It's no secret that the world has become a more complex place in which to conduct business. Today, multinational organizations face a dizzying array of laws, policies, regulations and practical realities. What's more, the landscape is constantly shifting and evolving—leaving organizations exposed to significant risks. Directors and officers (D&O) are increasingly at the center of this storm. "It's a topic that doesn't get adequate attention," says Lee Lindsay, a managing director for Aon's Financial Services Group.

To be sure, a single oversight, error or lapse in judgment can have disastrous consequences—including fines, penalties, imprisonment, lawsuits, angry government officials, a tarnished brand name and lost revenues. In recent years, the number of D&O actions worldwide has spiked and the severity has increased. From Jan. 1 to Dec. 31, 2009, for example, more than 280 actions were brought against D&Os in 50-plus countries. The actions included civil, criminal and regulatory matters, with the concentration in the last two arenas.

As a result, multinational organizations must scrutinize a variety of risk factors and develop an effective directors and officers liability strategy. Among other things, executives must factor in revenue streams, an office or division's strategic importance in relation to the parent company, the perceived risk of an actual insurance claim, whether the organization is private or public, the nature of the local marketplace, and potential fines and penalties. Spending adequate time upfront to understand what protection is needed can provide significant dividends down the line.

D&O Policy Matters

Directors &Officers insurance has emerged as a common and effective way for organizations to protect directors and officers in the event of a legal or regulatory claim. In the U.S. and in many other countries, senior corporate leaders can be held liable for act of omissions. Shareholders might sue directors over a securities violation, a regulatory agency might impose a sanction against directors and officers, or a customer or business partner might sue the CEO or board for a specific action—or a lack of action. A D&O insurance policy provides financial protection for covered claims resulting from defense costs, settlements and judgment.

Over the past decade, however, as business has become increasingly global and intertwined, managing risk has become more daunting. In the past, multinational companies almost always purchased D&O insurance coverage for corporate officers but often eschewed the coverage for foreign operations—or they simply expected the parent company's policy would respond abroad. But in a more complex and litigious world, an outdated D&O risk strategy can lead to dire consequences. Coverage must extend throughout the entire organization and address the specific requirements and needs of various countries.

In the U.S., Canada and Australia, a growing wave of legal actions is being brought against directors and officers. Many of these suits center on securities-related issues, and some of the claims have reached upward of USD10 million. Many European and Asian countries, on the other hand, do not allow class action lawsuits, but directors and officers are still subject to criminal or regulatory actions as well as civil liability. "A few years ago it was uncommon to see actions filed against directors and officers abroad. Now it's becoming a standard part of doing business," Lindsay explains.

A primary reason for this nettlesome international legal environment is a growing alphabet soup of regulations covering everything from financial transactions to environmental issues. Among them: Sarbanes-Oxley, J-SOX, HIPAA, RoHS and WEEE. In addition, many countries have recently strengthened existing regulations. Plus, more countries amended their corporate governance codes in 2009 than at any other time in history. Among the countries making changes to governance laws: Austria, Belgium, Finland, Germany, Iceland, the Netherlands, Qatar, the Philippines, Romania, South Africa and United Arab Emirates. In addition, the European Union put several new regulatory provisions in place in August 2009. Consequently, the challenges related to managing a business's risks and liabilities in the global arena continue to grow.