Directors' fear of litigation increases

Research by Eversheds has shown that most executives fear solicitors, with 70 per cent of directors in Britain and Northern Ireland claiming they are more likely to be prosecuted than five years ago.

After the Sarbanes Oxley Act came into force five years ago, this survey of senior managers and directors has revealed how exposed top executives are to liability claims in an increasingly regulated global trading climate.

Due to the Sarbanes Oxley Act in the US and the Foreign Corrupt Practices Act (FCPA), only 35 per cent of directors said that new regulations in America had encouraged better practice in the UK. Moreover, one in ten of businesspeople said that they had been adversely affected by intervention due to US laws.

As 70 per cent of UK directors said they faced more personal criminal liability than they would have five years ago, Eversheds says that worries may have been caused by the controversial Extradition Act.

Regarding the Act, 51 per cent of directors said it should only come into force when individuals have committed an offence, while 20 per cent believe it should only be used in exceptional circumstances.

John Heaps, head of litigation and dispute management at Eversheds, said: "It is clear regulation is having an impact on UK business. What stands out in this survey is the level of concern among company directors about their personal liability and subsequent exposure to criminal penalties.

"As businesses increasingly operate on a global basis, they are exposed to new, and often more commercially regulated environments compared to the UK. The question is whether the pendulum has swung too far in the case of corporate wrongdoing and regulation, and whether this is beginning to hamper business.

"Directors certainly need to be fully aware of international regulation which applies to them in this era of greater personal liability."

Mr Heaps concluded: "The UK's approach to business is a far less regulated environment than in the US or Europe. What is important, is that any approach strikes a balance between the need to stamp out corporate wrong doing while at the same time allowing businesses and the directors who run them the freedom to flourish."

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