An actuary is a professional with advanced mathematical skills who deals with the measurement and management of risk and uncertainty.  Their calculations analyze historical data and gauge the likelihood of future events.  Setting accurate insurance prices and avoiding losses depend on their calculations.

For example, over the past decade, the U.S. has experienced an increase in wildfires.  With the destruction caused by wildfires, insurance companies have seen an increase in home and property damage claims.  Several states such as California and Texas have seen some of the highest levels of wildfire activity.  Actuaries serving insurance companies in these vulnerable states have advised management when prices have to be adjusted upward to cover the probability of increased future claims.

Another kind of wildfire is active in the country, one that is destroying shareholder value.  This conflagration has been triggered by woke management.

For example, an $83-billion-a-year consumer goods provider allowed its razor subsidiary, with a client base of mostly males, to launch a marketing campaign bemoaning toxic masculinity and experienced an $8-billion write-down in share value.  A 170-year-old brewery promoted one brand to an emerging transgender market while offending a significant portion of existing clients, causing sales to drop 30% and share valuation to fall more than $15 billion.  A major retailer with over 1,900 stores introduced controversial clothing targeting the LGBT community, whose members makes up less than 7% of the population, and lost over $14 billion in share value.

When pension funds, endowment trusts, and individual investors buy a company's stock, they expect management to act in the best interest of all shareholders.  When shareholders feel otherwise, they have resorted to lawsuits, either as a direct plaintiff or what is called a "derivative" lawsuit on behalf of the corporation itself.  A common basis for such litigation is when management fail to act in good faith and with reasonable diligence, such as anticipating the negative impact of their actions on shareholder value.  Shareholder litigation in 2022 resulted in payouts by corporations totaling $3.6 billion, a fifteen-year high.  Therefore, the price of directors' and officers' liability insurance has been rising.

There is now clear evidence that when management support controversial social cultural or political causes, there can be a dramatic decline in share value.  Woke managers are now much more vulnerable to shareholder litigation.  One investor group has hinted about taking legal action against the retail chain mentioned above, alleging that company leaders "knowingly acted through donations, promotions and product strategies to antagonize the corporation's core customer base, resulting in a significant sell off of company shares. "

It's time for actuaries to wake up to the growing risks of insuring directors and officers of woke companies!

Tom Harvey recently retired from the business faculty of a Midwestern university.  His prior experience included being an executive in the insurance industry.  twharvey@columbus.rr.com

Image: Jernej Furman.