Perhaps the most pressing issue for businesses today is the recognition that the lines between personal accountability and corporate responsibility are becoming increasingly blurred

In the heart of the Middle East, a region marked by rapid corporate growth and complex regulatory frameworks, two high-profile legal cases have recently caught the attention of executives and investors. The former management teams of companies in the UAE and Oman found themselves entangled in lawsuits that resulted in financial damages totaling nearly $200 million.

Once pillars of their respective markets, these companies sued their former executives, seeking amends for alleged misconduct, ranging from corporate governance violations to mismanagement and financial misreporting.

While the cases themselves are noteworthy, it is the broader implications of these events—especially for executives, investors, and company boards—that deserve scrutiny. Such cases beg the question: Who bears the true cost of mismanagement? Is it the executives, whose personal assets and reputations are at risk? Or does the business ultimately shoulder the financial burden, particularly when claims arise from actions taken by management on behalf of the company?

As businesses scale and diversify, so does the complexity of legal exposure for directors and officers. Executives can often be named personally be as part of legal action. But despite personal liability, the company may ultimately bear the financial risk. In these volatile environments, the necessity of protecting key personnel—and, by extension, the company itself—becomes increasingly clear.

Liability exposure: The growing risk for directors and officers

As corporate governance and legal systems develop rapidly in our region, it is an uncomfortable truth that directors and officers face growing liability exposure when undertaking their corporate responsibilities, specifically when their decisions have the potential to lead to losses, shareholder dissatisfaction, or violations of statutory obligations. In both the UAE and Oman, the legal systems hold directors personally liable for negligent actions (or failing to act) that result in financial harm to shareholders, employees, and other stakeholders. This level of personal exposure is particularly acute when regulatory authorities are involved, as we have seen in recent cases.

Consider the ongoing criminal case in Oman, where a claim has been brought by the company against former management, for mismanagement and financial misrepresentation, resulting in a staggering OMR 50 million (roughly $130 million) claim. The financial repercussions are significant, but the broader implications for executive behavior are just as critical. What happens when these individuals are held accountable, but the financial strain weighs heavily on the company?

While directors face a legal burden which can take several years to play out, the company’s balance sheet has already incurred the loss. The potential for a conflict between personal accountability and corporate responsibility is a real concern. For companies in the Middle East, where legal frameworks are becoming increasingly stringent, the risk of financial instability—due to mismanagement claims or regulatory fines—can bring down even the most robust organizations.

Global markets, too, have witnessed an uptick in similar trends. For example, the United States has seen a steady rise in shareholder derivative actions and regulatory investigations. Over the past 10 to 15 years, there has been an increase in shareholder activism, with more investors willing to bring actions against boards of directors which they believe have mismanaged the company. According to Stanford Law School, securities class action (SCA) filings in the US increased slightly year-over-year, with 222 filings in 2024, compared to 212 filings in 2023. The stakes are high, and the global risk landscape for executives continues to evolve.

Protecting the company

In such a high-risk environment, where executives have a duty to act in the best interests of the company, whilst concurrently accepting significant personal liability, Directors & Officers (D&O) insurance plays an indispensable role. At its core, D&O insurance is designed to protect individuals from personal financial stress associated with defending legal action brought against them in relation to their professional conduct. D&O insurance also safeguards the company itself where it might otherwise look to support their employee financially. Legal costs, settlements, and judgments can drain an organization’s financial resources, especially when management is accused of corporate wrongdoing

The company in the UAE referred to above was involved in a lawsuit over alleged abuse of power, mismanagement, and squandered funds, and is battling a claim for AED 152 million ($41.3 million). The case is ongoing, but the broader picture is dire: the costs of defending such claims are often prohibitive for the company, and the financial penalties can be crippling. In this context, D&O insurance becomes more than just a safety net for individual executives, but more of an essential tool to protect the company’s long-term viability.

The critical role of policy provisions

As, board members, executives and employees become more aware of the risks they face, understanding the finer details of D&O insurance policies is paramount. Key provisions such as “insured vs. insured” exclusions, misconduct clauses, major shareholder exclusions and authorization requirements can significantly affect the extent of coverage.

In particular, the “insured vs. insured” exclusion can limit coverage when a claim is brought by one insured party (such as the company itself) against another insured party (the executives). This provision is critical, as it can significantly alter the way a claim is handled and can lead to situations where neither the company nor the executives are fully protected. Similarly, policies may contain clauses that exclude coverage for intentional misconduct, making it important for boards to clearly define and understand what constitutes “mismanagement” or “misconduct” under their policy. Moreover, authorization clauses determine when, how and if an “Insured Person” is allowed by their employer to make use of the policy  

Perhaps the most pressing issue for businesses is the recognition that the lines between personal accountability and corporate responsibility are becoming increasingly blurred. The companies that succeed in today’s evolving business environment will be those that prioritize robust risk management frameworks, strong corporate governance, and comprehensive protection mechanisms for both executives and the business as a whole.

Business risks: Who bears the cost when losses mount from decisions gone wrong?