For Directors and Officers who serve on the board of public corporations, private companies and non-profit organizations, they are required to protect themselves and limit their exposure to risk. They are responsible to represent the interests of the organization in a reasonable manner and to direct business and affairs, according to applicable laws and regulations.
Directors and Officers have a duty to exercise due diligence in the management of the organization. This involves three basic duties:
Duty of Diligence (Duty of Care):
Act reasonably, in good faith and in the organization’s best interest
Duty of Loyalty:
Place the interest of the organization before your own
Duty of Obedience:
Act within the scope of applicable bylaws
Nevertheless, any one of these directors and officers can be held liable for the actions and inactions of the businesses they are overseeing.
With that being said, organizations with a board of Directors or Officers are qualified to have liability insurance. This is called Directors and Officers liability insurance, which is also short for D&O. D&O liability coverage is designed to help these individuals protect the personal assets of the organization and their finances. Since they are considered to be the leaders of the organization, directors and officers can personally be held liable for management decisions and errors. This means that employees, customers, competitors, suppliers, shareholders and even the government can file a lawsuit against them.
It should also be noted that all types of organizations can be at risk if there is any type of exposure. This includes, but not limited to: charity groups, religious organizations, educational institutions, sports clubs, community associations, cultural groups, family-owned businesses and privately-held companies.