Deconstructing the 2016 Yahoo Security Breach

Exactly two decades ago, in 1997, a new book rose up the best-seller list: The Perfect Storm, Sebastian Junger's recounting of the fateful events that doomed the fishing boat Andrea Gail and its six-member crew in the North Atlantic Ocean.

That same year, Yahoo Mail was launched.

Ironically, "perfect storm" — the term popularized by the book to describe a combination of circumstances that drastically exacerbates a bad situation — would come to aptly characterize the Yahoo breach and the company's response as well.

To quickly recap the breach and its aftermath:

In The Perfect Storm, it wasn't just the violent weather that led to the tragedy but a variety of errors, such as equipment failures, ignoring warnings from other ships, and reckless pursuit of a big catch. And while the Russian hackers carried out the Yahoo breach, a multitude of missteps inside the company heavily contributed to the epic mess. Here are five takeaways from the Yahoo breach that still have relevance today.

CEO-level engagement is essential. Even in this era of heightened cybersecurity awareness, CEOs and other senior leaders at some companies continue to adopt a hands-off attitude with security, essentially outsourcing responsibilities to the chief information security officer, and assuming everything will be taken care of. It has been widely reported that Yahoo suffered from such a siloed mentality.

All companies, regardless of industry, must recognize that cybersecurity protection starts at the top. CEOs must be actively engaged in security strategy, understand how to manage risk, provide security teams the resources they need, and, ultimately, be held accountable for performance. The Yahoo calamity should prove a watershed moment for tying top executive compensation to cybersecurity results, but has it?

A thorough crisis response plan is necessary. Yahoo seemed to disregard what has become conventional wisdom: Organizations that plan and exercise for a crisis are better prepared when one hits.

Yahoo's reaction — the time lag between when the attacks occurred and when they were disclosed, the release of information in stages, the sense that the company was raising more questions than it was answering — all suggest that Yahoo lacked such a plan.

Even if Yahoo was constrained in what it could say because of an active FBI investigation, the company nevertheless owed an obligation to its customers, shareholders, and the public to respond in a manner appropriate to the critical situation.

Other companies should learn from Yahoo's lapses and do better. Part of dealing with a crisis is being prepared to communicate to stakeholders when an event occurs. This communication can provide confidence to customers, employees, shareholders, the media, and any other stakeholders quickly, clearly, and transparently when an intrusion occurs.

Better cyber diligence in mergers and acquisitions is a must. The Yahoo affair is still a big wake-up call for investors and acquirers about the vital importance of having a handle on a company's cybersecurity posture during the investment decision-making process.

That Verizon's acquisition of Yahoo was in limbo plus the $350 million haircut offer vivid proof that security needs to share priority with financial matters, intellectual property, material contracts, and any other due diligence items.

Interestingly, cyber diligence could not only reveal problems that alter valuations or kill a deal entirely, but the opposite could hold true. Companies that truly have their cybersecurity houses in order could be seen as more attractive investments. 

Boards of directors must be involved. Corporate boards aren't and shouldn't be responsible for day-to-day cybersecurity management — that's the job of the CEO and the chief security officer. But they certainly should be demanding accountability and be actively engaged in an ongoing dialogue with the company's executives about cyber-risk management and metrics.

Moreover, it it's common practice for boards to have a financial expert on board to help interpret those kinds of metrics, so why shouldn't cybersecurity performance, so vital to a company's reputation and a crucial hedge against an incident that hurts the bottom line, be any different?

Bipartisan legislation introduced in March by Sens. Mark R. Warner (D-VA), Jack Reed (D-RI), and Susan Collins (R-ME) touches on this point. It proposes that publicly traded companies include in their Securities and Exchange Commission disclosures information on whether any member of the company board is a cybersecurity expert and, if not, why having this expertise isn't necessary because of other security steps the company has taken.

Laws may need to be tightened. Forty-seven states require private or governmental entities to notify individuals of security breaches of information involving personally identifiable information, according to the National Conference of State Legislatures. But it's not clear whether usernames and passwords like those stolen from Yahoo's servers qualify as personally identifiable data. As more individuals use common usernames and passwords for all types of accounts, policymakers may seek clarification about whether that information should be considered sensitive and protected data.

Here's hoping that the Yahoo breach — one of the worst breaches of our time — can also end up as the most instructive.

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