Southwest Airlines reputation crisis. At crisis day 340, Southwest equity is under performing the S&P500 index by 45.5%. Steel City Re’ Resilience Monitor warned that an operational failure was likely to trigger a reputation crisis.
“Over the course of four days at NACD Summit 2023, speakers pushed nearly 1,500 in-person and virtual attendees to think about new approaches and ways of thinking about their roles as directors in a world of crisis. […] One area that is an emerging risk in today’s environment is a company’s reputation. ‘We failed to predict that trust could be a target, just like information systems, and that there are entities out there that want you to diminish trust in our institutions…’”
Reputational risk from $1.5 Trillion ESG debt. Bankers servicing one of the world’s biggest ESG debt markets are now actively seeking legal protections to guard against the potential greenwashing allegations that may be ahead. […] Lawyers advising SLL bankers say the reputational risks associated with mislabeling such products are now too big to ignore.
Parametric reputation health risk monitoring reports. Corporate leaders, from chief marketing officers to risk management professionals to boards of directors, need better monitoring tools for risks to reputation health and the costs of reputation loss – tools like the kind of reputation volatility assessments that are used by certain reputation insurers.
“For the first time since its landmark Caremark decision, the Delaware Chancery Court has allowed a breach of oversight claim to proceed against a corporate officer when it declined to dismiss claims brought by stockholders against David Fairhurst, McDonald’s former head of human resources…”.[kos] The bottom line is that law and society are expecting better management and oversight—a touch of common sense many would say—and that disappointment (read, shift in expectations leading to anger and disappointment, aka, reputation crisis) is playing out in the courts….Companies and boards need a solid, universally applicable management and oversight process that is forward-looking to manage risk strategically. The quality of that process needs to be proactively authenticated with insurance. Compliance-focused controls, which by design are backward looking—and the audits that authenticate them—are necessary but with the evolving expectations of society, apparently no longer sufficient.
Demonstrating Quality and Effectiveness. In this recent post by the National Association of Corporate Directors, the lawyer authors write, “Documenting the board’s activities is a critical component of demonstrating management’s efforts to monitor relevant risks and board review of these efforts.” Under the DoJ’s enhanced enforcement guidelines, simply demonstrating effort is not sufficient. Demonstrating effectiveness—not merely effort—is crucial; and it is one of the strategic benefits of ESG and reputation insurances.
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