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Executive summary

1. Compensation culture is spreading within Europe and Asia. Directors feel increasingly exposed, while fast-growing companies may be most at risk.
There is widespread agreement among business leaders that a US-style compensation culture is spreading, especially within Europe. Globally, most firms  have experienced a lawsuit within the past three years, with actions brought by employees and customers being the most frequent.

2. Boards are allocating increasing resources to litigation issues, which is pushing up the price of products and services and leading many companies to adopt a more cautious business strategy.
On average, boards now spend 13% of their time discussing litigation and expect this to increase further over the next three years. There is strong agreement that valuable resources are being spent on legal issues that could be deployed elsewhere.

3. Business leaders are divided about the long-term economic impact of current financial market instability, but are concerned about the potential liabilities that could emerge for their business and its directors. Financial services leaders are the most pessimistic.
There is widespread concern among business leaders overall about the potential for liability issues to emerge. Just over half of those surveyed think it is likely that individual company directors will become targets for professional liability claims, and just under half think that the scale of claims arising from the sub-prime crisis will exceed those resulting from the dot com crash.

4. Business leaders are concerned about future liability issues emerging from three key sources: advances in technology, environmental damage and corporate governance.
Asked about the potential for emerging liability issues, three categories of risk are uppermost in executives’ minds. Of greatest concern overall are the risks associated with technology - such as data and system security and nanotechnology - where the understanding of risks may not keep pace with the speed of innovation. Business leaders are also concerned about emerging environmental liabilities, in the context of growing scrutiny of corporate environmental performance and fears about the impact of climate change and industrial pollution. The liabilities arising from poor corporate governance and the legislation that surrounds it are also of widespread concern.

5. Too many boards remain reactive rather than proactive in managing liability risk, and companies need to anticipate and forecast emerging risks more effectively.
Many executives interviewed for this report admit that there has not yet been board-level discussion on a range of emerging threats, even though they recognise the need to tackle the issue. Almost four in ten say that they should discuss work-related stress, but have not yet raised the issue formally, while 29% believe that they should discuss technology security but have not yet done so.

6. Boards recognise the need to manage liability risk more effectively, but face many other competing priorities. Approaching liability issues as part of an overall enterprise risk management framework could help better align risk management with other business goals
Most boards surveyed are taking positive steps to manage corporate risk more effectively but 43% have not yet adopted formal policies and procedures to manage liability risk. With competing business priorities seen as the number one obstacle to effective management of liability risk, many companies would benefit from integrating this activity within a clear overall enterprise risk management framework.