"European and Asian companies believe that a US-style
compensation culture is already well established, and there is a
real danger that boards in these regions lack the experience of
dealing with such a litigious environment," warned the report.
"Organisations operating there may need to spend substantial time
and resources improving their infrastructure, skills and capability
to respond to this trend."
The research, conducted among 183 board level executives across
the world, found that half of directors feel more exposed to direct
litigation against them than they did three years ago.
The survey investigated to what degree companies are being held
more responsible for their activities and to what extent that
liability stretches to individual directors.
It found that liability and the legal activity surrounding it is
increasingly a part of directors' lives, and that 13% of a board's
time is now spent discussing litigation, a proportion which the
executives expect to rise.
"There is strong agreement that valuable resources are being
spent on legal issues that could be deployed elsewhere," said the
report. "With 58% of respondents using lawyers more frequently and
47% reporting a rise in the cost of directors’ and officers’
insurance, one third of companies are passing the cost on to
customers through higher prices, and even more expect to do so in
future."
"Most significantly of all, about one third of businesses have
become more risk averse and less likely to invest in new business
opportunities as a direct result of concerns about litigation," it
said.
"With the development of success fees and third party funding,
litigation is becoming big business," said Tom Stocker, a
litigation lawyer at Pinsent Masons, the law firm behind
OUT-LAW.COM.
"There is also a very real fear of personal liability for
failures to comply with the laws that regulate business in the UK
and overseas. We are seeing an increasing trend of regulators
taking enforcement action against directors and senior managers for
regulatory breaches," said Stocker.
The report recommended that businesses spend less time dealing
with existing problems and more time dealing proactively with
future risks.
"Boards already think that they spend too much time on liability
and litigation issues, but this could be spent more wisely and even
reduced if they switched their focus to emerging risks rather than
concentrating on issues which are already subject to legal and
regulatory activity," it said.
The executives themselves identified the areas of likely future
risk as being technology and security, environmental liability and
corporate governance.
"After a decade of high-profile company failures and the
sub-prime crisis currently in the news headlines, boards are not
yet convinced that business has fully got to grips with issues
around transparency and disclosure," it said.
Stocker said that companies should make concrete plans that
assess and provide for risks in their business. "Companies can help
protect themselves from liability by putting in place risk
management procedures and policies, and ensuring that the
arrangements for contracting are tight," he said.
Want more content like this? This story was written by the insurance and reinsurance legal experts at Pinsent Masons, the law firm behind OUT-LAW.COM. We've recently launched a new section, legal info for Insurance and Reinsurance, giving free legal information to anyone working in that sector.
