Directors & Officers Liability Insurance Gains More Importance Day by Day

Equity companies have enabled large investments and projects yet also caused company executives and managers to take great responsibilities and to be liable against the company, shareholders, and creditors for any losses incurred due to their faulty or negligent actions that may arise during the company management.

Such responsibility leads to serious losses as a result of both board members and managers’ faulty or negligent actions and therefore makes them hesitate to manage high-profile companies.

The need for Directors & Officers Liability Insurance has emerged, mainly to ensure that losses are covered and board members or managers act more safely and comfortably while performing their duties comprising such a high responsibility. Directors & Officers Liability Insurance, as a kind of liability insurance, ensures the insurer’s coverage of the compensation claims originating from unintentional mistakes and omissions of the company board members and managers while performing their duties arising from the law and company’s articles of association.

In addition to the liabilities under the Turkish Commercial Code; civil, administrative, and criminal responsibilities and additional liabilities for board members and managers are provided in special legislations such as tax, employment, enforcement, bankruptcy, and criminal laws. This already comprehensive responsibility regime is planned to be expanded in the future. In this regard, the legislature considers new regulations as follows:

  • As board membership in publicly traded joint-stock companies requires special experience and knowledge, board members without such qualifications will have to receive training and certificate from the institutions authorized by the competent authority, namely, the Capital Markets Board (CMB).
  • However, this training will not be required when board members with high-level qualifications of knowledge and experience or foreign professionals undertake board membership duties and responsibilities.
  • The Corporate Governance Communiqué by the CMB may set out the necessary qualifications for board members of publicly traded joint-stock companies.
  • Thus, the independent candidate for the board of directors should either have the qualification(s) described in the legislation or meet the training and certification requirements.
  • Consequently, training and certification requirement may be set as an optional requirement rather than mandatory for independent board members and it may be eventually stipulated as a mandatory requirement that a certain rate of board members should meet the training and certification requirements.

Although the regulation is still in draft stage, it indicates the fact that the scope of liabilities and requirements for joint-stock companies’ board members and managers will be further expanded. Therefore, in line with corporate governance principles, companies will be required to employ board members with high-level qualifications of knowledge and experience. This will subsequently make Directors & Officers Liability Insurance, which is currently not mandatory but optional, even more important. With Directors & Officers Liability Insurance, persons will be encouraged to become a board member or manager, the number of executives with high-level qualifications of knowledge and experience will increase and the principles of corporate governance and transparency will become certainly more crucial than ever for all companies.

Stay Informed

Subscribe to stay up to date on the latest legal insights and events of your choice.