Australia: Personal risks for directors in modern times

Last Updated: 28 February 2017
Article by Alistair Jaque

When I came back to the office after the holidays, I came across a couple of recent surveys of Australian directors which reveal some of the issues that most concern the people who run companies in this country in 2017. Regulatory and personal risks are always near the top of these lists, and the recurring themes include:

  • How do I make sure my business complies with all of the relevant regulations, especially OH&S
  • How can I protect my brand and the reputation of the business
  • How do I deal with digital disruption in my industry
  • How can I make sure my business is innovative and keeps up with the market
  • How can I better manage risks with IT systems, cyber security and data protection
  • How can I reduce the risk of personal liability, particularly in connection with insolvent trading and operating distressed companies?

Management of these regulatory risks should be part of the strategic planning for any business. It is very difficult to make informed decisions about a company's strategy without a comprehensive understanding of the risks involved. And in our increasingly interconnected world, new and more complex risks constantly appear, along with increased scrutiny by regulators, shareholders, the media and the public.

I have dealt with some of the major concerns identified by directors in this blog.

Social media - social media now has a significant effect on customers, employees, and investors. Facebook recently reported daily active users of more than one billion. Twitter reported 66 million average monthly active users in the United States and 254 million in the rest of the world. These are both significant increases from the previous years. Many companies are using social media marketing to increase their product and brand awareness, build their reputation and customer loyalty and encourage customer engagement, all of which can increase revenue. Customers increasingly post reviews of products, brands and companies, which influence new customers. But in addition to customer relationships, social media also creates a risk of damage to a company's reputation (for example when a post goes viral, particularly if the company has an inadequate or delayed response, or by the misuse of social media by company personnel and the posting of confidential or proprietary information on a social media platform). As the old saying goes, "It takes 20 years to build a reputation and five minutes to ruin it."

Cyber security – an increasing number of directors are concerned that cyber threats could adversely impact their business, and one of the biggest concerns facing boards at the moment is how to provide effective oversight of cyber security. For example, assigning someone with responsibility for cyber issues, identifying the main assets at risk (intellectual property, personal information and trade secrets), preparing an incident response plan (and testing it), providing training to employees, limiting access rights and backdoors to key data entry points, conducting cyber due diligence on any target or recently acquired companies, checking that third-party contracts contain proper data breach notification, audit rights, and indemnification provisions, obtaining specific cyber insurance, and conducting an annual third-party risk assessment to review current practices and risks.

Increased regulation - I would anticipate increased regulation for companies in the area of cyber security. In the US, the Federal Trade Commission and the SEC have already increased their activity in this space and recently the SEC brought an enforcement action against an investment adviser for failure to adopt policies reasonably designed to protect customer records and information. Although there was no evidence that any client suffered financial harm, the investment adviser settled the action for US$75,000.

Increased litigation exposure – the position on liability for data breaches is not always clear. For example, in Target's recent multi-million dollar settlement with certain major credit card brands, companies are fighting over who should be liable for exposure in a data breach, and credit card companies are trying to shift liability to the merchants who failed to implement smart chip technology to credit cards. It is also worth noting the recent trend in the US of class actions being filed by consumers after companies notify data security breaches (for example where credit card information of customers is disclosed).

Directors' personal liability - directors of companies that experience major data breaches can be faced with derivative actions following an event. However, provided that boards have been actively engaged in monitoring their companies' efforts to avoid and mitigate such a breach, the risk of personal liability appears to be slim. In a recent case, the derivative lawsuit against a company's board of directors was dismissed as the directors had conducted a detailed investigation, discussed the cyber attacks at multiple meetings during the relevant time frame, and retained a third-party technology firm to investigate each breach and recommend enhancements to the company's systems.

Crisis management – what starts as a minor failure to manage risks effectively can easily lead to a crisis for a company. A crisis may be gradual, such as emerging competitive threats or an economic downturn, or it could be sudden, such as a cyber attack, allegations of fraud, technology failure or a natural disaster. Companies should have an effective crisis response plan, with a team responsible for internal and external communications, and external legal and investor relations experts who can help the company respond quickly and effectively.

The key to dealing with all of these risks is advance planning and preparation, to minimise the risks, and to ensure that there is a plan in place in the event that something goes wrong.

I would be interested to hear people's views on the risks I have mentioned above, or whether you have any other areas of concern which you would add to the list.

For further information please contact:

Alistair Jaque, Partner
Phone: + 61 2 9233 5544
Email: afg@swaab.com.au

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions