Liability Risk Management And Corporate Social Performance

Reputations travel fast and far. Poor corporate citizenship anywhere in the world is increasingly likely to be reported everywhere in the world. Human rights abuses and environmental accidents and pollution have put many well‐known companies on the defensive, and once in the spotlight, all actions tend to be carefully scrutinized. Corporations risk losses due to fines and lawsuits stemming from poor citizenship, but even more significant is the potential loss of reputation—a significant portion of most companies' value. A damaged corporate reputation can hurt sales and damage employee morale. The ensuing financial losses expose executives and boards of directors to shareholder derivative lawsuits for not having policies in place to protect the corporation from such scandals. As providers of liability insurance, insurance companies have a direct interest in these losses. Corporate adoption of effective environmental and social accountability program—which are likely to prevent scandals in the first place, will limit the liability of corporations and their officers if a scandal does occur.