It is requisite to start every NACD session on boardroom oversight of cybersecurity with the adage: “There are two types of companies: those that know they have been hacked and those that don’t.” And so begins the one- to two-hour panel discussions—experts in cyber technology outlining and explaining the various methods that have already been employed to hack into companies. Understandably, attendees usually leave these sessions a bit pale and speechless.
Cyberattacks on the private sector are a reality, not merely a threat. In 2013, 50 percent of companies with more than 5,000 employees surveyed by the Ponemon Institute reported one or more phishing attacks, a figure that has nearly doubled since 2009. Further, it is those at the higher levels of organizations that are targeted in attacks. In a recent Verizon report on data breaches, it was reported that executives—with higher public profiles and access to secure information—top the list of employee categories targeted in phishing attacks.
Oversight of cybersecurity is at the intersection of national security and the private sector. In the most recent issue of NACD Directorship magazine, Jeff Cunningham, in “The Art of Cyber War,” details the evolution of the cyber battle currently ensuing between China and the United States. Under Chairman Mao, China was defended by the Red Guard. Today, however, the Red Guard has been replaced by “digital warriors,” expert in technology and the English language, working from residential areas of China. In a report representing the culmination of six years of research from Mandiant—an American security company—Chinese hackers have stolen technology blueprints, negotiating strategies, and manufacturing processes from more than 100, mostly American, companies.
At NACD’s Spring Forum this week, cybersecurity expert Richard A. Clarke summarized the current environment: “China does not want to fight the United States in a military war, they want an economic war. You have the Chinese government against your company.” During this session, however, Clarke and Karl Hopkins from SNR Denton went beyond the harsh realities of cyber risk to provide guidance that directors can use at their next board meeting.
- Understand you are on your own. The government’s cyber defense budget is allocated toward the military and national security, not toward the private sector. It is up to each company to create a cyber defense strategy.
- Define and protect the “crown jewels.” Companies can’t afford to defend every aspect of the organization. As such, it is wise to develop a minimalist strategy that foremost protects the sources of competitive advantage.
- Don’t wait for the “big event.” Most frequently, companies are not crippled by one significant event, but instead a “death of one thousand cuts”—a slow creep of proprietary information.
- Incorporate the general counsel. At most organizations, the role of the CIO is to keep the company running and costs down, and therefore the CIO may not be the best choice to be responsible for cyber risk management. At American Express, for example, the general counsel has a key role in cyber risk management.
- Spend intelligently. You can spend the entire company’s budget on cyber defense and still not know if the company is truly secure. The company should develop a defense strategy first, and then purchase the necessary supporting technology.
- Ask the right questions. At the next board meeting, directors should ask: “Have we been breached?” Then, “what forensics team have we brought in to look at these threats?” Most likely, directors will require outside expertise to aid in the understanding of cyber risks.
Technology risk oversight is an area that will require more dedicated effort in the future. As such, NACD will continue to raise the discussion with white papers at upcoming educational events and in our NACD Directorship 2020 initiative.
Kenneth Daly
Peter R. Gleason
Alexandra R. Lajoux
Henry Stoever
