The decisions of a company are taken by its board of directors. The board of directors sometimes comprise of a group of people who effectively carry out the day to day functioning of the company. Sometimes, it is a single person who is made a director and it is the director who engages in all the important decision-making of the company. Whether it is through a board or an individual it is quite obvious that the responsibility of running a business smoothly falls on the shoulders of a director. Whether a business is earning profits or is undergoing losses, the director is responsible for everything.
Apart from this, the consequences of the actions of the business have to be borne by the director most of the times. For example, if a client is not satisfied with the services provided by a business, he/she can sue the business can be sued for breach of trust. An account of all such risks that a director is liable to face and how they can be averted is provided below.
Risks faced by a director
These are some of the major risks that are faced by a business director:
- Health and safety of the employees- It is the responsibility of the director to look after the well-being of the employees. A supportive work environment will motivate the employees to work harder and attract potential employees also. Bodily injury, sickness, death of the employee while at work- the responsibility for all of these lies with the director. The director can be sued by the employee (or their family members) if it can be established that the employees faced these problems due to the callousness of the employee. For female employees, issues of sexual harassment are also very pertinent. An employee must act promptly according to the statutory guidelines if any female employee raises a complaint of sexual harassment in her workplace.
- Dealing with sensitive data- Most of the businesses today maintain databases to store and utilise data pertaining to their clients. The nature of a lot of these data is sensitive and it is of paramount importance for the business to protect them. If the secrecy of that data is breached, and it is brought out in the public domain through reasons such as hacking, cybercrime, software-related issues- then the director can be sued by the client for breach of trust, professional incompetence, etc.
- Tax-related issues- If a business figure out its taxes incorrectly it can put them under a lot of trouble and duress. It could lead to extra tax payments, fines, and other associated costs.
- Plagiarism and libel-related issues- Businesses, especially consultancy businesses have to undertake a lot of research to generate information that they would use to help their clients. This information is usually brought out in the public domain either by publishing them on the respective business’s website, or through books and research papers. While computing this information, the business must ensure that it duly acknowledges the sources of their information. Otherwise, they will be sued for plagiarism and also a violation of intellectual property rights.
Apart from this, a competitor business can sue another business for libel if it deems that a content published by the other business is slanderous and defamatory. The legal costs for all of these are quite high and they often lead to an out-of-court settlement where a significant amount of needs to be shelled out by at least one of the aggrieved parties.
Insurance solutions to these risks
An able director of any business would foresee these risks and hence would want to equip his/her business properly to help meet these challenges whenever they arise. Some of the insurance policies which business directors should consider purchasing are mentioned below:
- Group Health and Accident Insurance- A group health insurance helps to pay for the treatment and medicine costs of employees who suffer injuries, disabilities or become ill while doing the work for their employer. It is a group insurance policy and it brings a large number of employees under the ambit of the insurance policy. The policy stays valid only until the employee continues to work for the business which had purchased it. Business directors prefer purchasing this insurance policy because it has low premium costs.
- Group Accident Insurance can be claimed if an employee dies or is so grievously injured that he/she is no longer able to work. Under this insurance policy, a predetermined amount of money is paid to the employee’s dependents.
- Cyber Liability Insurance- Under cyber liability insurance, the insurance-purchasing business is paid compensation for the losses to its income that might have taken place due to the loss of their data. Apart from this, compensation is also paid to the client for the loss of their data or its compromise, from the systems of the business. The cost of restoring the lost data is also borne under this insurance policy.
- Tax Liability Insurance- If a business is asked to pay extra taxes or penalties for having failed to pay the income taxes that were due upon it, tax liability insurance can come handy for them. This insurance policy helps pay for these taxes. However, the failure to pay the taxes must be unintentional by the business. For example, many times certain items are considered tax non-deductible, yet, they are taxed by certain income tax agencies. In those circumstances, businesses might be asked to pay an extra amount of money.
- Directors and Officers Liability Insurance- This insurance policy is one of the most important ones for the director of a business. It can be used to pay legal costs and all other damages for which the director is held responsible in their managerial capacity. Examples of some of the claims include if an employee makes an allegation of sexual harassment or any form of workplace discrimination, if there are irregularities in financial records, if there is a lack of adherence to laws and other statutory regulations, if there are claims made by other shareholders or stakeholders.
- Keyman Insurance- This insurance policy is purchased to protect the interests of a very key employee who is very crucial for the business. The director of the business has to pay the premiums of the keyman insurance. It helps reimburse the hiring costs of a new employee in case the key person dies, and the insurance benefits are received by the director or whoever has employed the key employee.
It is extremely important for business directors to have the appropriate managerial skills to ensure that they are able to run their business smoothly. They must have the ability to foresee the problems that a company could face and take necessary actions. It is expected that this article will help business directors make informed choices regarding the possible risks to their businesses and how to deal with them. PlanCover is a specialist in business insurance for SMEs. Get in touch to know all about protecting your business with the help of insurance.