Extra-territorial jurisdiction claims increasing

New developments in extra-territorial jurisdiction, stock options backdating and claims against European companies are becoming major areas of concern for company directors, said Willis.

In terms of extra-territorial jurisdiction, research from Willis finds that there is an increasing appetite for US law firms to get involved in litigation against non-US companies, with some of the leading firms in the US setting up shop overseas to explore the potential for actions against them.

Another problem highlighted is the accounting treatment of stock options. If a company backdates its stock options, but fails properly to disclose this to shareholders and regulators, the directors could face claims that they have made misleading statements in their annual financial reports to investors.

When it comes to D&O claims, the report finds that while US class action litigation fell by over 40% from 2005 to 2006, the number of claims against European companies has remained at a relatively constant level for the last three to four years.

“The landscape for modern directors is constantly evolving. No director today can rely upon the fact that they live and work in a single jurisdiction to protect them against potential claims in any territory where their company may operate

Mark Wakefield, executive director, FINEX

Willis said: “Recent scandals at European companies have led to sweeping reforms of European corporate governance and audit procedures, and a more aggressive class of shareholders has emerged. This, coupled with the aforementioned appetite for US law firms to get involved in litigation against non-US companies, could give rise to heightened exposures for directors of companies outside the already well-established threats of US securities law.”

Mark Wakefield, executive director, FINEX commented: “The landscape for modern directors is constantly evolving. No director today can rely upon the fact that they live and work in a single jurisdiction to protect them against potential claims in any territory where their company may operate.”

The trends were identified by Willis along with legal practitioners from 14 jurisdictions worldwide in the Willis Boardroom Guide 2007.