A. Develop Strategy
Setting the strategy involves taking a first look at a number of key questions. Some of these questions include the following:
- What is the timing of our IPO and are we on a dual track?
- What is the size our IPO and will we have selling shareholders?
- What is our philosophy on risk transfer and buying D&O insurance limits?
- Which insurance carriers are the best fit for our needs?
- Do we have any special or unusual risk exposures?
- Who are the key executives who will be involved in the insurance process?
- How involved does the board of directors want to be when it comes to making decisions about D&O insurance?
An initial strategy session can go a long way to making the over-all process run smoothly and efficiently.
B. Implement Carrier NDA
Companies that choose to file confidentially under the JOBS Act may consider having their broker ask each insurance carrier to sign an NDA before being sent the confidential S-1 filing.
i. Private Company Insurance
Consider ensuring that you have at least $5 million to $10 million of D&O insurance limits in place as a private company before you start your IPO process. This move protects Ds and Os should the company be acquired instead of going public. It also ensures that the subsequent public company D&O insurance program is not vulnerable to having warranty statements apply to this first $5-$10 million dollar layer of insurance.
Companies filing for an IPO can suddenly find themselves subject to intense scrutiny, including in non-US jurisdictions. Before going public make sure that you have analyzed your non-US subsidiaries and made a determination as to whether a local D&O policy might be warranted. Just because your US-issued policy says, in the text of the contract, that it is supposed to respond worldwide doesn’t mean that it actually will.
This is an exploding area of concern for many companies, and in some cases, effectively managing this exposure is fundamental to the success of a company. This is a board-level issue that needs to be addressed in a timely and comprehensive way.
iv. Other Insurance
An IPO company has to be ready for public-company scrutiny, and having a buttoned-up insurance risk management program across all lines of insurance (not just D&O insurance) is critical. This is something the Board will care about at least by proxy season given the required disclosures concerning a Board’s role in enterprise risk management.
E. Governance Counseling
D&O Insurance is important—and consideration should also be given to implementing corporate governance policies that tend to help mitigate D&O risk. Examples include: insider trading policies (including the correct implementation of 10b5-1 trading plans), corporate communications policies and appropriate indemnification agreements.