At first glance, it may seem that Directors and Officers insurance would be better suited for large publicly-traded companies rather than for private firms. While it may be more common for public company directors to experience accusations of mismanagement or error, leaders of private organizations face these challenges as well. Directors and Officers for private companies protects against financial loss from claims of failing to act according to duty.
Reasons to Add D&O
Leaders may take credit for a company’s success, but they also shoulder the responsibility for its failures. For example, directors and officers are often under the scrutiny of investors who look for a return on their investment. If investors feel that a bad year is due to the failure of a director to act appropriately, they may sue. In another case, a young company may be unsure regarding certain regulations, such as tax labor laws, which may invite government agencies to bring legal compliance claims against leadership. Or, Directors and Officers for private companies may protect founding entrepreneurs when they attempt to transition to a public company and the shareholders feel the sale is too low.
Whether or not allegations of misconduct or incompetence are true, it is expensive to have to go to court to defend against them. Directors and Officers insurance helps to make sure the company coffers are not emptied in the process.