2/10/14&

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UNDERSTANDING+EXECUTIVE+RISK+
D&O+LIABILITY+
&

&
TIM&NORTHROP &
&
&
&
VICE&PRESIDENT &
&
&
&
CHIEF&INSURANCE&OPERATIONS&OFFICER

&
&
&

&

&
&
&

& & &&

&
&
&

&
&
&

&
&
&
&

&
&&
&&&&&&& &BOB&KYTE&
&
&
&&&&&&&&&&PRESIDENT&
&&&&&CHIEF&EXECUTIVE&OFFICER&

WHAT+IS++
DIRECTORS&AND&OFFICERS&COVERAGE?&
Provides&coverage&for&losses&for&individuals&
(organizaMon)&that&lead&out&in&church&governance&
either&as&ocers&of&the&organizaMon&or&members&of&
commiTees&and&boards&are&legally&obligated&to&pay.&&

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WHO+IS+
A&D&O&IN&THE&CHURCH&

&

&
PAST,+PRESENT+AND+FUTURE+
&
Directors&
Ocers&
Managers&
CommiTee&Members&
Board&Members&

YOUR&PERSONAL&ASSETS&
ARE&AT+RISK+

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NONPROFIT&ORGANIZATIONS&
LEADING+LOSSES+

Donors&
Failure&to&Disclose&
DiscriminaMon&
Harassment/HumiliaMon&
RetaliaMon/Whistle&blower&
Breach&of&Contract&
Failure&to&hire&or&promote&
Defense&Cost&&

THE&CHURCHES&&
D&O+

&
Master&Policy&&

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IMPORTANT&ITEMS&&
Limit&&$US25,000,000&per&claim/aggregate&

&
DeducMbles&&
Individuals&US$0&
OrganizaMon&US$25,000&
&
&

IMPORTANT&ITEMS&&
ITEMS+NOT+COVERED+
&
Insured&vs.&Insured&
Dishonesty&
Professional&Liability&
Medical&Services&
Professional&Services&
Regulatory&Claims&
Sexual&Abuse/MolestaMon&
AnM&Trust&
Bodily&Injury/Property&Damage&
Personal&Prot&

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SO&WHAT&IT&COVERED?&

Defense&Cost&
UnintenMonal&Errors&
Breach&of&CondenMality&
Inaccurate&or&Inadequate&Disclosure&
Decisions&exceeding&the&authority&granted&to&a&
company&ocer&

PREVENTING&LOSSES&

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OUR+CHALLENGE+
The&development&of&all&our&powers&is&the&rst&
duty&we&owe&to&God&and&to&our&fellow&men.&&No&
one&who&is&not&growing&daily&in&capability&and&
usefulness&is&fullling&the&purpose&of&life.&
E.&G.&White.&Christs(Object(Lessons,&pp.&329k330&
&

13&

OUR+CHALLENGE+
EecMve&governance&by&the&board&of&a&
nonprot&organizaMon&is&a&rare&and&unnatural&
act&
Taylor,+Chait+and+Holland+
The&New&Work&of&Nonprot&Boards&
Harvard(Business(Review,&SeptkOct&1996&

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++
BOARD+EXCELLENCE:+

ROLE+AND+FUNCTION+OF+DIRECTORS+

Care&

Loyalty&

&&

Obedience&

DUTIES+OF+BOARD+MEMBERS+

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THE+DUTY+OF+CARE+

Refers&to&the&level&of&competence&expected&
Common&standard:&&an&ordinary&prudent&
person&

THE+DUTY+OF+CARE+
Duty&of&aMending&meeMngs&on&a&regular&basis&
Duty&of&exercising&independent&judgment+
Duty&of&being&adequately&informed&for&making&
decisions&
Duty&of&being&acMvely&involved&in&the&
oversight&of&the&organizaMondiligence&
Duty&of&risk&management&

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THE+DUTY+OF+LOYALTY+

Corporate&posiMon&not&for&personal&advantage&
Standard&of&faithfulness&to&the&organizaMon&

THE+DUTY+OF+LOYALTY+Contd&
Undivided+allegiance+when&making&decisions&
Conict&of&interest&rules&
Awareness/disclosure/decision/documentaMon&

Duty&of&loyalty&breached&when&members&use&
organizaTonal+property+or+resources+for&
personal&purposes&
Maintaining&condenTality&of&privileged&
informaMon&

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THE+DUTY+OF+LOYALTY+Contd&
Loyalty&is&absolute&
Conict&of&interest&
Duty&of&fair&dealing&
Disclosure&of&material&facts&
No&AppropriaMon&of&corporate&opportunity&
DominaMng&directors&or&managers&
CondenMal&or&inside&informaMon&
Cannot(talk(about(it(and(cannot(use(it(
No&Personal&advantage&

THE+DUTY+OF+LOYALTY&Contd+
Conicts+of+interest+
Corporate+opportunity+V+providing&the&organizaMon&to&
which&one&serves&as&a&Director&the&benet&of&
opportuniMes&that&arise&that&would&enhance&the&
organizaMon&as&opposed&to&assuming&these&for&
personal&gain&or&for&the&benet&of&some&other&
organizaMon&or&person&
CondenTality+V+it&is&inappropriate&for&a&Director&in&the&
regular&course&of&business&to&disclose&informaMon&
about&the&organizaMons&acMviMes&unless&they&are&
already&known&by&the&public&or&are&of&public&record,&or&
the&Director&has&been&requested&by&the&organizaMon&to&
provide&the&informaMon&to&others&

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CONFLICTS+OF+INTERESTS+

WHAT+IS+CONFLICT+OF+INTEREST?+
General+Conference+Working+Policy+E+85V05+
DenedConict+of+interest+shall&mean&any&
circumstance&under&which&an&employee&or&
volunteer&by&virtue&of&nancial+or+other+personal+
interest,&present&or&potenMal,&directly&or&
indirectly,&may&be&inuenced&or&appear&to&be&
inuenced&by&any&moMve&or&desire&for&personal&
advantage,&tangible&or&intangible,&other&than&the&
success&and&wellkbeing&of&the&denominaMon.&

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BLACKS+LAW+DICTIONARY+
DEFINES+CONFLICT+OF+INTEREST+
A&real&or&seeming&incompaMbility&
between&ones&private&interests&and&
ones&public&or&duciary&duMes&

CONFLICT+OF+INTEREST+
Three&basic&rules:&
& &1.&&Declare&
& &2.&&Decide&
& &3.&&Document&

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CONFLICT+OF+INTEREST+
Cases&fall&into&three&categories:&
!Require(disclosure((inconsequen=al)(
!Require(prior(approval!Prohibited"Illegal(
"unethical(

WHO+CAN+HAVE+A+
CONFLICT+OF+INTEREST?+
A. Board&Members&
B. Ocers&
C. Employees&
D. All&of&the&Above&
E. None&of&the&Above&

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INDEPENDENT+DIRECTOR+
/+CONFLICT+OF+INTEREST+
Independent+Director+
A&structural&maTer&
Directors&posiMonal&
relaMonship&to&the&
organizaMon&

Conict+of+Interest+
An&episodic&maTer&
Directors&potenMal&for&
bias&in&a&specic&
decision&

SERVING+ON+MULTIPLE+BOARDS+
You&can&sit&on&two&corporate&boards&so&long&as&
faithful&in&performance&of&duMes&
GCkWP:&&Because&of&common&objecMves&
membership&held&concurrently&on&more&than&one&
denominaMonal&commiTee&does&not&of&itself&
consMtute&a&conict&of&interest&provided&that&all&
the&other&requirements&of&the&policy&are&met.&

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CONFLICT+OF+INTEREST+
REQUIRING+DISCLOSURE+
Serving&on&2&corporate&bodies&at&the&same&Mme&which&
are&involved&in&the&same&transacMon&
Involvement&with&company&that&does&business&with&the&
organizaMon&or&church&
Making&referrals&or&direcMng&purchasing&opportuniMes&to&
business&in&which&you&or&family&have&an&interest&
FavoriMsm&in&employment&
Hiring,&salary,&work&responsibiliMes,&evaluaMons,&
promoMons,&terminaMon&&

CONFLICT+OF+INTEREST+
REQUIRING+PRIOR+APPROVAL+
Processing&signicant&nancial&interest&in&
business&involved&with&the&organizaMon&
Lending&or&borrowing&funds&to/from&third&parMes&
involved&with&the&organizaMon&or&the&
organizaMon&itself&
Using&condenMal&informaMon&obtained&from&
your&posiMon&on&the&board&

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CONFLICT+OF+INTEREST+PROHIBITED+Contd&
Cannot&derive&any&personal&prot&by&reason&of&posiMon&
Immaterial&whether&organizaMon&was&damaged&
Duty&of&good&faith&to&disclose&
TransacMon&may&be&authorized&
DiverMng&opportunity&away&from&organizaMon&to&self&
Buying&or&leasing&property&with&knowledge&that&
organizaMon&has&acMve&or&potenMal&interest&in&it&
Making&use&of&or&disseminaMng&informaMon&acquired&
through&organizaMonal&service&for&personal&prot&

CONFLICT+OF+INTEREST+
Is&not&an&accusaMon&
Does&not&imply&judgment&has&been&compromised&
Is&not&inherently&wrongissue&is&how&it&is&
handled&
Is&a&potenMal&breach&of&obligaMon&to&organizaMon&
PotenMally&advances&ones&interests&in&a&way&that&
is&harmful&to&the&organizaMons&integrity&or&
mission&

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WHY+DISCLOSE+POTENTIAL+CONFLICTS?+
Allow&prevenMve&measures&for&actual&conict&of&
interest&
Protect&individuals&in&cases&of&apparent&conict&of&
interest&
Permits&systemaMc&way&of&managing&conict&
Increases&transparency&and&condence&for&
consMtuency&

WHERE+CAN+WE+FIND+GUIDANCE?+

Statutory&provisions&
Corporate&bylaws&
Corporate&policies&
CondiMons&imposed&by&third&parMes&
Government,&banks,&funding&agencies,&etc.&

Church&Working(Policy(

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WHAT+TO+DO+WHEN+CONFLICTS+ARISE+
Disclose+in+wriTng+
If&approved,&conMnue&acMvity&
Withdraw+from+the+decisionVmaking+process&
No&voMng&
No&parMcipaMon&in&consideraMon&
No&discussion&
No&presence&
No&inuence&

CONFLICT+OF+INTEREST+
Possible+consequences&
Unfavorable&press&coverage&
Financial&loss&
Criminal&prosecuMon&
Civil&legal&acMon&
Disciplinary&acMon&
Loss&of&reputaMon&

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THE+DIRECTORS+DUTY+OF+OBEDIENCE&

THE+DUTY+OF+OBEDIENCE+
Making&sure&the&organizaMon&remains&obedient+
to+its+purpose+and+role+(i.e.,&faithful&to&SDA&
mission,&beliefs,&culture&pracMces)&
Duty&of&compliance&with&laws&
Obedience&to&the&Charter&and&Bylaws+
Fullling&commitments,&including&previous&ones&

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DIRECTOR+KNOWLEDGE+
Must&know&cornerstones&of&CorporaMon&
Charter,&LeTers,&Patent,&Act,&ArMcles&of&
IncorporaMon&
Bylaws&
Understand&how&to&put&purpose&into&pracMce
Mission,&Vision&and&Values&
Constant&review&

DIRECTOR+DILIGENCE+
Exercise&care&
Common&law&
Statutory&

Reliance&on&counsel&or&experts&
Reliance&on&ocers&and&employees&
Supervision&of&ocers&and&employees&
Duty&to&monitor&
Misuse&of&corporate&funds&
Waste&

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DIRECTOR+DILIGENCE&Contd+
Act&in&best&interests&of&CorporaMon&
AcMve&involvement&
ATend&the&meeMngs&and&commiTees&
Review&the&documents&

Be&fully&informed&
Thoroughly&acquainted&with&purpose&and&policies&of&
organizaMon&
Review&agenda&and&material&
Prepared&to&discuss&business&
Vote&on&all&maTers&

HOW+TO+FILE&A&CLAIM&
EVMAIL:+jvellioT@advenMstrisk.org&
&
PHONE:&301k680k6808&
&
FAX:+(301)&680k6878&
&
MAIL:+
AdvenMst&Risk&Management&
ATenMon:&Victor&Elliot&&
12501&Old&Columbia&Pike&
Silver&Spring,&MD&20904k6600&

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???+QUESTIONS+???+

THIS&POWER&POINT&PRESENTATION&AND&ANY&MATERIALS&DISTRIBUTED&ARE&FACT&BASED&GENERAL&INFORMATION&
AND& SHOULD& NOT,& UNDER& ANY& CIRCUMSTANCES,& BE& CONSIDERED& SPECIFIC& LEGAL& ADVICE& REGARDING& A&
PARTICULAR&MATTER&OR&SUBJECT.&PLEASE&CONSULT&YOUR&LOCAL&ATTORNEY&OR&RISK&MANAGER&IF&YOU&WOULD&
LIKE&TO&DISCUSS&HOW&A&LOCAL&JURISDICTION&DEALS&WITH&ANY&SPECIFIC&CIRCUMSTANCES&YOU&MAY&BE&FACING.&

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