Employee-Led Litigation On the Rise in Asia

by CFO Innovation Asia Staff, 21 June 2012

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Insurance Management

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corruption directors's and officers liability insurance litigation U.K. Bribery Act U.S. Foreign Corruption Practices Act

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Actions against company directors and officers from employees and regulators are on the rise in Asia, putting their personal assets at risk, according to Marsh's latest Asia Directors' Series quarterly publication.

According to Marsh, there are two distinct liability trends that are emerging for company directors and executives across Asia. The first is the rise in corporate corruption cases being brought against executives under the U.S. Foreign Corruption Practices Act (FCPA), the U.K. Bribery Act and other local regulations. The second is the increase in employee-led litigation, as workplace laws evolve and employees become more aware of and comfortable with asserting their rights.

"Historically, directors have enjoyed a relatively benign litigation culture in Asia," says Alan Cheah, Managing Director and Region Head for Marsh in Asia. "However, a range of stakeholders -- including employees, shareholders and regulators -- are becoming increasingly aggressive."

The Marsh study finds that the second-highest number of FCPA enforcement actions between 2006 and 2011 were attracted by companies related in whole or part to China.

Under the FCPA, a U.S. parent corporation is liable for the acts of foreign subsidiaries where they authorise, direct, or control the activity in quesition.

Similarly, the U.K. Bribery Act provides far-reaching jurisdiction for prosecution. If any part of an offense is committed abroad by a person with a 'close connection' to the U.K., prosecutors may act.

Enforcement is real. In October 2011, the U.S. SEC charged a water technology company for improper payments disguised as sales commissions by its Chinese subsidiary to employees at state-owned design institutes to influence design specifications that favoured their valve products for infrastructure products in China. The company was ordered to pay disgorgement of $3.8 million.

As for employee-led litigations, in Singapore, media reports allege that a group of seven former employees of a financial services company which went into liquidation are taking legal action against their former employer, claiming they are owed at least S$3.5 million.

According to Cheah, the personal assets of company directors and executives across Asia are now more exposed to threat from litigation than ever before. Thus, directors's and officers (D&O) liability insurance has become an essential tool for company directors across Asia to manage the rising risk to their own personal assets, as shifts in the corporate regulatory environment contribute to more litigation than ever before.

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