More board protocols

Published January 21, 2021, 7:00 AM

by Atty. Jun De Zuñiga

In my previous column (07 January 2021), I discussed new protocols brought about by the new normal environment. I am adding thereto two other protocols which have arisen from the widening dimensions of a corporate director’s responsibilities.  Their adoption is in keeping up with global best practices to promote the welfare of the directors  and thereby contribute to more beneficial relationships between the directors and their corporation.

One of such protocols is related to the exposure of a director to the risks of the job. A directorship is no longer simply about studying agenda folders and participating in the board deliberations. The rules on corporate governance have enhanced that role. Directors are now called upon to be more pro-active in strategic planning, in monitoring business performance and in assuring compliance with the principles of good business ethics.Their jurisdiction has already expanded outside the boardroom. This also means more active collaboration between the directors and their stakeholders. This is the reason why we see now a myriad of board committees (e.g., executive committee, governance committee, risk management committee, audit committee, related party transactions committee, etc.) whose tasks are distributed among the board members. Needless to state, these functions are accompanied by corresponding accountabilities.

To safeguard the directors in the discharge of their increased functions, we now have what we call as directors’ liability insurance. Such coverage can help shield them from possible complaints or suits against them, which includes the reimbursement of legal expenses, attorney’s fees and award of damages. The coverage applies even after their tenure, the only requirement being that the issue should have arisen in relation to the performance of their duties.Such insurance can also serve as an incentive for qualified individuals to serve in the board, even if they are without the wherewithal to defend the validity of their actions. Thus, this protection fosters more focus on the job, and lessens apprehensions and fear which can be bothersome.

The other protocol is related to health care. The director’s obligation of fidelity to the corporation does not terminate after his last day in office but extends indefinitely even after his directorship, and, in recognition thereof and of his past services, the corporation may continue to provide assistance for his health maintenance for a number of years, say, from two to five years. For a director to secure health maintenance insurance on his own would surely entail a substantial sum especially if he is in his senior years. On the other hand, his inclusion in the company’s group insurance plan would mean just a minimal increase in the premium amount.

The next question is how realistic are these protocols? Are they implementable?  I know that these are already being practiced in many corporations and there are insurance providers for their coverage. By industry standards, the costs are quite reasonable.  But just to cite a specific example, the director’s liability insurance and the health maintenance coverage have already been institutionalized in BangkoSentral. Their liability insurance program was even expanded to include officers and bank supervisors who are exposed to harassmentsuits.  I am proud also to say that I was part of that institution and had a role when these benefits were conceptualized, approved and implemented. 

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The above comments are the personal views of the writer. His email address is [email protected]