UK based multinationals are well versed in analysing and managing political risk. When venturing overseas and setting up a subsidiary in a developing economy they understand that the situation they encounter will not be as stable as the one they operate under at home.
Or rather, they did until recently. Back in the UK, things are changing.
The shadow Chancellor famously listed his interests as ‘fermenting (sic) the overthrow of capitalism’ in his Who’s Who entry – and during this campaign has described a popular fast-food chain as ‘one of those companies that makes large amounts of profits and then doesn’t pay their workers properly and don’t pay their taxes effectively. It’s one of things we will clamp down on’. That of course, is aside from the calls for nationalisation of a diverse range of industries.
In the same vein, mass protest movements (often amplified by social media), such as Extinction Rebellion, are able to change perceptions of major corporations overnight. Causing extensive reputational damage, leaving marketing campaigns in tatters and in extreme circumstances, even taking away their license to operate.
And the UK’s traditional party of business? They’ve committed themselves to redefining our most extensive trade relationships under a Prime Minister who recently intoned the uncharacteristically concise phrase, ‘**** business’.
As this election campaign has shown – for better or worse – we are clearly now a long way from the days in which one of the government’s primary duties was to ensure smooth sailing for ‘UK plc’. Indeed, the line between politics and business has become more blurred than at any time in recent memory.
Whether you ascribe these changes to the rise of populism, or simply see them as evidence of an increasingly divided society, they certainly do create new risks for Directors and Executives. Quite unexpectedly, and through no fault of their own, business leaders can find themselves under the full glare of media and public scrutiny. If they’re lucky, the attention might fade after a news cycle or two, leaving no serious lasting damage.
However, there are also cases in which the focus only intensifies; fuelled by political interests and rapidly mobilised popular sentiment. More often than not, companies that suffer this misfortune are already in trouble.
Failed businesses that leave behind them job losses, pension deficits, abandoned contracts, environmental damage or stranded holidaymakers, are likely to find themselves hauled before Select Committees and plastered across the headlines. Similarly, the new requirements placed on Boards by GDPR and the ever-increasing focus on tax mean that Directors can all too easily become the ‘unacceptable face’ of whichever sector they work in.
For the former leaders of companies such as BHS, Carillion or Thomas Cook, the risk of shareholder legal action is already material. When you add in intense political, media and popular scrutiny the situation can feel uncontrollable. Yet, there is help at hand from highly experienced legal, media and public affairs advisers.
The crucial thing is to ensure that you can pay for that help when you need it. But the unfortunate truth is that in a crisis, top-notch advice doesn’t come cheap.
Insurance to the rescue?
The common assumption would be that Directors and Officers liability insurance (D&O) should provide cover for precisely this sort of scenario. However, we often find that standardised policy wordings leave considerable gaps when compared with the real-life risk scenarios faced by our clients. Indeed, some D&O policies explicitly exclude anything relating to environmental risks, while others simply don’t work well for a given sector – for example, wide Professional Indemnity exclusions that render a D&O wording useless for a professional or financial services firm.
We’d encourage all companies – but especially those in sensitive or high-profile sectors, or in possession of well-known brands – to revisit and review those policies as part of their ongoing risk management activities. When doing so, particular attention should be paid not only to coverage but also to limits and sub-limits, the right to use preferred advisers (rather than those mandated by insurers), the notification obligations required to trigger a claim, and how the policy operates during run-off.
Taking a proactive approach now could make all the difference should events take a negative turn – and it could be crucial if you find yourself in an unequal battle with a politician on the warpath.