3 Tenets of Corporate Governance Your Captive Board Needs to Practice — and Why
White Paper Summary
The board of directors for any corporation owes a duty of care to its shareholders.
While state laws dictate the exact thresholds of that duty, in the most general terms fulfilling duty of care means “understanding the company and supporting its goals,” said Derick White, Managing Director, Governance & Risk Compliance Practice at Strategic Risk Solutions — and a former auditor, regulator and captive manager in Vermont.
“Board members have to ask questions, and if they rely on outside expertise, they must be able to justify that. Otherwise, directors can be held personally responsible if something goes wrong,” he said. And if recent trends in SEC filings are any evidence, shareholders are increasingly holding boards accountable for missteps.
Captive insurance companies are not immune to such actions. Whether a single-parent captive or member of a group captive or risk retention group, these companies likewise ensure the board adheres to state regulatory standards.
“After all, the board is responsible for running the company,” White said.
Practicing good corporate governance ensures that the board not only stays in compliance but actually exceeds expectations outlined by the duty of care. In addition to delivering good financial results, good corporate governance fosters better relationships with domicile regulators, underwriters, reinsurers, and other experts that make up a captive’s critical infrastructure.
White detailed three key tenets of strong corporate governance that captive boards should be addressing at every meeting:
To learn more about State of Vermont, please visit their website.