It wasn’t long ago that cybersecurity was considered the exclusive domain of IT departments, a matter of purchasing and deploying the right technology to defend against intrusions into the network. In case you haven’t heard, those days are over. In the wake of devastating and embarrassing incidents at Target, JPMorgan Chase, Home Depot and dozens of other established and widely respected brands, executive management and boards of directors are now acutely aware that the responsibility for safety, security and integrity of their networks and data sits squarely on their shoulders.
Cyber risk has taken its place right next to credit risk, liquidity risk and operational risk as the most pressing threats to the health of the enterprise. Particularly after the attack on Target, the largest ever for a U.S. retailer, there is increasing pressure to hold boards accountable. Board governance is now becoming an area of focus in shareholder lawsuits, and disclosure obligations have now made their way to the board level as well. As SEC Commissioner Luis A. Aguilar noted in a speech last year, boards of S&P 200 companies are now “nearly universally” taking responsibility for oversight in the area of cyber risk management.
And we’re not just talking about throwing money at the problem, although making security a top budget priority is certainly a step in the right direction. JPMorgan was allocating $250 million per year on cybersecurity when it fell victim to an attack that ultimately exposed private information about 76 million households and seven million small businesses. The company now says it will double its computer security spend in the coming five years, but even that level of spending doesn’t guarantee that future attacks will be averted.
How boards can make a difference
What are the boards of forward-looking companies doing to manage the risk of cyberattacks? In my own frequent meetings about security matters with board members and the full suite of C-level executives at major U.S. enterprises, I am seeing three broad areas in which changes are taking hold. Proactive boards are now recognizing the need to 1) educate themselves on the company’s cyber risk profile; 2) ensure sufficient expertise is available to provide ongoing insight and advice; and 3) conduct regular reviews of cyber risk management plans and assess the organization’s breach readiness.
I’ve boiled these actions down to three imperatives: learn, ensure and inspect. Boards that keep these imperatives firmly in mind will be in the best position to minimize risk and limit the damage when an attack occurs. Notice I say, “when” rather than “if,” because it is almost certain that a major organization will suffer a breach at some point in time. This fundamental principle is now broadly accepted among top cybersecurity professionals, who have shifted their focus from a defensive posture -- emphasizing prevention -- to a preemptive approach that works to identify and prioritize the most significant threats, and then develop detailed incident response plans to quickly and efficiently contain the scope of the event as soon as an attack is detected.
- Learn. Many boards have begun to make cybersecurity a regular topic of conversation at meetings, taking time to review even relatively minor internal incidents and stay abreast of incidents and developments outside the company, with a special focus on threats and events affecting their industry. Boards should have a clear understating of threat vectors most likely to represent a risk at their organization, and they should continually educate themselves about evolving legal and regulatory developments.
- Ensure. Boards have a responsibility to manage risk, and that means ensuring they have the most accomplished technical advisors on hand to advise them, as well as outside counsel and forensic experts who can be brought in immediately when an incident occurs. Insurance and other risk transfer mechanisms should also be evaluated on a regular basis. Above all, boards need to encourage awareness of cybersecurity at all levels of the organization, with an eye toward building a strong culture of security that penetrates every department and reaches every employee.
- Inspect. This is where boards must be particularly vigilant and active on an ongoing basis, regularly reviewing roles and responsibilities for privacy and security, reviewing the company’s risk management framework via periodic reports from appropriate personnel, and reviewing specific roles in the organization’s incident response plan, with close attention to the handling of disclosures and notifications both internally and externally. While the board cannot be expected to have intimate knowledge of every facet of a company’s cyber risk management program, it should maintain sufficient oversight to confirm the company’s posture is defensible and would withstand post-breach scrutiny by regulators, plaintiffs and the media.
What data assets require your most vigilant protection? What are the most realistic threats to those assets, and how vulnerable are you to those threats? What is the potential impact of a breach that exposed the company’s most sensitive data assets? Boards that take cyberrisk seriously are asking themselves and senior company executives questions like these in their quest to develop a practical, defensible and actionable security plan that identifies and addresses specific risks while at the same time respecting budget, business and work culture-related constraints.
Determining how much to spend is only part of the equation. The more important question is how to invest to maximize protection against the highest-priority threats and minimize risk to the enterprise. If that isn’t a board-level concern, I don’t know what is.