Business leaders fear emergence of compensation culture

"European and Asian companies believe that a US-style compensation culture is already well established, and there is a real danger that boards in these regions lack the experience of dealing with such a litigious environment," warned the report. "Organisations operating there may need to spend substantial time and resources improving their infrastructure, skills and capability to respond to this trend."

The research, conducted among 183 board level executives across the world, found that half of directors feel more exposed to direct litigation against them than they did three years ago.

The survey investigated to what degree companies are being held more responsible for their activities and to what extent that liability stretches to individual directors.

It found that liability and the legal activity surrounding it is increasingly a part of directors' lives, and that 13% of a board's time is now spent discussing litigation, a proportion which the executives expect to rise.

"There is strong agreement that valuable resources are being spent on legal issues that could be deployed elsewhere," said the report. "With 58% of respondents using lawyers more frequently and 47% reporting a rise in the cost of directors’ and officers’ insurance, one third of companies are passing the cost on to customers through higher prices, and even more expect to do so in future."

"Most significantly of all, about one third of businesses have become more risk averse and less likely to invest in new business opportunities as a direct result of concerns about litigation," it said.

"With the development of success fees and third party funding, litigation is becoming big business," said Tom Stocker, a litigation lawyer at Pinsent Masons, the law firm behind OUT-LAW.COM.

"There is also a very real fear of personal liability for failures to comply with the laws that regulate business in the UK and overseas. We are seeing an increasing trend of regulators taking enforcement action against directors and senior managers for regulatory breaches," said Stocker.

The report recommended that businesses spend less time dealing with existing problems and more time dealing proactively with future risks.

"Boards already think that they spend too much time on liability and litigation issues, but this could be spent more wisely and even reduced if they switched their focus to emerging risks rather than concentrating on issues which are already subject to legal and regulatory activity," it said.

The executives themselves identified the areas of likely future risk as being technology and security, environmental liability and corporate governance.

"After a decade of high-profile company failures and the sub-prime crisis currently in the news headlines, boards are not yet convinced that business has fully got to grips with issues around transparency and disclosure," it said.

Stocker said that companies should make concrete plans that assess and provide for risks in their business. "Companies can help protect themselves from liability by putting in place risk management procedures and policies, and ensuring that the arrangements for contracting are tight," he said.