Michael Hendricks (Foto: C.Tödtmann)
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Mr. Hendricks, American insurers are suddenly getting involved in appointments to executive boards. First in the USA, but maybe soon here too. They require their corporate clients, whose directors and officers (D&O) insurers they are, to have industry experts and not just business people on their boards. That sounds surprising – and encroaching. Why are insurers doing this?
Michael Hendricks: The triggers are the two crashes of Boeing planes with a total of 346 deaths three years ago. After the first plane crashed, management did nothing. Probably due to a lack of technical expertise on the part of the board members. Nobody on the board had that and then the next plane crash happened. That could and should have been prevented. Boeing announced that it would pay the survivors compensation payments of around 89 million euros. Your insurer, AIG, is now demanding that Boeing – when renewing its directors’ liability agreements with the company – have experts in the industry and technical expertise represented on the board from now on.
In plain language: It is not enough if only business graduates control the airline, for example pilots or engineers also have to be on the board?
What actually should have happened a long time ago after the D&O insurers analyzed the claims happens: It has been shown that some bodies such as boards, supervisory boards and executive boards lack the experts for the respective industry, but whose expertise is essential needed if you want to ensure the economic success of the company and sometimes have to navigate through difficult times.
Especially since management tasks are becoming more and more complex and top managers sometimes admit behind closed doors that they cannot always foresee all the consequences of their decisions?
That’s why you also need industry experts at the top. Because only they can recognize actual risks. As a rule, medium-sized companies therefore also have a technical and a commercial managing director.
At Boeing, the comparison between AIG and Boeing is that the Boeing board must have more members with aerospace or safety oversight experience in the future. According to media reports, Boeing agreed to change its articles of association so that the chairman of the board must be an independent director. And the planemaker also wants to hire an ombudsman who reports to the company’s chief aerospace officer, Michael Delaney.
And if there are no top managers with engineering training, is there no D&O insurance coverage?
AIG & Co. now have to look at the CVs of top managers before they take out D&O insurance. And by the individual managers.
This initiative from the D&O provider VOV actually existed here in Germany 20 years ago. But the attempt failed miserably. VOV sent questionnaires to the insured companies and wanted to see the CVs of the directors. But that didn’t happen, the industrial insurance brokers already blocked VOV and boycotted the questionnaire campaign and the – in itself sensible – campaign. In retrospect, it now shows that VOV was right.
I mean, if the large clinic chains were only managed by business graduates and there were no doctors at the top, wrong decisions would be unavoidable.
What is happening in the USA today, will the US insurers such as AIG, Zurich or Axa XL, as international players, also enforce such a vita check for top managers in this country? And ask Lufthansa whether it has pilots on its supervisory board?
Not only that, it will rub off on the other insurance companies operating in Germany. They are all networked worldwide and have so-called chief underwriters who observe and evaluate the development of D&O claims outside the box with a global dimension. There will certainly soon be one or more pilots or engineers on the supervisory board who can be responsible for ensuring that air traffic runs smoothly. Unlike most top managers who studied business administration.
When will the D&O insurers in Germany ask for the CVs of the top managers before they insure the company?
As soon as the competition among D&O providers becomes even tougher. As soon as insurers become even more anxious and make even more losses in this line of business and want to assess their risk even better. Board members, managing directors and supervisory boards must be prepared for this.
On top of that, D&O insurers suddenly position themselves politically and demand proof of their customers’ sustainability, the keyword being ESG. Which insurers are way ahead and what exactly do they charge? And how do you intend to monitor compliance?
Sustainability has been an issue for insurers for a number of years. It’s not just about environmental concerns and CO² reductions, how the replacement of tons of paper with electronic insurance policies is to be ensured. Now the customers of the insurers are also being targeted. Those who deal with coal and do not advocate for an accelerated phase-out are less well insured than positively environmentally oriented companies that promote sustainability. That’s what insurers are asking for now. They have whole catalogs of questions, board members have to report to them personally and only then are the insurers willing to give the best possible protection without many exclusions.
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