Risky Business

Published in Lexpert, October 2005.

This article examines the increased personal risks faced by directors and officers of public companies. Our next article discusses how to manage these risks.

The recent corporate scandals, and subsequent corporate governance reforms, have resulted in substantial increased personal risk to directors and officers of public companies.

In January 2005, ten former outside directors of Worldcom agreed to pay $18 million to settle shareholder suits, $18 million that could not be recovered by any indemnification or insurance available to the directors, and estimated to be in the neighborhood of 20% of the aggregate net worth of these directors (excluding principal residences, retirement accounts and judgment proof joint-assets). Around the same time, ten former directors of Enron (8 of whom were outside directors) settled shareholder claims for $13 million of their own money (representing their pre-tax profits from