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12/7/2016
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Corporations Cite Reputational Damage As Biggest Cyber Risk

New data analyzing SEC disclosures found 83% of publicly traded companies worry most about the risk of brand damage via hacks exposing customer or employee information.

Public businesses fear the possibility of losing customer or employee's personally identifiable information (PII) and the subsequent brand-damage fallout more so than other risks, a new study published by the International Association of Privacy Professionals (IAPP) found. 

The IAPP Westin Research Center studied US Securities and Exchange Commission (SEC) Form 10-K disclosure statements from more than 100 publicly traded companies. The forms are where businesses share risk factors that could prove concerning to investors. 

The chief privacy officers, chief legal counsel, and other experts in privacy and privacy law on IAPP's research advisory board were struggling to quantify privacy risk for their companies and clients. IAPP decided to study this via the SEC disclosures, according to IAPP research director Rita Heimes.

"It's tough to come up with a value for privacy risk," she explains. "We decided to determine whether companies think [privacy] is a risk to the bottom line, and provide more definition that way."

Among the companies that disclosed privacy risk, 83% cited reputational harm as the top digital risk factor. This surpassed civil litigation (60%), regulatory enforcement (51%), and remediation (50%). Less than half (43%) cited the risk of failing to comply with privacy laws and regulations.

Brand damage causes more immediate damage than lawsuits, which can drag on for long periods of time.

"Trust is the biggest threat because it applies to both the employee and the customer, depending on whose data is being misused or exposed," Heimes says. "Once that trust factor is undermined, it can have a ripple effect, leading to financial harm, embarrassment, or drop in employee retention."

Another risk factor is loss of corporate resources, Heimes continues. Anytime someone mishandles personal data, it takes a lot of time away from business operations and as a result, employees have to work on planning recovery and preventing future incidents.

One in five companies warns investors that if it becomes the victim of a data breach, the liability could exceed insurance coverage. The same amount say an attack could distract management, and other employees, from their core business responsibilities.

The fear of privacy risk varies across industries, says Heimes. Businesses offering products known for being secure, like software, operating systems or cloud services, run a tremendous risk if personal information is lost.

"If their products are vulnerable to attack and data can be easily mishandled, that makes the product or service inherently less valuable," she explains. "We perceived technology companies and social media platforms as being far more likely to write elaborate, sophisticated, and knowledgeable privacy disclosures" compared with organizations like energy companies, which are more concerned with system failure.

Heimes says she was surprised there wasn't greater unease about the role of vendors and other third parties in using PII. Less than half (47%) of respondents were concerned about information mishandling by business partners, vendors, and other organizations.

"There was less mention of third parties disclosing data than I think is reflective of reality," she notes. "This is significant and many companies have begun to step up paying attention to how vendors handle their data."

That is likely to change over time, however, she notes.

There are steps businesses can take to mitigate the risk of information loss, she says. It's not enough to simply buy software tools; the human factor is most important.

Investing in people and helping them understand privacy best practices can prevent the misuse of PII. The workers who collect, store, and make decisions about how to handle user data need to be aware of privacy issues and make informed choices, Heimes says.

Related Content:

Kelly is an associate editor for InformationWeek. She most recently reported on financial tech for Insurance & Technology, before which she was a staff writer for InformationWeek and InformationWeek Education. When she's not catching up on the latest in tech, Kelly enjoys ... View Full Bio

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