An insurance firm-sponsored survey has found private companies increasing their exposure to management liability risks. The findings contrast with evidence that such companies are implementing Sarbanes-Oxley type good practices.

The 2005 Chubb Private Company Risk Survey found that 67% of private companies are likely to broaden product offerings 20% to reduce or eliminate employee benefits, 18% to add an outside board member and 27% plan a major acquisition.

Lisa McGee from Chubb Specialty Insurance commented, "As privately held companies continue to escalate their activity in areas that were once considered the domain of large publicly owned companies, they have increased their exposure to potentially costly liability- related lawsuits, as well as to crime events such as workplace fraud and extortion. In an area such as directors and officers liability, the stakes can be especially high and financially devastating."

"Private companies have many of the same exposures as publicly traded companies," said McGee. ""For instance, outsourcing jobs can lead to an employment practices liability lawsuit alleging discrimination and/or wrongful termination, and an expansion of products or services can increase a company's risk of an errors and omissions lawsuit. These and other activities are often triggers to lawsuits, potentially placing the firm in greater financial peril.""

Considering the risks involved, 33% of companies do not purchase any type of management liability insurance. (defined in the survey as directors and officers liability, employment practices liability, fiduciary liability, errors and omissions, crime, kidnap/ransom and extortion, and workplace violence expense).

The main reasons were "no need" or "low risk", despite this two-thirds of the companies had experienced this kind of event in the past five years.

Private companies are doing something to mitigate corporate risk. Nine out of ten have written procedures banning employment discrimination and sexual harrassement.

44% have a published corporate government program and 24% have implemented rule from the Sarbanes-Oxley Act.

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