D&O

Derivative litigation strategies engineered to crush puffery defenses without offending Caremark are new and menacing; but for those who oversee and monitor reputation risk, innovative governance, leadership, controls and insurances can thwart these perils.

Marchand v Barnhill and In re Signet heralded reputation risk’s breach of boardroom doors. D&O coverage is insufficient to protect Directors and Officers against personal reputational damage caused in the court of public opinion.

“Stakeholder Expectations: Investors, regulators, and legislators keep raising the bar for boards on the oversight of everything…”

Adaptive Governance: Board Oversight of Disruptive Risk, National Association of Corporate Directors

Advisory Business Purpose

Reputation is a product of social, political and economic factors. Reputation is a vital asset of a firm, which boards have a duty to protect. Reputation risk management and financing, when deployed enterprise-wide under the oversight of a knowledgeable, robust reputation risk governance program, can help reduce a board’s exposure to shareholder derivative suit liabilities and to damage in the court of public opinion.

Deliverables

Reputation is a product of social, political and economic factors. Reputation is a vital asset of a firm, which boards have a duty to protect. Reputation risk management and financing, when deployed enterprise-wide under the oversight of a knowledgeable, robust reputation risk governance program, can help reduce a board’s exposure to shareholder derivative suit liabilities and to damage in the court of public opinion.

To enable a client’s board to better meet its duties of oversight and monitoring, the deliverable comprises an actionable report of reputation governance discrepancies for senior management to rectify and integrate with the existing enterprise risk management apparatus, policies and procedures.

In addition, at the conclusion of the engagement, the client’s board members should:

  • Comprehend the meaning of reputation, reputation risk, reputation crisis, reputation risk management, and reputation insurance.
  • Appreciate the integration of social, political, cultural and regulatory expectations.
  • Understand how the board sets expectations among stakeholders through ‘both word and deed.’
  • Understand the apparatus, policies and procedures used by the company’s operational leadership to manage reputation risk.
  • Be secure in the use of this oversight processes and able to translate its benefits and limitations with respect to reputation risk.

Clients may also engage Steel City Re to help stand up either an ESG or reputation risk governance and management apparatus.

D&O Culpability: ESG Insurance

Reputation risk, you may be surprised to learn, is actually a class of perils. For boards, the most relevant class members include derivative litigation, social inflation (shocking verdicts), and humiliation in the court of public opinion.

If a board’s oversight of a company comes under attack forcing a director to resign, personal losses may be an annual compensation of about $275,000 a year for each corporate board they serve on, and with most serving on multiple boards, this is only the beginning of the stramash to come.

Steel City Re’s ESG Insurance is specifically designed for Directors & Officers. Underwriting of the insurance policies is led by the Lloyd’s syndicate, Tokio Marine Kiln.

“Corporate names are resilient: when their images get damaged, a change of management or strategy will often revive their fortunes. But personal reputations are fragile: mess with them and it can be fatal.”

John Gapper

Reputational damage can turn a director into a professional pariah.

If he or she becomes less desirable to the other corporate boards, that usually means millions of dollars in losses over the course of a career.

Steel City Re offers products that are a supplement to traditional D&O coverage and that protect individual corporate leadership against these types of career-altering events.

Specifically, with corporate ESG activities drawing heightened scrutiny and posing both legal and reputational risks when they fail to meet expectations, Steel City Re launched in September 2021 ESG Insurance. The policy pays for extraordinary “strategic managerial and governance actions signaling corporate values” that may arise in the context of an ESG crisis.

An ESG Insurance Fact Sheet can be downloaded from a link above under the heading of ESG Insurance.

What’s your strategy?

Reputational risk is a concern for every company, organization or individual in corporate leadership. Let us help develop your strategy for reputational resilience.

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