December 20, 2018

D&O insurers should prepare for a new wave of class actions against tech companies

Investors will be analysing the triggers that caused a drop in confidence in the sector.

Big technology companies are ending the year on a rocky note with share price volatility and a clear drop in investor confidence. If this decline continues, D&O insurers should prepare for a new wave of class actions in 2019.

The drops in stock prices for the leading tech companies are being tied to specific news items citing concerns surrounding management style, handling of controversy and strategic decisions. Investors will be analyzing the losses and the triggers to determine if there were false or misleading statements or actions that led to the drop.

Many of these tech companies are facing unprecedented challenges, such as Facebook’s handling of privacy concerns. The WSJ recently pointed to an “aggressive” style adopted by Facebook CEO Mark Zuckerberg as he told his top lieutenants earlier this year that “Facebook Inc. was at war and he planned to lead the company accordingly.” The market reacted with concern.

How these challenges are managed, and how regulators, the public and the market responds, will be the drivers for shareholder activism. The larger tech companies will set the trends for the broader technology market, both in terms of the scrutiny they will face, but also the outcomes. D&O insurers should be working with their technology clients to ensure sufficient compliance and effective shareholder communications to minimize these risks.

You can read the rest of our insurance predictions here.