2.2.2.2 Defensive behaviour in business

Director liability protection is an integral part of corporate governance. Firstly, it helps to recruit men and women for responsible positions on the company’s board of directors. Of the directors interviewed in this study, not a single one of them did not have D&O insurance. Provision of such insurance was a precondition for accepting board service. Several directors argued that they would not be able to do their job properly without knowing that they were well protected. Many of the directors interviewed (75%) demanded both D&O insurance and indemnification, referring to these kind of protection as ‘belt and braces’. Secondly, director liability protection is seen as part of the company’s risk and insurance management. Directors’ and officers’ insurance is considered a common good, which can be attained at relatively low cost. Therefore, the absence of D&O insurance is considered to be a signal that a company may not be managed properly or is in trouble, and therefore should be viewed with suspicion. Thirdly, there is a common understanding in the Dutch business community that, in general, it is good corporate governance for companies to relieve directors of liability by providing either indemnification or D&O coverage or both.1 In all of the examined cases, indemnification clauses were drafted in such a way that there would be no further entitlement to compensation for the costs or financial losses that a company director may have incurred if they were covered by insurance, and the insurer had paid the costs or compensated for the financial loss. Only one participant in the research additionally attained an individual insurance policy, separate from the company.