Reputation Insurance Protects…

Inveighing against directors personally with an innovative strategy, plaintiffs allege in a recent stock price drop case that Target’s board is both illegitimate and an ongoing threat to the firm’s reputation and value. The complaint strategically tars the personal reputations of Target board members.

For plaintiffs, this new strategy is a risk-free infliction of coercive pain. For directors and officers, it potentially leaves them exposed beyond the penumbra of D&O liability insurance.

In this success story, three directors meet to discuss their concerns.

An hour after the firm’s annual general meeting, three non-executive board members were huddling at an off-site bar.

“Well that was not pleasant,” the lead director declared, placing his empty martini on the table. “I was named lead director because of my position on ESG and DEI and now, well…”

“That’s not even the half of it,” the second director said.  “There are activists for every position on every issue and no one is happy. In all my years, I’ve never seen such anger; now it’s happening to all the boards on which I serve.”

“They’re collecting scalps,” opined the third and newest board member. She didn’t add that online chatter had already accused her of being a DEI hire.

The lead director signaled to the waiter for another round of drinks.

Activist investors last year bagged 119 board seats,” he said, “and their campaigns this year are already up 40%.”

“Yeah, they’re running public campaigns,” said the new director. “They’re using social media, including Reddit, TikTok, and X to amplify their messaging and, frankly, to humiliate us.”

“It’s the nastiness that gets me.,” said the lead director.

The second director nodded as he spoke. “It’s hard to stay on the “right” side of an issue when you don’t know who’s going to come after you next…and for what. Friendly fire too. PwC’s latest survey said that 25% of board members would like two or more peers kicked off? It’s all just so…”

His voice trailed off as he reached for his cocktail.

“Cold,” added the third one. All of them sat in silence.

“Are either of you familiar with the latest lawsuits against Target over the 2023 Pride Month campaign?” asked the lead director once his glass was half empty.

“You mean the class action stock price drop case also claiming fraud on the proxy,” answered the second. “They’re calling the whole board illegitimate.””

“What, are activists alleging a board of bastards?” asked the newest director.

“I think it’s strategic nastiness,” said the lead guy.

“Cold. Very cold,” muttered the new director, downing the last of her drink.

“However the case goes, the Target board is wounded,” said the lead director, looking again for the waiter.

“They’ll settle,” he continued, “but some directors are going to have the exit the board to convince shareholders that it won’t happen again, whatever ‘it’ was.

“The bottom line is that we board members are facing an increasingly unmanageable and ungovernable risk that on some seemingly random basis, is going to leave a number of us hurt,” said the second director.

“Well, we have excellent D&O liability insurance,” the newest director added. “Be…better, probably than the Target board, right?”

“It won’t help,” the second director said. “Our personal going-forward losses after we are invited for that unpleasant exit conversation are not covered. I think the activists want us to be very afraid of being personally humiliated. That would make me radioactive for all of my boards.”

“You and the chairman go way back. Dollars to donuts I’m first to be voted off the island,” added the third.

“I recall when I was a risk manager during the 1980’s litigation crisis,  the CFO pounded us to get D&O liability insurance for our board”, the second director shared. “Shouldn’t our company buy reputation insurance for us?”

The lead director nodded.

“Our Chief Risk Officer told me that Steel City Re has an insurance product called Side R,” he said. “He thinks  it’s the solution for what are talking about because it covers future costs and losses due to personal reputation damage. It’is one of those  innovative parametric insurance products.

“Side R,” the new board member said. “I like the sound of it. Like it’s on our (R) side in case we need it. We should ask for that, shouldn’t we?”

“My CFO told me boards were not politely asking for insurance when they were being sued in the 1980’s,” added the second guy. “Here we are exposed again, this time to personal humiliation and reputation damage. We need to demand Side R.”

“I’ll take that as my action item,” said the lead director. “I’m reviewing the AGM with our Chairman tomorrow morning and I will insist on his support for Side R reputation insurance for all the members of our board of directors.”

They sat in silence again, pondering what would come next.

With reputation risk forecasting, management, and insurance, Steel City Re helps companies build and prove to stakeholders their thoughtful risk management and dutiful governance over all that is mission-critical. It is an authenticated story stakeholders can appreciate and value.