Article

Assessing, managing and transferring “social accountability” risk

May 29, 2019

Social accountability is not a new thing. Arguably, it has been around since the early days of humanity. What has definitely changed are two important things:

  • Social media has empowered individuals and the masses to find and use their voices
  • People are listening and taking action like never before

When unhappy voices can be amplified by social media to receptive ears, the result can be much more impactful to a company’s bottom line than veiled complaints, regulatory enforcement or even litigation. Social accountability, fueled by social media, can have a material impact on a company and its directors and officers in a matter of hours. For organizations, their brand and reputation can be forever damaged, negatively impacting the value of the company for shareholders. For directors and officers, professional (and sometimes personal) reputations can also be put in jeopardy, threatening current and future employment.

All eyes on culture

The #MeToo movement started as a means for identifying the prevalence of sexual harassment and holding individuals and organizations accountable. However, through recent events, where employees of several organizations walked out in response to how the organizations were handling sexual harassment matters, we have seen a new type of activism — one where emboldened employees are speaking their minds with greater regularity. These events demonstrate that we have shifted to an era where the culture of an organization will be scrutinized both internally (by employees) and externally (by regulators, consumers, shareholders, the media and others). The bottom line: Organizations and their leaders need to be proactive and prepared in order to maintain healthy relationships with the employees, retain the trust of their customers in order to remain competitive in the marketplace, avoid costly investigations and litigation and ultimately, provide a return for their shareholders.

“What we’re seeing is a reaction to what we’ve seen over the last couple of years in this country. People have seen it and realized . . . wait a minute. I have a voice in this. I’m a part of this democracy. And I think that what the #MeToo movement did was give people a lot of space to find that voice. . . . [and] I think we’ve found a moment where people can hear us now, and so our voices are elevated and amplified.”

Employees – most important assets

Sexual harassment claims continue to be a top risk for employment practices liability (EPL) and now D&O insurance. From an EPL standpoint, Figure 1 demonstrates the severity of the claims has increased year over year, particularly from 2017 to 2018. Figure 2 highlights the top five industries that have experienced more severe losses as a result of sexual harassment claims.

Figure 1. Median loss from sexual harassment case settlements 2015-2018

graph showing the median loss from sexual harassment case settlements between 2015-2018 

Source: Nationwide and Advisen data, 2019

Figure 2. Top five median losses by industry

top five median losses by industry: 1. Financial and insurance 2. Professional, scientific, and tech services 3. Educational services 4. Manufacturing 5. Retail trade 

Source: Nationwide and Advisen data, 2019.

Solutions

Today’s social accountability compels fresh thinking. How can we better identify, assess, mitigate and transfer this risk?

Take action:

  1. Attention to corporate culture may be the best defense. Cultivating a culture that avoids and mitigates crises effectively should be a critical organizational ambition. Tools, such as culture surveys, can help you and management improve your organization’s risk profile.
  2. Update your crisis management assessment and plans. Then, test those plans. Organizations and executives confronted with a crisis need to be proactive in order to react quickly.
  3. Explore risk-transfer opportunities with industry and product specialists, including crisis and reputation risk coverages. Ask whether the coverage in your current suite of insurance products can be enhanced to better respond to today’s social accountability exposure and/or consider stand-alone reputation insurance, a product that more insurers are offering — it covers crisis management services and the loss of profit if revenues are affected by the crisis.