Liability of directors

There are many reasons why the number and severity of D&O liability claims are on the increase and the consequences for companies are uncertain and difficult to calculate.

The economic and liability environment for directors have changed considerably in recent years in the following ways:

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  Difficult economic environment for companies Companies face increasing pressure on costs, fierce competition and shareholders' short-term profit expectations. Furthermore, liquidators and receivers now invariably explore the possibility of claims against D&Os.
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  Liability standards Directors are already exposed to numerous liability standards.
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  New provisions for the management of companies Directors are faced with a plethora of new laws and other provisions. These include, for example, the Sarbanes-Oxley Act in the USA and the Law on Company Integrity and the Modernisation of the Right to Contest (UMAG) in Germany, not to mention national corporate governance rules and recommendations and the International Financial Reporting Standards.
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  Public cases Public awareness of directors' behaviour is constantly increasing and, as a result, the number of shareholder lawsuits is rising worldwide, and not just in the USA.
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  Sophisticated institutional investors Investor groups and fund managers are putting directors and officers under increasing pressure.
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  Global lawsuits Companies with exposure to the USA are increasingly targeted by specialised US law firms.
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  Forum shopping To maximise their chances of obtaining compensation, claimants are pursuing non-US companies United States courts.
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  Commercial necessities Company takeovers and stock market floatations involve huge challenges for directors.

The legal situation and the liability environment described above have a number of consequences for companies:

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  There is a growing need for internal control systems and mechanisms. Companies will require more extensive reporting systems.
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  The requirement for companies to make their financial and economic position more transparent will continue to grow in the future. Meeting the requirement will increase pressure on both time and resources in companies.