Recent Developments for Directors — July 2025

Competition Among D&O Insurers Encourages Companies to Upgrade Coverage

The D&O insurance market has become more favorable for insureds, with many insurers competing for placements, allowing enterprising companies and their counsel to negotiate expanded coverage and policy enhancements. Capitalizing on this trend, directors and senior executives are focusing on expanding their D&O insurance coverage to increase protection from litigation and multi-jurisdictional regulatory enforcement. Risk exposures include securities class actions, derivative lawsuits, SEC and other regulatory investigations, shareholder activism, M&A activity, and restructurings. As part of a comprehensive enterprise risk oversight strategy, boards are reviewing their D&O insurance programs to align insurance coverage with the breadth of risks they face while benchmarking coverage against peer companies and market-standard policy provisions.

Boards Balance Risks and Opportunities of AI Innovation

While companies leverage Al to enhance decision-making with data-driven insights and streamlined processes, boards are reviewing their processes to mitigate AI-related liability exposure. Companies use Al for broad and diverse purposes. These include analyzing financial data, forecasting market changes and operational risks, generating agendas for meetings and transcripts from them, and simulating alternative scenarios and outcomes. In response, boards and management are:

• Implementing AI governance, adopting AI policies, and training personnel on appropriate use of AI tools, ethical guidelines, transparency, and accountability 
• Reviewing third-party AI providers for compliance protocols for data privacy, cybersecurity, and related issues
• Auditing AI systems to check for bias
• Considering risks arising from use of AI tools relating to privileged, sensitive, or highly confidential information

Robust Board Evaluations Offer Protection Against Activism

As activism settlements continue, companies are prioritizing strategies to enhance and refresh their boards. As a proactive step, evaluations of the board, its committees, and individual directors can guide assessments of whether the board has the expertise needed to drive shareholder value. More S&P 500 companies are using in-person interviews in their evaluation process to gather constructive feedback and to conduct individual director and peer director assessments to ensure the optimal board composition.

SEC Roundtable Considers Whether the “Frankenstein Patchwork” of Compensation Rules Needs Surgery

In a recent SEC roundtable discussion, Chairman Paul Atkins invited feedback on whether to amend executive compensation disclosure rules. Chairman Atkins contrasted the SEC’s requirement to provide “clear, concise and understandable” compensation disclosure with the SEC’s “Frankenstein patchwork of rules” whose “volume and complexity” may be “just as scary” as “the monster was to Dr. Frankenstein himself.” Panelists called for simplifying the disclosure rules to highlight essential information for investors and questioned the rationale for current disclosure requirements. Latham is closely monitoring these developments.

Exposure to Event-Driven Class Action Lawsuits Prompts Risk Analysis

Event-driven lawsuits triggered by announcements that precede stock-price decline have increased in recent years. Securities class action claims involving financial performance also have risen significantly, including litigation over financial projections or business performance problems. Another litigation trend includes claims of exaggerating AI capabilities and lawsuits alleging long-term operational or financial effects from the pandemic. To address these concerns, companies are:

• Reviewing public disclosures with precision, including to remove hypothetical descriptions of non-hypothetical risks
• Re-assessing financial and operational risks
• Updating risk disclosures, including forward-looking statement disclaimers, to enhance protection from litigation
• Monitoring alerts from plaintiffs’ firms trolling for claims by targeting disclosure weaknesses
• Reviewing the breadth of their D&O insurance coverage