plus western canada directors and officers liability february 8, 2007
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PLUS Western Canada
Directors and Officers Liability
February 8, 2007
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Agenda
1. Favourable D&O Liability Insurance Marketplace
2. Negative Pressures on D&O Marketplace
3. Market Dynamics
4. How Underwriters Can Distinguish Themselves
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D&O Insurance Market
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D&O Market – Favourable Factors
• Claims• Legal• Capacity• Coverage• Pricing
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NEGATIVE FORCES ON MARKETPLACE
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D&O Insurance Market – Negative Factors
• Increase in financial restatements• Increase in settlement amounts in US• Bill 198 litigation commenced: IMAX• Options
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OPTIONS
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Hot Topics: Options Backdating
• Spring-loading Options
• Bullet-Dodging
• Must report failure to comply in annual proxy statement
• Backdating is not illegal, but optics?
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Options Backdating: Perception is Everything
• “Backdating strikes everyone as the ultimate unfair ploy, which is essentially taking an award and adjusting it so you can make more money,'' -- Ann Yerger, executive director of the Washington, D.C.-based Council of Institutional Investors, an organization of large pension funds
• “It's an egregious abuse of executive privilege, it's an abuse of shareholders, and at a time when folks are upset about executive pay levels, to know that some of this has been rigged is particularly upsetting.'' -- James Cox, law professor Duke University
• “It's a question of knowingly betting on a race that's already been run." -- James Cox
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The Perils of Backdating
Companies found to have engaged in impermissible options backdating face several risks, including:
• SEC Investigations and Federal Criminal Prosecutions SEC Investigations and Federal Criminal Prosecutions
• Accounting Restatement Risk and Reduced Net Profits Accounting Restatement Risk and Reduced Net Profits
• Potential Criminal as well as Civil Lawsuits Potential Criminal as well as Civil Lawsuits
• Regulatory Risk and Tax Implications Regulatory Risk and Tax Implications
• Management Credibility RiskManagement Credibility Risk
The shareholder suits are generally derivative suits, but a few have been accompanied by stock-drop suits as well
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Options Backdating: Canadian Context
• Time Period Restrictions
• Reporting Grants
NOTE: US reporting
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Critical D&O Insurance Purchasing Issues
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Critical Purchasing Issues
• Purchasing Decision is changing:
• Directors/Trustees involvement• Potential conflicts• Third Party Reviews and Advice• D&O coverage gaining in importance over price
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How Underwriters Can Distinguish Themselves
• Coverage and Price!• Understand Evolving Market Dynamics• Ask Thoughtful Questions• Alternatives• Policy Documentation• Long Term Commitment
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THANK YOU
Catherine RichmondWillis CanadaCatherine.Richmond@Willis.com(604) 605-5611
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