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Unleashing A Gatekeeper: Why The Sec Should Mandate Disclosure Of Details Concerning Directors' And Officers' Liability Insurance Policies, Sean J. Griffith
Unleashing A Gatekeeper: Why The Sec Should Mandate Disclosure Of Details Concerning Directors' And Officers' Liability Insurance Policies, Sean J. Griffith
All Faculty Scholarship
This Essay explores the connection between corporate governance and D&O insurance. It argues that D&O insurers act as gatekeepers and guarantors of corporate governance, screening and pricing corporate governance risks to maintain the profitability of their risk pools. As a result, D&O insurance premiums provide the insurer’s assessment of a firm’s governance quality. Most basically, firms with relatively worse corporate governance pay higher D&O premiums. This simple relationship could signal important information to investors and other capital market participants. Unfortunately, the signal is not being sent. Corporations lack the incentive to produce this disclosure themselves, and U.S. securities regulators do …
Uncovering A Gatekeeper: Why The Sec Should Mandate Disclosure Of Details Concerning Directors' And Officers' Liability Insurance Policies, Sean J. Griffith
Uncovering A Gatekeeper: Why The Sec Should Mandate Disclosure Of Details Concerning Directors' And Officers' Liability Insurance Policies, Sean J. Griffith
Faculty Scholarship
This Article explores the connection between corporate governance and directors’ and officers’ (D&O) insurance. It argues that D&O insurers act as gatekeepers and guarantors of corporate governance, screening and pricing corporate governance risks to maintain the profitability of their risk pools. As a result, in a well-working insurance market, D&O insurance premiums would convey the insurer's assessment of a firm's governance quality. Simply stated, firms with better corporate governance would pay relatively low D&O premiums, while firms with worse corporate governance would pay more. This simple relationship could signal important information to investors and other capital market participants. Unfortunately, the …