Securities Class Actions Increasingly Target the C-Suite
According to a recently-published PricewaterhouseCoopers report, corporate executives are being named in an alarmingly high percentage of securities class action filings. In 2012, 94 percent of such filings explicitly named chief executives. That’s up 8 percent from 2011. At the same time, 70 percent of such filings named the company President, up from 57 percent in 2011. There were also smaller increases in the number of filings naming Chairmen, CFOs, and other C-Suiters with established fiduciary responsibilities.
While the report offers little indication as to what may be driving the increases, it’s clear that directors and executives are confronting new levels of personal liability – driven largely by plaintiffs’ lawyers who use sophisticated models to target companies with significant stock price decreases following public announcements or disclosures.
While a number of these suits could be kindly characterized as “frivolous” and are likely only filed with the goal of extracting a settlement, successful courtroom outcomes don’t always translate into adequate protection in the Court of Public Opinion. At the same time, the fact that plaintiffs are more frequently putting corporate leaders front and center only intensifies the brand and reputational damage at play during securities litigation proceedings. Not only do they personalize plaintiffs’ narratives; they clearly delineate where shareholders ought to affix the blame.
To protect companies in the face of this evolving threat, corporate IR executives should consider three key strategic takeaways.
First, IR teams should expect that any negative news or disclosure will trigger plaintiff activity – particularly when it comes to Search Engine Optimization (SEO) and Marketing (SEM) tactics designed to recruit class members by making plaintiffs’ messages the first that shareholders find when seeking information. Companies need to combat these tactics with SEO and SEM campaigns of their own. Most important, those campaigns should always seek to control any search term that could be associated with a corporate leader that is – or could be – named in a suit.
Second, with new SEC guidelines governing material disclosures via social media, public companies should expect plaintiffs to be just as aggressive on Facebook, Twitter, and YouTube as they are on Google. In some cases, plaintiffs’ could seek to hijack corporate social media properties with coordinated, pro-litigation messages disseminated via the class participants themselves (because such communications come from within shareholders’ own ranks, they will carry added weight and credibility). To the extent possible and legally advisable, responses and litigation messaging in the social media space should be proactive and ubiquitous.
And third, the need for executives and directors to close any perceived gaps between share price and underlying value is even more urgent than it was before. With added personal liability comes added responsibility to been seen as a smart, creative, and – above all – careful stewards of shareholders’ financial interests.
Kathleen Wailes is a Senior Vice President at LEVICK and Chair of the firm’s Financial Communications Practice. She is also a contributing author to LEVICK Daily.