How Changing Corporate Purpose May Affect D&O Insurance

Law360

PUBLISHED ON: August 28, 2019

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In an update of the Business Roundtable's "Statement of the Purpose of a Corporation," nearly 200 member CEOs eschew a sole focus on the shorter-term interests of shareholders in favor of "a fundamental commitment to all of our stakeholders." Those stakeholders are specified as employees, suppliers, communities and shareholders. 

That change in narrative will prompt public discussion and developments in law — potentially leading to changes in the application of long-established rules related to whether a board of directors should focus solely on the short-term best interests of shareholders. The public discussion and developments in law will continue. 

A change in focus from shareholder primacy to multiple constituencies may well lead to a reduced severity of shareholder claims, which historically have resulted in the most hazardous D&O liability insurance claims. Although other constituencies may be emboldened to bring novel D&O claims, it seems likely that such claims would be of a lower severity than those classic shareholder claims.