OVERVIEW OF EXPOSURE1
After a company begins to experience economic distress or other
legal and financial challenges, opportunities to minimize risk to
the company and its individual directors are limited. When
directors are most focused on the company and its difficulties,
they face increased exposure, potential limitations on
indemnification and insurance coverage, and greater challenges from
government agencies, private plaintiffs and even a trustee in
bankruptcy. Planning ahead to manage exposure involves
understanding the risks and the available protection for directors,
including a director of a wholly-owned nonpublic subsidiary.
DUE DILIGENCE—UNDERSTANDING THE RISKS
Before joining a board of directors, and periodically while
serving as a director, seasoned directors conduct due diligence on
the company not dissimilar to that which would be conducted for a
corporate merger. Risks can arise from tax status, pending and
threatened litigation, experience and
