession Plan

An organization in 5- or 10-years’ time won’t look the same as today, and neither, probably, should its top executive. The board must understand where the organization is going to determine the type of CEO and level of expertise it will need down the road. Is the business in a growth phase? Planning for an acquisition or a divestiture? Is the market eroding? Are all stakeholders being managed?

Just as scenario planning helps businesses prepare for a variety of market scenarios or disruptors, it is also a critical input to boards to consider the different profiles of CEOs they might need to address those same conditions. The characteristics that make an excellent growth CEO may not be the same as those that make an excellent crisis CEO, after all. Boards should consider tailored succession plans and CEO profiles that align to each of their companies’ critical scenario plans.

Putting the Pieces Together to Yield Strategic Succession Planning

Once a board is aligned on what the next CEO should look like, it can turn its attention to translating that profile into a pool of qualified future candidates.

Ideally, the pool consists of both internal and external candidates. The former can be nurtured through robust talent and development programs that identify high-potential leaders and provide them with opportunities and mentorship to build the characteristics and behaviors that will help propel the company to success.

Ensure that you start with robust scenario planning, align the board on key attributes of CEO success, look for blind spots among the leadership team to inform a holistic picture, and instill desired leadership attributes within various levels of the business while simultaneously looking outside the organization for future talent. You should never be caught flat-footed. There should always be a path and plan to a successor for each of the viable scenarios.

Regardless of whether the ultimate successor is chosen from the internal ranks or the market, a board that actively participates and collaborates closely with its current CEO will be well positioned to choose wisely and enable a smooth transition that supports growth and business objectives for the long term.

Richard Holt is managing director with Alvarez & Marsal Corporate Performance Improvement. He specializes in helping corporations execute complex business transformations that improve financial performance and drive growth.

Amerino Gatti is an executive in the energy sector and independent director on the board of Helix Energy Solutions, and he most recently served as chair of the board and CEO of Team, a provider of integrated specialty industrial services. He spent the first 25 years of his career with Schlumberger in various global roles.

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Geopolitics Reasserts Itself as a Key Risk for Fortune 500 Committee Chairs

With Russia’s invasion of Ukraine, Ukraine’s unexpected resistance, Russia and China’s growing alliance, China’s desire to bring Taiwan back into its fold, and ongoing COVID-19–related lockdowns in China, geopolitics is affecting companies in ways they’ve never had to pay attention to before. In the spring of 2022, NACD, with Heidrick & Struggles, PwC, and Sidley Austin, brought together risk committee and nominating and governance committee chairs from Fortune 500 companies to hear how they can put these events into context and to discuss potential risks associated with these events and ways they can help their organizations mitigate the perils.

It’s a New World Order

The world is now in an era of hardening blocs, with Russia and China partnering, North Atlantic Treaty Organization (NATO) nations in another bloc, and the Global South caught in the middle, Michèle Flournoy, cofounder and managing partner at WestExec Advisors, told the group. This new world order is forcing change for companies both in the United States and abroad. The results are uncertain and how this plays out will take time, she said, so boards need to pay attention to the associated implications and risks since these will have a tangible effect on day-to-day operations.

What Are the Risks Related to Evolving Geopolitics?

We know that Russia’s economy is suffering from the sanctions that have been imposed. The longer they hold, the more isolated Russia will become. NATO’s presence—especially in countries bordering Russia—will strengthen, giving it a new sense of power. China’s economy is also slowing due to lockdowns from its zero-COVID policy. These factors, coupled with the aforementioned uncertainty, present challenges for companies that invest and do business in Russia and China and countries allied within this emerging bloc.

Risks boards should be aware of related to Russia’s invasion of Ukraine include:

Escalation. This conflict is far from over, according to Flournoy. Two scenarios concern her:

Nuclear war: If Ukraine succeeds, will Vladimir Putin escalate with chemical or nuclear weapons? If the latter happens, the risk becomes more about world order and nuclear peace.Miscalculation and escalation: Air policing by NATO countries opens the risk of all-out war. So do Russian missiles accidentally hitting supply convoys on NATO soil. The risk of a military escalation, while perhaps small, is very real.

Cyber risk. While Russia has already hit Ukraine with cyberattacks, the United States and European Union remain largely untouched. However, as the war continues, expect this to change. Putin will likely target critical infrastructure, financial institutions, the electrical grid, and government functions, among other systems.

Sanctions. More stringent sanctions will affect the energy market, leading to potential energy shortages in Europe and price increases everywhere.

Industry shutdowns in Ukraine. Factories and farming remain at a standstill, which will have ripple effects on commodities markets and supply chains, as well as contribute to rising inflation.

Reputational risk. Companies that haven’t pulled operations from Russia are increasingly being called out and shamed on social media. This can negatively affect business and corporate or brand reputation, as recent examples have shown.

The risks boards should be aware of regarding China include:

Supply chain resilience. Lockdowns resulting from China’s zero-COVID policy have negatively affected supply chains as factories and shipping ports shut down for weeks or months at a time. Supply chains in the technology industry are especially sensitive since semiconductors and devices such as computers are manufactured there.

Reputational risk over views on Taiwan. Companies that invest in both China and Taiwan face a tricky situation. The day-to-day operations of an organization is less of a concern. The bigger concern is leadership in China increasingly demanding that companies doing business there demonstrate loyalty to China. This creates a difficult choice—does your organization view Taiwan as an independent state or as part of China? Boards need to discuss how to address this with their organizations.

How Can Organizations Mitigate the Risks?

While boards can’t stop the risks, they can make sure their organizations are prepared to address them. For example, organizations should consider how they would approach a crisis resulting from these emerging global issues. Participants at the spring meeting talked about conducting tabletop exercises to work through different scenarios.

Some risks regarding geopolitical issues aren’t new, such as cyberattacks; however, others are uncharted territory. Here’s how to approach these newer ones:

Reputation. If you’re still operating in Russia, consider leaving. “The [war in Ukraine] is likely to be a long affair,” Flournoy said. The longer companies stay in Russia, the harder it will be to leave and the public perception of failing to act will stick with these companies. For companies doing business in China, the reputation challenge is a little different. Maintaining a positive reputation with the Chinese government is critical while also communicating to Western stakeholders the company’s beliefs about Taiwan’s independence. This is a difficult balancing act, but critical at this point in time.

Reshoring. The United States can’t rely on one region for manufacturing. This means moving operations back to the United States or to other Asian nations, Mexico, or Canada, depending on the area or sector. It also does not mean that companies should pull operations out of China entirely. “I think we’ll see the US government defining key tech areas where we have to reshore that are central to economic and national security imperatives,” Flournoy said. This has already started with the CHIPS for America Act, enacted in 2021 to bring semiconductor manufacturing back home. Companies with a large presence in China will have to take stock of their supply chains and map out the risks on an ongoing basis.

Congress and the executive administration have no new clear guidelines on China, so Flournoy advised that organizations and their boards monitor closely for guidance. “Make sure someone on the team is watching like a hawk,” she said. The same advice applies to Russia; since we don’t know how Putin will escalate the war or how sanctions could affect Russia internally at a grassroots level, companies need to keep Russia on their radar screens.

Risks from North Korea and Iran Are a Distant Possibility

While risks related to North Korea and Iran are less imminent, directors and their organizations should still keep an eye on them. North Korea has intercontinental ballistic missile capabilities and will continue to test these. Iran has enough materials to make nuclear weapons. It also funds terrorism in the region.

We are now in a unique period of geopolitics in which companies are affected in a multitude of new ways. From disruptions of supply chains to the risk of a new world war, directors will need to get up to speed quickly on the evolving geopolitical landscape and the strategic, financial, operational, and human risks and opportunities to their firms.

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Board Diversity Action Expands to Courtrooms, Regulators, and Investors

In the year since my colleague Fabrice Houdart wrote that LGBTQ+ inclusion in the boardroom is simply good governance, the board diversity landscape has heated up, become more complex, and provided glimpses into what the future may hold in this interesting area of corporate governance. Below are a few key themes that I expect will characterize the board diversity landscape.

When attention is focused board diversity can increase quickly, but the gains may be narrow. Much of the action on corporate board diversity over the past few years has been catalyzed by legislative action (notably in California, where two laws aimed at board diversity were struck down this spring, but not before leaving their mark) and the national reckoning on racial justice, both serving as wake-up calls for many corporations.

The impact of California’s landmark 2018 legislation requiring gender diversity on the boards of public companies headquartered in the state has been stunning. In 2018, nearly one-third of public company boards in California were composed of all men. According to the most recent report from the California Partners Project, today fewer than 2 percent are. In addition, women hold 32 percent of public company board seats in California, double the number of seats held in 2018. In 2022, two-thirds of California public companies have three or more women directors—six times as many as in 2018. However, progress has been uneven. For example, although California’s population is nearly 20 percent Latino, a recent report by the Latino Corporate Directors Association found that between the September 30, 2020 enactment of California’s AB 979 legislation, the second board diversity law, and the end of 2021, the share of California public company board seats held by Latinos grew by only one percentage point, to 3 percent of California’s public company board seats.

Across the United States, a similar story has emerged regarding racial diversity. According to research by Heidrick and Struggles, the share of new Fortune 500 board appointees that were Black or African American jumped to 28 percent in 2020 (26 percent in 2021), after nearly a decade in which only 8 to 10 percent of new appointees were Black. This newfound focus was surprisingly narrow, however. Appointments of Black women directors lag those of Black men directors significantly, and there was little impact on the appointment of other racial, ethnic, and underrepresented demographic groups. Asian, Latino, and LGBTQ+ directors remain heavily underrepresented on large company boards.

For candidates bringing diversity of sexual orientation and gender identity, progress has also been notable, but slow. Out Leadership’s Visibility Counts 2022 report found that 41 Fortune 1000 companies include “LGBTQ+” in their definitions of diversity when considering board candidates, including prominent companies such as 3M Co., Caesars Entertainment, Cisco Systems, The Clorox Co., Starbucks Corp., and Ulta Beauty. But across more than 3,300 Nasdaq-listed companies, just 2.4 percent include “LGBTQ+” in their definitions of candidate diversity.

In 2021, more out LGBTQ+ executives were appointed to the boards of global Fortune 500 companies than in any prior year—a grand total of three, to the boards of 3M, BlackRock, and Randstad. The year also saw slow growth in the number of board seats at large corporations occupied by openly LGBTQ+ people, to a total of just 26 seats held among 5,670 Fortune 500 board seats. Interestingly, half of the 18 openly LGBTQ+ Fortune 500 board members are women and one-third are Black or Latino.

One encouraging note: in 2021, 43 percent of directors appointed to the boards of Fortune 500 companies were first-time directors at a public company, the highest percentage since at least 2015, according to research by Heidrick and Struggles. These first-time directors bring a high level of diverse demographic and professional backgrounds, accelerating the diversification of corporate boardrooms. And for the first time since at least 2015, the average age of Fortune 500 directors (currently 63.7 years old) did not increase, as more younger directors were added.

The focus on board diversity has been expanding among stock exchanges and regulators around the world, but progress is uneven. Following an outcry after the New York Stock Exchange (NYSE) launched its NYSE Board Advisory Council to oversee its Initiative to Advance Board Diversity without a single openly LGBTQ+ member, the NYSE later added Dow CEO James Fitterling. But unlike its counterparts at Nasdaq, the NYSE has no board diversity reporting requirements for its listed companies.

In April 2022, the UK’s Financial Conduct Authority finalized new rules intended to boost board diversity for its listed companies. The rules require companies to report information and disclose how they are doing against targets on the representation of women (at least 40 percent of the board) and ethnic minorities (at least one non-white board member) beginning this year but are silent with regard to directors with diverse sexual orientations or gender identities.

And in Canada, the Capital Markets Modernization Taskforce has recommended that Ontario securities legislation be amended to require that publicly listed issuers in Canada adopt written director nomination policies, set board and executive management diversity targets, and provide data regarding the representation of those who self-identify as women, BIPOC [Black, Indigenous, and People of Color], persons with disabilities, and LGBTQ+.

Legal battles have slowed legislative actions, but battles are ongoing. Following passage of California’s SB 826 in 2018 (which required minimum levels of representation of women on the boards of publicly traded companies) and California’s AB 979 in 2020 (with similar rules for underrepresented racial and LGBTQ+ minorities) the predictable backlash of litigation emerged. Two rulings have handed first-round victories to opponents of board diversity.

In the SB 826 case, the court issued a verdict in favor of the plaintiffs after a trial, finding that the state had failed to prove that the legislation was sufficiently “necessary” or “narrowly tailored” to survive the strict scrutiny standard under the Equal Protection Clause of California’s constitution. California’s secretary of state has announced an intention to appeal the ruling.

In the AB 979 case, the court granted a motion for summary judgment in favor of the plaintiffs, similarly finding that the legislation violated the Equal Protection Clause of California’s constitution. The state has not indicated whether it will appeal this ruling.

Litigation is also pending against the US Securities and Exchange Commission’s approval of Nasdaq’s board diversity reporting rules, which incorporate a “comply or explain” board diversity mandate for most listed companies, along with a requirement to disclose diversity statistics regarding board demographics.

Meanwhile, the Improving Corporate Governance Through Diversity Act of 2021 (H.R. 1277) was introduced in the US House of Representatives in February 2021, but it is unclear whether the bill will see further action in this Congress.

Board diversity initiatives are themselves diverse. Finally, the most interesting theme in recent board diversity efforts may be the wide range of initiatives and stakeholders who are involved. The 2022 proxy season has already seen new voting guidelines from major institutional investors, the growing influence of (and backlash to) environmental, social, and governance-focused investing, diversity-focused action from employee groups, and new appetite from executive recruiters to identify and engage diverse candidates. Focus on these topics will continue.

Matthew Fust serves as a board member for several publicly traded and venture-backed biopharmaceutical companies and is a corporate finance and strategy advisor in the life sciences industry. He was named to NACD’s 2022 Directorship 100. Matthew is an advocate for corporate board diversity, with a focus on LGBTQ+ inclusion, and is senior advisor to Out Leadership’s OutQUORUM corporate board diversity initiative.

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US Public Company D&O Insurance Market Sees Pricing Relief, Strong Competition

For the first time in four years, it is likely that an increasing number of public companies will, on average, experience a year-over-year decrease in their US directors’ and officers’ liability (D&O) insurance premiums in the second half of 2022. Material premium increases have become increasingly rare, and there is a dramatic return to competition in the marketplace as insurers look for new sources of revenue.

Despite a return to competition, the underwriting community remains focused on several risk areas including legal and regulatory trends; activist investors; environmental, social, and governance (ESG) issues; and other challenges that could lead to litigation. Companies should optimize opportunities, but also remain vigilant in their renewal preparations, and work with their brokers to carry out comprehensive reviews of policies and obtain the broadest coverage possible.

Pricing for Public Company D&O Insurance Continues to Ease

In the first quarter of 2022, the average public company experienced a premium increase of 2.7 percent for its total program, the seventh consecutive quarter in which pricing increases trended downward. In both March and April, Marsh McLennan clients saw this trend continue, on average, at renewal. Such favorable pricing may not, however, be available to companies that face open claims, sizeable stock drops, earnings challenges, or other legal matters.

Pricing changes are being driven by a dramatic upswing in an already established trend of increased competition among legacy insurers and new market entrants. The sharp decrease in companies going public—a notable source of new business revenue for insurers—is pushing many to seek revenue in the form of new premium dollars elsewhere. Given the ever-expanding risk landscape for public company directors, companies should be selective in choosing their carrier partners and should pay extra attention to even small nuances in coverage differences between insurers.

Global Events Continue to Raise Underwriting Concerns

Insurers continue to raise concerns about the broader economic environment and how companies plan to confront various risks. These challenges, including stock market volatility, supply chain issues, inflation, and heightened cyber threats, have caused some companies to miss earnings guidance or expectations, leading to shareholder lawsuits accusing them of inadequate risk disclosures.

Companies, therefore, must demonstrate to insurers that they are well positioned to address these issues and have adequately described these risks to investors. Despite the improving pricing environment, the threat for securities claims and derivative actions remains high, and there continue to be sizeable settlements in various cases.

Shareholder Litigation Threat Remains Elevated

Shareholders continue to bring securities fraud claims against public companies and boards, with 95 federal securities class actions filed through June 9. In all of 2021, there were 211 such actions, down from 319 in 2020. While the total number of these claims trended down over the last two years, they remain elevated compared to historic levels.

Event-driven litigation, in particular, continues to result from various adverse company events involving employee discrimination or harassment claims, cyber breaches and privacy matters, environmental disasters, and regulatory investigations, among others.

Shareholder derivative actions continue to settle for large amounts, though numbers have dropped from the record-breaking years of 2019 and 2020. Shareholders are raising claims alleging oversight failures on behalf of board members, with oversight shortcomings typically involving a purported failure of company boards to set up an adequate reporting system for mission critical risks. Or, where such a reporting system is constructed, shareholders may claim that the board ignored so-called red flags. We have seen these types of cases following cyber events, food safety outbreaks, opioid matters, false claims act violations, and #MeToo movement-related claims, among others.

Developments on the Regulatory Front

The US Securities and Exchange Commission’s (SEC) focus is on ESG issues, cybersecurity disclosures, executive compensation, insider trading, and special purpose acquisition companies. The SEC’s formation of an ESG Task Force has already resulted in some companies facing regulatory scrutiny over alleged inadequate ESG disclosures.

Additionally, earlier this year, the SEC proposed new disclosure rules that are presently the subject of public comment and debate. The proposed rules on cybersecurity disclosures require a more robust reporting of the board’s focus and credentials on cyber matters and on reporting material incidents to shareholders. The proposed rules on environmental matters would require companies to disclose a broad range of data on emissions and climate impacts, as well as offer detailed information about the broader effects and opportunities presented by the global transition toward renewable energy and carbon neutrality.

Companies Should Focus on Structuring Optimal D&O Programs

While the risk landscape presents numerous challenges, the improved public company D&O market conditions should afford organizations and their brokers greater leverage in negotiating insurance policy terms and conditions. Many insurers are choosing to introduce new policy forms as competition heats up and are more receptive to bespoke coverage solutions and enhancements.

Buying the appropriate amount of coverage is critical, and companies should use data analytics and personalized damages modeling, along with peer benchmarking, to assess what is right for them. Brokers can provide an understanding of settlement size trends to help companies select the amount of coverage that is suitable.

Financial strain is placing some companies under the heightened threat of shareholder derivative actions; individual directors and board members should ensure that adequate Side A insurance coverage is available to protect their personal assets when a company is prohibited or financially prevented from indemnifying those individuals against claims.

As the claims environment and regulatory activity continue to evolve, the D&O marketplace will also shift. It is therefore important for companies to be informed on trends that can impact their risk profile and D&O programs.

Matthew McLellan is the US D&O product leader for Marsh’s Financial and Professional Liability Practice.

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