Eric C. Scheiner
Jennifer Quinn Broda

The long-standing and traditional view is that corporations’ objectives should be to maximize shareholder value. More recently, a variety of commentators and observers have argued that corporations have larger social responsibilities. However, as discussed in the following guest post from Eric C. Scheiner and Jennifer Quinn Broda, efforts by companies to fulfil corporate social responsibilities may involve their own risks and even result in D&O claims. By the same token, failing to take action could result in claims as well. These trends have important implications for insurers and for policyholders alike. Eric is a Partner and Jennifer is Of Counsel in the Chicago office of Kennedys. I would like to thank Eric and Jennifer for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Eric’s and Jennifer’s article.





On August 19, 2019, the Business Roundtable, a group of almost 200 executives from some of the largest companies in the world, issued a statement on “the purpose of a corporation.”[1]  Of particular interest, and what received wide-spread attention in the press, was that the executives agreed that the member companies would no longer adhere to the past notion that their first responsibility was to serve their shareholders and maximize profits.  Instead, the executives suggested that their respective companies would focus on investing in employees, protecting the environment, supporting outside communities, and dealing ethically with suppliers as their primary business goals.[2]  In the current less restrictive regulatory environment in the United States, such positions are not necessarily surprising.


In recent years, companies of all sizes have taken more visible positions on causes impacting their communities and society as a whole.  As discussed below, there are many benefits to corporations taking more active socially responsible positions.  However, in the current era of “event-driven” corporate securities and derivative litigation, corporations must carefully consider what positions they are taking, and when it is appropriate to make public statements about their social responsibility practices.  In this regard, there are plenty of instances where taking such positions have backfired, resulting in boycotts, lost business opportunities, or material misrepresentations about  a given company or organization.  Such consequences could then foreseeably lead to litigation of one form or another against the company, as well as its directors and officers (“D&Os”).


Though not involving a D&O claim specifically, a relatively recent example of negative consequences that can arise in this context involves the Houston Rockets’ general manager.  In support of the protesters in Hong Kong, he tweeted for people to “fight for freedom” and “stand with Hong Kong.”  However, these tweets resulted in a boycott by China of the NBA and reportedly could cost the Rockets $25 million in sponsorship losses in the near term.[3]  While the Rockets attempted to distance themselves from the general manager’s comments, his attempt to support this specific social cause resulted in unintended consequences to not only the Rocket’s organization, but the entire NBA.  Another example involves the recent trial of Exxon Mobil Corp. for securities fraud in Manhattan.  Although the company was ultimately acquitted, it was accused of misleading both its investors and the public regarding the negative impact carbon regulation would have on the company’s future financial position.[4]


While affirmatively pursuing what a company may deem to be a socially responsible practice can lead to unintended consequences, so too can a company’s failure to take such action.  For instance, on the issue of the environment, recent polls show that most shoppers would switch, boycott or avoid brands because of their environmental policies.[5]  As such, it can be difficult for companies to navigate just how proactive they should be when it comes to corporate social responsibility and the pitfalls that may result.


This article addresses (1) the concept of corporate social responsibility and the benefits of companies taking such positions; (2) corporate accountability when such positions are asserted, including potential risks given the current litigation climate, as well as the political, economic and social environments; and (3) potential issues underwriters and claims handlers should consider when insuring companies that take more active positions on social responsibility.


  •  What is Corporate Social Responsibility? 

Defining the term “corporate social responsibility” can be a difficult endeavour, with authors and scholars often providing a wide array of interpretations.  While there seems to be a consensus that the definition goes beyond adhering to laws and regulations, the breadth of defining the term is where the difficulties often arise due to the fact that the concept is constantly evolving. Additionally, the term can mean different things to different people depending on a variety of factors, such as culture, community, and the environment.  The term is also often used interchangeably with other terms such as “corporate accountability,” “corporate citizenship,” and “social enterprise.”  One online resource defines corporate social responsibility as “[a] company’s sense of responsibility toward the community and environment (both ecological and social) in which it operates.”[6]  It can be expressed and reflected in an organization’s commitment to a wide-variety of issues, such as compliance with employment, health and hygiene, safety and environmental laws and regulations, and respect for basic civil and human rights, as well as the improvement of communities and society at varying levels.[7]  In this regard, the concept clearly encompasses holding corporations accountable to more than just its shareholders.


Given this background, there are many reasons why companies are now focusing more keenly on corporate social responsibility.  One such reason is the public’s demand for it given the diminished role of government, especially in the U.S. and the U.K., to find solutions to these problems.  Other reasons include: (1) demands by shareholders and the public for greater disclosure of a company’s business practices; (2) increasing customer demands and interest for companies to be active in communities and take proactive roles in improving same; (3) pressure by investors and shareholders through activism due to the perceived benefits a positive corporate responsibility profile can bring to a company; (4) staying competitive in labor markets, especially to attract the talent of younger generations who choose to work at companies seen as “making a difference” in terms of social responsibility; and (5) maintaining relationships with suppliers and joint-ventures who require adherence to certain social or legal standards.[8]


  •  The Benefits of Corporate Social Responsibility 

The benefits of corporate social responsibility can be obvious.  For example, a company may take on a more high-profile social role for purposes of increasing its brand, corporate image, or corporate reputation. This, in turn, may lead to higher sales, stronger customer loyalty, and better supplier relationships, all of which positively impacts a company’s bottom line and future financial performance.[9]  A company’s internal culture and quality of employees may also benefit where employees embrace its social or environmental stance, causing goodwill, lower turnover, and improved employee performance.


A company that focuses on environmental concerns may also benefit from improved quality, functionality and durability of products and services.  Depending on the nature of the business, the use of renewable resources may also improve the environment, and potentially lead to better product safety.[10]


The benefits of corporate social responsibility are not limited to higher profits for the companies that employ them.  Specific communities, and society as a whole, may benefit from a company’s focus on social responsibility, which can support charitable or holistic endeavors.


  • The Risks of Corporate Social Responsibility 

While the benefits of a company taking an affirmative stance on social responsibility are clear, such positions are also potentially fraught with risks on a variety of political, social, environmental, and financial spectrums.  One risk concerns the level of transparency a company decides to provide regarding its positions on social responsibility. If shareholders do not believe the company’s level of transparency is sufficient or if misrepresentations are made about the positions, shareholder litigation may result.  Moreover, the level of authenticity (i.e., the  genuineness behind a corporation’s intent to implement socially responsible policies) might also lead to litigation.  For example, a company may face expense where it over-promises certain legal or environmental aspirations, yet under-delivers due to lack of preparation or a failure to fully understand the nature and potential costs of the particular endeavor.


As discussed in more detail below, the costs of trying to implement socially or environmentally responsible positions can cause a company to lose competitive advantages in terms of costs or efficiencies. To the extent a company makes representations to the public about such endeavors and fails to follow through, public backlash in the form of consumer or supplier boycotts may also materially impact a company’s bottom line.  That, in turn, can lead to lawsuits against a company’s D&Os for breach of fiduciary duties, or even securities fraud.


  • The Potential Impact to Insurers 

In the current era of “event-driven” litigation, a company could become the subject of a derivative or securities class action due to positions taken on hot-button social, political, or environmental issues.  Often times, such corporate positions are taken with a good deal of thought and consideration before implementation.   For example, some people took issue with Nike’s decision to use Colin Kaepernick in certain advertising campaigns in 2018, given his controversial “take a knee” protests during the 2016 NFL season.  Despite the controversy of using Kaepernick in its ads, the company’s profits increased favorably over the first two quarters of 2019.[11]


On the other hand, even with a good deal of thought and preparation, corporate social responsibility efforts can backfire and lead to boycotts that result in diminished business.  Even companies that are not seen as taking proactive positions on corporate social responsibility (but tout themselves as being environmentally conscious) can still be the subject of litigation.  As mentioned above, Volkswagen had a significant marketing campaign in the U.S. touting its diesel cars’ low emissions.[12]  However, the company continues to deal with the fallout of litigation arising from allegations that it defrauded consumers with its “environmentally friendly vehicles.” Specifically, it was uncovered that these vehicles employed software that recognized when the vehicle was being tested and adjusted its output accordingly.  As a result, the purported environmentally friendly cars passed emissions tests when the vehicles should have failed.  Several securities actions against Volkswagen were filed shortly after this revelation in multiple countries. Beyond civil litigation and boycotts, companies may also be exposed to regulatory and criminal investigations.  In 2019, the Securities & Exchange Commission (“SEC”) filed its own lawsuit against Volkswagen alleging it defrauded investors who bought more than $13 billion in bonds and other securities from the company in 2014 and 2015, and alleging that the company’s former chief executive officer knew about the fraud as early as November 2007.[13]  In addition to millions of dollars in damages, the SEC also seeks an officer and director bar against the former CEO.  It has been reported that Volkswagen paid fines, penalties and legal settlements of over $33 billion in 2018 alone arising from the emissions scandal.[14]


With this in mind, it is important for D&O and other professional lines underwriters to consider whether an insured has historically been an active promoter of socially responsible positions and identify how such positions have the potential to negatively impact business.  If an insured has historically taken such positions, the underwriter must also assess whether the company has been transparent with regard to the positions it is taking, and carried through with its public representations.  Similarly, claims analysts must consider all of these issues when evaluating claims against an insured arising out of its corporate social responsibility positions, especially when faced with allegations of misrepresentations that are alleged to have been made by the insured in an attempt to inure goodwill or other benefits.


  • Current Corporate Social Responsibility Issues That Could Trigger Litigation 

Climate Change and Environmental Issues 

There are two main potential areas of concern with regard to D&O risks associated with corporate social responsibility when it comes to climate change and the environment.  First, any company that is more readily identified as being in an industry with environmental concerns (such as fossil-fuel companies) could be the subject of civil or regulatory investigations based on the representations it makes to the public about, for example, its emissions or other policies impacting the environment.  Second, and just as concerning, are the wave of “public nuisance” climate change class action lawsuits being filed by states, counties and cities in the U.S. that could lead to significant legal expenses and, depending on the circumstances, substantial settlements or verdicts.


As noted above, Exxon Mobile has been the subject of regulatory investigations, in particular by the New York and Massachusetts attorney generals (as well as other civil litigation) arising out of allegations that Exxon Mobil made misrepresentations to investors about the potential future costs related to climate change.  The case brought by the New York Attorney General recently went to trial (the Massachusetts Attorney General only recently filed a similar complaint in October 2019).[15]  While the Manhattan court overseeing the trial found against the New York Attorney General and in favor of Exxon Mobile, the fact that the case was allowed to proceed to trial based on theories concerning Exxon Mobile’s representations to shareholders regarding its knowledge of the financial consequences of climate change is significant and could lead to other similar state and private plaintiff litigation against other companies.  Additional D&O issues have arisen as a result of PG&E’s (a California utility) alleged misstatements about its preparation and ability to minimalize wildfire risks, as well as other claims against management in attempts to increase disclosures relating to climate change.


There are also a growing number of states and local governments, as well as environmental groups, bringing climate change lawsuits against energy companies under a “public nuisance” theory.[16]  While these types of cases have historically not been successful, there has been an increased prevalence of public nuisance cases filed in state courts, which are commonly viewed as having lower pleading standards.  Further, the plaintiffs’ bar has had some recent success in pursuing lead-paint manufacturers in California (resulting in a $305 million settlement)[17] and opioid manufacturers, distributors, and pharmacies in various jurisdictions under this same legal theory.  While these cases are not specifically based on corporate social responsibility, these examples show that there is a potential for such cases to succeed under this legal theory. As such, any statements a company makes about its position on climate change that is viewed as being untruthful could play a role in whether such cases are allowed to proceed.  If such litigation is successfully pursued and liability is assessed against these companies based on their social responsibility policies, the financial consequences to investors could be substantial.  Moreover, these consequences could lead to separate derivative and securities class actions against the companies for failing to address the issues or making misrepresentations about either the impact of their companies on the environment, or the impact of the environment on their companies.



Some may remember Gillette’s “Toxic Masculinity” advertisement that debuted in January of 2019 in response to the #MeToo movement.  The ad, entitled “We Believe: The Best Men Can Be” calls out men for their mistreatment of women, encourages them to stop making excuses for this behavior and to hold each other accountable.  While there is no doubt that Gillette was attempting to make a positive societal change, many men found it insulting and alienating.  It also had the opposite effect of its purpose, increasing sales, as many men boycotted Gillette products.  In August 2019, it was reported that the ad caused Gillette to suffer an $8 billion loss.[18]


The #MeToo movement has already spawned a good deal of shareholder derivative and securities claims based on certain corporations’ conduct in dealing with allegations related to the movement and negative publicity that often follows.[19]  Such litigation has been brought against The Weinstein Company, Wynn Resorts, Twenty-First Century Fox, CBS, and most recently Google, to name a few.  The allegations in these cases typically allege that management did not take appropriate steps to address discrimination or harassment in the workplace and/or failed to implement controls sufficient to prevent a hostile work environment.  In this regard, while the focus of the #MeToo litigation to date has been on the failures of management to prevent such conduct, given the sometimes latent nature of these cases, and the apparent increasing cost of resolving sexual harassment claims generally, it is possible that future allegations against companies will be made even after a company adopts and makes socially responsible representations about proactive steps it has taken to address such conduct in the workplace going forward.


Social Media 

While social media can play a significant role in building a company or brand image in today’s marketplace, the way content is created, monitored and published can have a material impact on a company’s bottom line.  The NBA case and China mentioned in the introduction of this article is just one of many examples.[20]


While not dealing with social responsibility issues, another example of the type of risk that can arise via comments made by executives on social media is Elon Musk’s August 7, 2018 tweet suggesting that he was considering taking Tesla private at a particular share price.  As a result of that tweet, two securities class actions were filed against Tesla and Musk alleging that Musk’s tweets contained material misrepresentations leading to shareholder losses.[21]  In addition, the SEC not only filed fraud charges against Musk, but also filed charges against Tesla for the failure to have disclosed controls and procedures relating to Musk’s tweets.[22]  Significantly, the settlement of the charge against Musk included the payment of penalties by Musk, as well as Musk’s removal as Chairman of Tesla’s Board.[23]

Privacy and Cybersecurity 

In today’s age of information technology and big data, the protection of an individual’s privacy rights could be viewed as an issue that falls within the penumbra of corporate social responsibility.  For example, companies such as Facebook, Google, and Twitter often make public statements about maintaining the privacy of user’s data.  Nonetheless, Facebook has been the subject of privacy investigations by the Federal Trade Commission and the SEC that resulted in penalties of $5 billion and $100 million, respectively, arising out of the misuse of user data.[24]  Given the size of these settlements, and the adverse publicity, it is not surprising that Facebook was the subject of securities class actions alleging significant stock drops associated with their dealings with Cambridge Analytica.  While the securities class action against Facebook involving Cambridge Analytica was recently dismissed without prejudice, the fact of such litigation shows that representations companies make about the security of user data can potentially present significant D&O exposure for companies in the future.[25]  Securities class actions and derivative actions have also been filed against credit reporting companies (Equifax) and hotels (Marriot), among others, over the failure to secure private consumer information in the face of representations by those companies about the security of user data.  Finally, representations made regarding corporate compliance with new state and federal legislation focused on privacy could eventually lead to D&O claims.  For example, the expansive Illinois’ Biometric Information Privacy Act (commonly referred to as BIPA), which imposes requirements on businesses that collect biometric information, has become a source of wide-spread litigation against companies such as Facebook given the liquidated damages provisions provided therein.


  • Future Corporate Social Responsibility Issues That Could Trigger Litigation 

Minimum Wage 

The federal minimum wage in the United States is currently $7.25 per hour (except in some limited circumstances) and has not been increased since July 2009.  Nonetheless, some states, cities, and counties have begun to implement a higher minimum wage than that required under federal law, including at least 29 states, 42 municipalities and the District of Columbia. Certain public companies have also implemented a higher minimum wage nationally, such as Amazon, Target, Walmart, and Bank of America.


Labor costs can significantly impact a company’s financial position.  In this regard, while a company’s decision to raise its minimum wage can have a significant impact on employee retention and culture, implementing such policies will have an immediate impact on the company’s returns, which could lead to shareholder complaints and potential litigation.  Implementing a minimum wage higher than what is required by law could also raise the level of exposure presented by discrimination or sexual harassment litigation, as well as impact liability for any alleged violation of wage and hour laws (especially in certain industries such as retail, or industries active in the “gig” economy).  Given these risks, insurers should consider specifically asking about their insureds’ plans to raise their employees’ minimum wage above that required by law during the application process, and assess the potential impact of same under any director and officer liability, employment practices liability or wage and hour insurance policies.


Gun Control 

Although it would seem unlikely that companies and brands not directly tied to the gun industry would decide to take positions about gun-control, there have been a surprising number of companies doing just that.[26]  For example, after the Parkland, Florida mass-shooting, Citigroup adopted a policy that required its retail clients to agree they would: (1) perform background checks on anyone buying firearms; (2) not sell firearms to anyone under the age of 21; (3) not sell bump-stocks; and (4) not sell high-capacity magazines.  If its customers did not comply with such requirements, Citigroup announced that it would not offer the customer loans, would not agree to raise capital for the customer, and would refuse to offer the customer store-branded credit cards.


The fallout from these decisions was swift.  Citigroup reportedly received several letters from Republican members of Congress asking Citigroup to stop its practices.  Corporate representatives were also reportedly chastised by a Republican commissioner at the SEC for “straying into social policy” and were told not to expect lighter requested regulations on certain types of trading as a result. Further, a Louisiana state board commission barred Citigroup from bidding on certain debt offerings due to its “restrictive gun policies.”


While some of the responses to Citigroup’s practices may seem insignificant, they are examples of the types of, and perhaps unexpected, fallout that may arise when a company decides to take a more proactive position on a controversial issue, such as gun control.  In this regard, although Citigroup was trying to fill a void on gun control, given both the string of mass shootings that have occurred over the past several years and the failure of the U.S. government to take action addressing gun violence, it is a good reminder that well-intentioned social responsibility policies can lead to negative consequence for the company implementing them.


Other Areas of Potential Concern 

In addition to the areas described in detail above, other potential pivotal social issues that could lead to a material impact on a company’s business include, but are not limited to, privacy and security, support for military veterans, immigration, as well as LGBTQ rights.  As social responsibility is an evolving concept, this list is by no means exhaustive, but is meant to identify those areas where we have already seen corporate policies implicated.



It is clear that companies of all sizes are taking a more proactive role with regard to social responsibility.  While taking such positions may have significant benefits to society as a whole, as well as those companies implementing these policies (in the form of employee satisfaction and performance, as well as improvements to a company’s financial results), it is not without risk.  Insurers should be mindful of the propensity of a company and its D&Os to take such positions.  In so doing, underwriters should carefully evaluate whether a prospective insured might otherwise be susceptible to “event-driven” litigation due to nature of the company’s industry and the types of representations it will have to make to the public involving policies that may be closely tied to hot-button social, environmental, or human rights issues.  If a company or its D&Os are prone to taking such positions, or if a company represents itself as having altruistic policies meant to benefit society over the company, litigation or regulatory investigations involving such practices could potentially present significant risks.



Eric Scheiner is a Partner and Jennifer Quinn Broda is Of Counsel in the Chicago office of Kennedys where they represent insurers and reinsurers in investigating and litigating claims under various types of professional and commercial lines of coverage, including Directors & Officers liability and Employment Practices liability insurance.  They can be reached at and, respectively.



[1] David Gelles and David Yaffe-Bellany, Shareholder Value is No Longer Everything, Top C.E.O.s Say (Aug. 19, 2019),

[2] Maggie Fitzgerald, The CEOS of nearly 200 Companies just said Shareholder Value is No Longer Their Main Objective (Aug. 19, 2019),

[3]  Marc Stein, China Conflict Mutes N.B.A.’s New-Season Buzz (Oct. 12, 2019),

[4]  Erik Larson, Exxon’s Climate Trial is Over in New York.  But the Legal War is Just Beginning (Nov. 15, 2019),

[5]   Over Three-Quarters of UK Fashion Shoppers Switch, Avoid, or Boycott Brands Because of Their Environmental Policies, Says Kantar (Dec. 2, 2019),

[6]  Business Dictionary, (last visited Dec. 8, 2019).

[7]  Id.

[8] International Institute for Sustainable Development, (last visited Dec. 8, 2019).

[9] Id.

[10]  Id.

[11]  Fortune, Nike’s Big Bet on Colin Kaepernick Campaign Continues to Pay Off (Dec. 21, 2018), (during the 2016 NFL season, Colin Kaepernick decided to take a knee during the national anthem to raise awareness of the treatment of racial minorities, which lead to criticism by groups that felt it was disrespectful to the U.S. to protest in this particular manner).

[12]  Russell Hotten, BBC News, Volkswagen: The Scandal Explained (Dec. 10, 2015),

[13]  Id.

[14] Jack Ewing, Alexandra Stevenson, and Matthew Goldstein, Ex-VW Chief Knew of Diesel Scheme Years Earlier Than He Admitted, S.E.C. Says (March 15, 2019),

[15]  Nate Raymond, Massachusetts Accuses Exxon in Lawsuit of Climate Change Deceit (Oct. 24, 2019),

[16] Erik Larson, Exxon’s Climate Trial is Over in New York.  But the Legal War is Just Beginning (Nov. 15, 2019),

[17] PBS News Hour, Lead Paint Suppliers to Pay $305 Million to Settle California Lawsuit (July 17, 2019),

[18] Michael F. Haverluck, Gillette cut by $8B loss after ‘toxic masculinity’ add, (Aug. 2, 2019),

[19] Karen Bitar and Sarah Fedner, Recent Developments in Securities Litigation: The “Event Driven” #MeToo Lawsuit (June 12, 2019),

[20] CB Insights, Research Briefs, #Fail: 29 of the Biggest Corporate Brand Social Media Flubs (March 17, 2017),

[21] Kevin LaCroix, D&O Diary, Tesla Investors File Securities Suits Over Elon Musk’s Take-Private Tweets (Aug. 12, 2018),

[22] U.S. Securities And Exchange Commission, Elon Musk Settles SEC Fraud Charges; Tesla Charged With and Resolves Securities Law Charge, (Sept. 29, 2018),

[23] Id.

[24] Kevin LaCroix, D&O Diary, Massive Facebook Settlements Underscore Privacy’s Importance as Corporate Risk (July 24, 2019),

[25] Brendan Pierson, Facebook Wins Dismissal of Investor Lawsuit Over Privacy Breach (Sept. 26, 2019),

[26] Hilary George-Parkin, Why Companies Need to Get Comfortable With Taking a Stand on Social Issues (Feb. 5, 2019),