Following on from Part 1 & Part 2 we conclude with summarising how NFP directors can protect themselves:
How can directors protect themselves?
Indemnity:
Many organisations indemnify their directors against any liability incurred in good faith by the director in the course of performing his or her duties.
Of course, an indemnity is only effective to the extent that the organisation has sufficient assets to cover the loss. This is where Director and Officer Insurance is important.
Director and Officer Insurance:
Director and Officer Insurance (D&O Insurance) is designed to protect directors and officers against personal liabilities, in relation to claims that arise from decisions they make while carrying out their roles (and in the scope of their authority).
The coverage will vary depending upon the policy obtained, will generally contain limits and will exclude loss resulting from certain conduct (such as dishonest breaches of duties).
An insurance broker will be able to clarify what is and is not covered in a particular policy.
Other protections:
Avoiding any breach in the first place is the best protection against personal liability. Some important ways of avoiding a breach is to:
- Take the time to understand what laws apply to the organisation.
- Encourage a culture of compliance.
- Encourage a culture where breaches can be reported.
- Exercise independent judgement and interrogate information that you are given. In particular, don’t simply rely on another director to read relevant material and understand information relevant for decisions.
- Have the right skills on the board, and where there are skills that are lacking, or where otherwise appropriate, seek expert advice.
- Have strong risk management processes. This can include having a risk register which allows the organisation to identify current and potential risks and find ways to mitigate those risks.
- Have good compliance policies and processes.
Click here for Part 1 – Introduction and duties and liabilities of directors
Click here for Part 2 – Tax and superannuation, Occupational Health and Safety Laws (OH&S Laws),Employment laws, Child safety laws, Competition and Consumer Laws
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