Risk & Business Magazine JGS Insurance Magazine Spring 2019 | Page 25

RISK FROM SOCIAL MEDIA
SOCIAL D&O:
THE REPUTATIONAL RISK FROM SOCIAL MEDIA
I
n the connected world of social media,
it should come as no surprise that one
tweet gone awry can spell disaster
for the person who sent it. Especially
considering the inability to convey
intent or context in such a short space.
Many companies face the unfortunate
reality of being publicly exposed to the
impacts of what their directors and officers
do in the social sphere. The negative impact
from a mistimed or poorly thought out
social media post could have dramatic
implications for the company's brand, stock
price and finances.
Consider the case of Elon Musk,
entrepreneur and Tesla CEO. Who could
forget his tweet in August of 2018 claiming
that he was considering “taking Tesla
private?” The stock initially surged, then
fell back seven percent over the next few
days. The reality is, it was all a bit of a joke
by Musk (made evident by the “$420” stock
price he set the sale at). As a result of the
incident, Tesla and Musk were each fined
$20 million for “false and misleading”
statements per SEC complaints. Musk also
had to agree to step down from his position
as chairman (though he remained as CEO
of the company).
Directors and Officers (D&O) insurance is
intended to respond to losses stemming
from decisions made by those in the roles
of directors and officers, typically including
breach of fiduciary duty, misuse of funds
or assets, fraud, or false and misleading
statements (among other things). A typical
D&O policy provides coverage to protect
both the company as well as the personal
assets of corporate directors and officers in
the event that they are sued for actual or
alleged wrongful acts in the management of
the company. Policies provide the financial
backing for the standard indemnification
provisions protecting directors and officers
from personal loss due to their roles in the
company.
With our ever-increasing access to instant
digital information these days, the issue
at hand is whether or not D&O insurance
covers activities in the social media sphere,
which can turn into instant news 24 hours
a day, 365 days a year. This insurance
product wasn’t originally designed and
priced to insure situations like that,
primarily because the risk didn’t even exist
at the time. Companies are turning to D&O
insurance to provide protection against
losses from reputational risks arising from
the social media activities of their directors
and officers. D&O underwriters are not on
the same page on underwriting these social
media risks.
D&O policies usually have sublimit
coverages that are designed to handle
crisis management and could address
some of the reputational risks associated
with social media, but they usually aren’t
enough. Other insurance policies may be
specifically designed to cover these types of
risks (one of which is Cyber Liability). The
best thing to do, however, is simply avoid
having the issue come up to begin with
through comprehensive training and risk
management.
As a starting point, here are four guidelines
that should be utilized by companies with
regard to their directors’ and officers’ use of
social media:
1.
2. When in doubt, don’t make the post.
3. Personal social media accounts should
have a disclaimer that they do not
represent the official position of the
company (though this doesn’t mean
directors and officers have free reign
to post).
Employee social media training should
be mandatory.
4.
Protocols should be created to ensure
everyone associated with the company
is protecting the best interests of the
company.
With the pervasive nature of social media,
the lines between the personal and
professional lives of directors and officers
have never been more blurred. As a result,
it is essential to put the right safeguards in
place and to manage ahead of time the risks
that could potentially occur. The reality is,
even the best coverage can’t mitigate all the
damage, so the best policy is one of well-
thought-out posts and moderation.
BY: GWENYTH P. LUU, CLCS
DIRECTOR - COMMERCIAL LINES
JGS INSURANCE
Gwenyth Luu helps organizations improve
their bottom line and lower their total cost
of risk by implementing the JGS Proactive
Service Platform. The JGS Proactive
Service Platform is an inclusive strategy
that focuses on primary cost drivers of a
risk management program. Gwenyth helps
businesses understand all of their potential
and actual costs and liabilities, execute an
actionable strategy, and deliver superior
client service and support. The JGS Proactive
Service Platform is driven by continuous
strategy and service delivered on a daily basis
throughout the year. The service platform
includes risk control strategies, claims
advocacy and management, contract
reviews, and insurance program design
reviews.
25