Directors to face range of threats in 2024

Directors are predicted to face a range of threats in 2024, including litigation over insufficient climate change action, regulatory enforcement actions over generative AI, increased cyber exposure, and rising geopolitical tensions. This is according to financial lines specialist underwriting agency Rising Edge’s predicted trends for 2024.

Rising Edge said that 2024 will continue to see a shift from voluntary climate disclosure regimes to regulatorily mandated climate related disclosure regimes, including the SEC’s proposed rule and the EU’s Corporate Sustainability Reporting Directive, creating an increased risk with the potential for claims.

The agency added: “It is important to note that a changing landscape for climate disclosures is not the only effect the climate crisis has had on directors and their duties. We have also seen activist groups bring claims against directors for insufficient climate change action, and we expect to see more of this type of litigation in 2024.”

Another trend is the increased use of AI and emerging technologies in the boardroom, which coupled with increased cyber exposure will drive D&O claims. “The use of generative AI is an increasingly important topic for directors to grapple with, as businesses look to implement efficiencies into their practices and processes. This, though, comes hand in hand with D&O liability risks. It is clear already that generative AI is a focus area for regulators,” said Rising Edge.

It explained: “Boards that rely on emerging technologies, such as AI, but fail to implement the requisite risk management frameworks or communicate associated risks to stakeholders, will be putting themselves at risk. So too will boards that overstate these technologies’ potential impact to investors. These trends will add further pressure to CISOs/CTOs, as they grapple with a changing regulatory environment, evolving cyber exposures, new technology and increased disclosure requirements. We expect to see more regulatory enforcement actions targeting individuals on these issues in 2024.”

There is a clear link between rising geopolitical tension and D&O liability exposure, according to Rising Edge, pointing to securities class action lawsuits filed in 2023 for which trade issues between the US and China were cited as a key issue.

“We predict more geopolitical flashpoints in 2024, further complicating international trade, and creating a more complex environment for directors to operate in. A key challenge related to the macroeconomic environment will be the ongoing pressure that the high inflation/ interest rate environment brings to balance sheets and business’ ability to continue trading,” it said.

Finally, the agency said there will be another large-scale corporate collapse or scandal in 2024, which could bring about further debate around the importance of the non-executive-director (NED) role in providing independent oversight and challenging the executive. In the aftermath of such a scandal in 2024, NEDs could be targeted and scrutinised by regulators.

Rising Edge added one final trend for 2024, which it described as a ‘wildcard’ prediction: “Multiple devastating space debris collisions could cause widespread satellite failures and disruptions to global communication, navigation and earth observation systems, ultimately exposing D&Os to unprecedented risks.”