The rising incidence of shareholders taking legal action against directors has led to growing demand for insurance cover against this risk. Ian Faragher, chief executive of the Hong Kong office of United States-based Chubb Group of Insurance Companies, said that in many advanced overseas markets almost all listed companies had insurance cover to protect directors or executives from the risks of being sued by shareholders. Under the cover, insurers would pay costs and compensation awarded by a court which might find directors or executives had failed their fiduciary duties due to incompetence, ignorance, negligence or dishonesty. 'In the United States, financial advisers face a storm of litigation from investors who lost money by following analysts' recommendations,' he said. For example, he said, a recent threatened action had resulted in Merrill Lynch paying US$400,000 to a client to drop a lawsuit against Henry Blodget, its high-profile Internet analyst. In Hong Kong, since litigation against directors was rare, only about 40 per cent of locally listed companies had purchased this type of insurance cover. He predicted this would change soon, since the Hong Kong Government and local regulators had been stepping up efforts to promote corporate governance standards. As part of this programme, changes are proposed to make it easier for investors to sue directors. A Government-appointed committee last month published a consultation paper recommending a range of amendments, including this proposal. In other proposed amendments to legislation related to corporate rescue plans, the Government has also suggested empowering creditors to sue directors for compensation if they are found to have allowed companies to continue trading when they knew they were insolvent. Mr Faragher said Hong Kong had the highest corporate governance standards in Asia, but there remained areas for improvement. One area was the predominance of family representation on the boards of many locally listed companies, which left little room for independent directors. This was common around Asia, he said. Even in Western countries, the concept of good corporate governance had been aggressively promoted only for the past 15 years, and Asian regulators would catch up. Mr Faragher said insurance companies would take a selective approach to selling policies to cover litigation their directors or executives might face. Chubb Group would offer insurance cover only to directors or executives who had demonstrated that they applied high standards of corporate governance. 'We believe good corporate governance is good business. We work with and support companies that are honestly and decently governed,' he said.