From the Society for Corporate Governance Society Alert: In this article, “Has D&O Liability’s Dangerous Twin Arrived?,” a specialty insurer posits that increasing public scrutiny of directors and officers is creating reputational risks that may not be addressed by traditional D&O liability coverage.
Reputation risk is manageable rather than merely meteorological. A board that has neither governed its reputation risk nor transferred it has a plausible negligence story forming against it—in the court of public opinion first, and potentially thereafter in courts of a more formal variety.
Has D&O Liability’s Dangerous Twin Arrived? D&O liability insurance—the governance safety net predecessors fought to establish forty years ago—does not respond to D&O professional disability. D&O reputation insurance does.
If reputation risk is real, directors and officers stand to be professionally disabled by a crisis exploited by investor, social or political activists.
“In practical terms, reputation risk reflects the misalignment between what a company does and says, what various stakeholders expect and how they respond in financially relevant ways. The choices and response of those stakeholders — buying, investing, advocating, protesting, regulating, criticizing or leaving — carry consequences for a business and its operating environment, and sometimes entire industries. These are the under appreciated and tangible costs of reputation risks worth considering with more ongoing foresight”…and financial solutions like reputation insurance and board-level Side R protections.
Reputation Metrics Linked to Board-Level KPIs. Firms are … managing (reputation) as a measurable enterprise risk.
Podcast: Target’s stock price drop suit calling for a board refreshment convinces directors to mitigate humiliation risk with reputation insurance.
Governance today is a balancing act necessitated by the backlash to ESG and DEI policies. Searches for “reputation insurance” are surging.
There are 45 companies (combined value $10 trillion) on the MAGA anti-DEI hit list.“The worst thing that can happen to a company is: You’re still on that list, but you’ve lost all your good faith and credibility with folks on the other side of these issues.” We call this situation a reputation crisis and a clear need for reputation insurance.
As SEC sees it, we live in a Manichean world where allies are pliant, and anyone who is anything else, is an activist. No more engagement to offer a gentle nudge. “Investors that threaten to vote against directors’ reelection if the company is not aligned with their stewardship policies or views on environmental, social or governance issues will not be considered passive and must instead file a Schedule 13D as activists, according to a new compliance and disclosure interpretation released by the SEC’s Division of Corporation Finance this week.