My colleagues Heidi Lawson, Dionne Lomax, and I just finished our tour of four Texas cities in as many days, meeting a lot of incredibly talented, smart, and fun Wall Street women (yes, and some men too) in San Antonio, Austin, Houston, and Dallas. We were there at the invitation of Christine Breck and her wonderful nonprofit, Texas Wall Street Women. In each city, Heidi gave a formal presentation on risk-management, indemnification and D&O coverage.
The main takeaway from the presentation? Most off-the-shelf D&O policies are like knockoff Chanel bags — they may look good from a distance, but upon closer examination you notice the lining/coverage is already falling apart, the pleather/exclusions will erode quickly, and soon it won't be able to hold/cover a lipstick/officer.
So what is a director or officer to do? Two things, advises Heidi. First, seek an iron-clad indemnity, regardless of available coverage. Negotiate immediate advancement of defense costs, which provides indemnification regardless of whether you are the subject of a lawsuit, investigation or witness subpoenas, and will continue to cover your legal expenses even after you leave your job/board position.
Second, closely examine that knockoff, and get the company to negotiate and improve several definitions and exclusions (e.g., investigations, professional services, priority clauses, privacy exclusions, M&A exclusions, etc.). But always keep in mind that a well-drafted indemnity is your first and strongest line of protection. As Heidi's analogy continues — the well-drafted indemnity is actually a vintage Chanel bag — it's as good as it looks, will see you through good times and bad, and will remain with you forever, providing security regardless of how many years or jobs you've been through since you first acquired it.
Final takeaway — Heidi appears to have a thing for handbags!
Thank you for the warm welcome, hospitality, and fun — Christine Breck, Texas Wall Street Women, the CFA, KPMG, the Teachers Retirement System of Texas, and the Crescent Club of Dallas.