ERM-BC-COOP News Corp good for risk managers?

 

An article made available via AdvisenFPN about Director and Officer (D&O) insurance notes that in regard to the News Corporation's current and mounting legal woes, suits have been filed in federal district court in Manhattan, and in Delaware's Chancery Court in Dover. Additionally, a class action was filed against the corporation and its directors in New York..

News Corporation, on Monday, August 1, 2011, still is making headlines, so when those headlines include the words "directors and officers," directors and officers of organizations big and small pay attention to the article under the headline.

One of risk management's problems always has been getting attention, and support, from Very Senior Managers and Board Members. Since risk management typically is not a "profit center," it is, if not "out of sight" at least a low priority in the overall operation.

Note, by the way, I earlier wrote "directors and officers of organizations." No organization - be it commercial, non-profit, NGO, charity - is exempt from the threat of legal action against its directors and officers. (Perhaps government entities are exempt, but when officers and directors terms expire, they might be subject to civil or criminal action; I am not a lawyer nor do I play one on tv.)

Even if News Corporation's directors and officers prevail, it is estimated it will cost hundreds of millions to defend, millions more than the organization's D&O insurance covers.

Perhaps with the knowledge that they, the organizations directors and officers, can be sued as a group and individually for what may be perceived as negligence - never mind misfeasance or malfeasance - and knowing that having insurance to protect the organization is a hit to the "bottom line," perhaps the directors and officers will take risk management more seriously and become more involved.

On top of the civil action, in News Corporation's case there may be associated criminal investigations to determine if the organization misrepresented itself to the market. It may be a domino effect, but it is one more thing News Corporation must pay to defend.

Could all or any of this have been avoided?

Perhaps not, but if the organization had - and perhaps it did have - well publicized policies about honesty and ethical behavior, and if it regularly emphasized honesty and ethical behavior to all its employees and board members, perhaps - perhaps - defending against the actions against it and its directors and officers would be an easier, less expensive, task.

It is not normally a risk management practitioner's job to write policies and procedures, nor is it normally a risk management practitioner's job to preach honesty and ethical behavior to the board and all hands, but it IS a risk management practitioner's job to advise the client - be it an internal or external client - of the risks facing the organization, and lack of honest and ethical behavior is very much a risk to be considered.

Amazing what a little phone tapping can do to a company.