Tag Archive: Cyber-Risk Oversight Handbook

Would Your Board Pass This Cyber-Risk Oversight Test?

Published by
Ridge_Tom

Gov. Tom Ridge

“If you had to sign a cybersecurity certification similar to the financial reporting requirements for corporate officers under Sarbanes-Oxley (SOX) Section 302, could you do it?”

As my firm counsels boards and C-suite executives on cyber risk, we often begin by framing our conversation with that provocative question. How directors answer will indicate how confident they are in the cybersecurity posture of their business.

As an exercise, let’s review SOX Section 302. For the purposes of this discussion I have replaced the finance-related text with cybersecurity-specific language. These changes are bolded, and other elements that are critical SOX measures for proper oversight by officers and the board are underlined.

SEC. 302. CORPORATE RESPONSIBILITY FOR CYBERSECURITY REPORTS.

(a) REGULATIONS REQUIRED.—The Commission shall, by rule, require, for each company filing periodic reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m,78o(d)), that the principal executive officer or officers and the principal cybersecurity officer or officers, or persons performing similar functions, certify in each annual or quarterly report filed or submitted under either such section of such Act that— 

(1) the signing officer has reviewed the report; 

(2) based on the officer’s knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading; 

(3) based on such officer’s knowledge, the cybersecurity statements, and other cybersecurity information included in the report, fairly present in all material respects the cybersecurity condition and results of operations of the issuer as of, and for, the periods presented in the report;

(4) the signing officers—

(A) are responsible for establishing and maintaining internal controls;

(B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;

(C) have evaluated the effectiveness of the issuer’s internal controls as of a date within 90 days prior to the report; and

(D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;

(5) the signing officers have disclosed to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function)—

(A) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize, and report cybersecurity data and have identified for the issuer’s auditors any material weaknesses in internal controls; and

(B) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls; and 

(6) the signing officers have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 

Now, how confident are you in the state of your cyberposture? Fortunately, to use the old exercise phrase, “this has been only a drill.”

However, multiple federal regulators, including the Securities and Exchange Commission, the Federal Trade Commission, and state agencies such as the New York Department of Financial Services, have become far more aggressive in holding corporate officers and board members accountable for cybersecurity oversight. And it is not out of the question that SOX-like requirements may materialize in the future, should another series of damaging breaches occur impacting consumers.

Regardless of whether regulators may soon require such specific attestations, significant discomfort with these questions at the board and C-suite level can indicate that cybersecurity is not being managed as an enterprise, twenty-first century business imperative. With sensitive customer information, employee data, operational processes, intellectual property, and trade secrets all on your networks, cybersecurity represents a real business and reputation risk.

The truth is that most corporate boards aren’t prepared for cyberattacks. It is an esoteric topic that remains elusive to most corporate directors.

NACD has been leading on this issue to ensure that its members have the resources to get up to speed, increase their cyberliteracy, and enhance cybersecurity oversight. I am proud that my firm has been able to partner with them to create an online education program specifically for corporate directors that leverages resources such as the NACD Cyber-Risk Oversight Handbook and the expertise of the CERT Software Engineering Institute at Carnegie Mellon University.

While no program or technology can guarantee that your organization will not be hit by a cyberattack, it is incumbent upon us all to learn what we need to know to ask the right questions and to close as many gaps as possible. As the regulatory environment continues to focus on our ability to provide effective oversight, doing nothing is a sure-fire way to find cyberthieves in your system as well as regulators, litigators, shareholders, and customers knocking on the boardroom door. 

Tom Ridge is chair of Ridge Global, a risk management and cybersecurity advisory firm. An experienced corporate board member, he previously served as the first U.S. Secretary of Homeland Security and as the 43rd Governor of Pennsylvania.

Click here for more information on NACD’s cyber-risk oversight course.

Board Oversight of Cyber Risk in the Wake of the Yahoo Breach

Published by

The major cyber breach that Yahoo announced last week has ripple effects not only for the multimedia platform, but for every company. The incident already has caught the attention of a senator who is calling on the U.S. Securities and Exchange Commission (SEC) to investigate how Yahoo disclosed the breach to shareholders and the public.

Background on the Breach

Ashley Marchand Orme

Ashley Marchand Orme

Account data for at least 500 million users was stolen by what Yahoo has called a “state-sponsored actor” in what CNN Money calls one of the largest data breaches ever. Compromised information includes names, email addresses, phone numbers, dates of birth, encrypted passwords, and security questions.

Yahoo has not named a country of origin for the hacker. The company, which Verizon is seeking to acquire, is still one of the busiest online sites, boasting one billion monthly users.

The breach occurred in late 2014, according to Yahoo, but the company just disclosed the incident in a press release dated Sept. 22, 2016. The Financial Times reports that Yahoo CEO Marissa Mayer may have known about the breach as early as July of this year, raising questions as to why it wasn’t disclosed sooner.

Attention From Lawmakers

Sen. Mark R. Warner (D.-VA), a member of the Senate Intelligence and Banking Committees and cofounder of the Senate Cybersecurity Caucus, sent a letter to the SEC yesterday asking the agency to investigate whether Yahoo complied with federal securities law regarding how and when it disclosed the incident.

“Data security increasingly represents an issue of vital importance to management, customers, and shareholders, with major corporate liability, business continuity, and governance implications,” the senator wrote.

Warner—who cofounded the company that became Nextel, a wireless service operator that merged with Verizon—also told the SEC that “since published reports indicate fewer than 100 of approximately 9,000 publicly listed companies have reported a material data breach since 2010, I encourage you to evaluate the adequacy of current SEC thresholds for disclosing events of this nature.”

And Warner isn’t the only lawmaker pushing for increased cyber regulations. Earlier this month, New York Governor Andrew Cuomo (D-NY) announced proposed cybersecurity regulations to increase the responsibility of banks and insurance to protect their information systems and customer information. The regulations, if instated, would apply to companies regulated by the New York Department of Financial Services (NYDFS) and would require them to—among other steps—establish a cybersecurity policy and incident response plan. Companies would also have to notify the NYDFS within 72 hours of any cyber event that is likely to affect operations or nonpublic information.

The Boardroom Response

Any company—whether public, private, or nonprofit—can fall prey to a breach, and even companies with formal cybersecurity plans can find themselves the victims of a breach. Preliminary data from the 2016-2017 NACD Public Company Governance Survey show what corporate directors are already doing to oversee cyber-related risks.

When asked which cybersecurity oversight practices the survey respondents’ boards had performed over the past 12 months—and directors could select multiple answers—the most common responses included:

  • Reviewed the company’s current approach to protecting its most critical data assets (76.6%)
  • Reviewed the technology infrastructure used to protect the company’s most critical data assets (73.6%)
  • Communicated with management about the types of cyber-risk information the board requires (64.4%)
  • Reviewed the company’s response plan in the case of a breach (59.3%).

“Corporate directors should ask management for an accurate and externally validated report on the state of the organization with respect to cyber risk,” said Robert Clyde, a board director for ISACA, which is a global IT and cybersecurity professional association, and White Cloud Security. “They should also ask what framework is being followed for IT governance.”

Aside from high-profile breaches of emails and email providers, Clyde says that breaches related to ransomware are increasing.

“Ransomware encrypts data that can only be decrypted by paying the attacker a fee in Bitcoins.  According to the NACD Cyber-Risk Oversight Handbook and many other organizations, the key control to reduce the risk of attack—including ransomware—is restricting user installation of applications, called ‘whitelisting’ or ‘Trusted App Listing,’” Clyde said. “Yet this highly recommended control is rarely implemented. Boards should ask organizations for their plans to implement this specific control.”

NACD Resources

NACD recently announced a new online cybersecurity learning program for directors. The multi-module course aims to enhance directors’ understanding of cybersecurity, and the difference between the board’s and management’s responsibilities related to cyber risks. Participants in the program, which is the product of partnership between NACD, Ridge Global, and the CERT Division of Carnegie Mellon University’s Software Engineering Institute, will work through a cyber-crisis simulation and take a comprehensive exam. Successful completion of the program will earn the participant a CERT Certificate in Cybersecurity Oversight.

For board-level tools and templates to fortify your oversight practices, visit NACD’s Cyber-Risk Oversight Resource Center.

 

 

Understanding the Cyber Dialogue

Published by

Cybersecurity is more than a technological issue—it’s a business issue. In a BoardVision video moderated by Judy Warner—editor-in-chief of NACD Directorship magazine—Mary Ann Cloyd, former leader of PwC’s Center for Board Governance, and Zan M. Vautrinot, former commander of the Air Forces Cyber Command and current director of Symantec, Ecolab, and Parsons Corp., discuss effective cyber-risk oversight, addressing the following questions:

  • How can boards communicate with management about cyber risk?
  • How does cyber risk fit into discussions about risk appetite?

Cyber Dialogue

Here are some highlights from that conversation.

Judy Warner: For directors, I think one of the greatest challenges around the issue of cyber is how to engage in an informed conversation with management. And how do they become informed about their oversight roles as they relate to cyber?

Zan Vautrinot: One of the things that was absolutely clear about the private sector and corporate leadership is that they understood how to have a discussion about risks and strategy. The only thing different with cyber is that some of the technology and some of the solution sets are slightly different, but the conversation is the same. It is a discussion about a particular kind of risk and how it relates to the kind of business you are [in].

Warner: Mary Ann, from your perspective, how does that conversation take place, or start to take place, at the board level? And is it a conversation for the full board or a specific committee?

Mary Ann Cloyd: I guess I always say it depends. I never want to be so prescriptive as to tell somebody what they need to do because every board and every committee is different. However, I do think that, given the magnitude of how this affects so many businesses, it’s not a technology issue. It’s a business issue. So, with that, where would you oversee any other business issue at your board? And I’m guessing that a lot of it would belong at the full board, with parts of it delegated down to a committee.

Warner: The NACD recently published a handbook on cyber-risk oversight, and one of the discussions is around risk appetite and where does cyber fit into that equation today. And I know, Mary Ann, you have said we need to think of cyber as any other risk.

Cloyd: I think you bring up two interesting things. [I]n fact, we did a small publication [at PwC’s Board Leadership Center] earlier this year, and we called it “Defining Risk Appetite in Plain English.” What prompted it was I had a director come to me and he said, “Mary, we’re doing our off-site strategy session and we always talk about risk appetite. Do you have a good pre-read that I could give to the board so that they can understand what risk appetite means?” So we did this to really put in plain English, in four pages or less, what the dialog is between management and the board, and how you develop and define your risk appetite. And, to me now—as you have so beautifully put this, Suzanne—cyber is just another part of that risk discussion and how it fits into your overall strategy.

Vautrinot: Right. And if you have already had a discussion about your strategy and those things that are most important to you as a corporate entity, is it the data that is unique that you’ve collected—the information and the access to that information—that makes your corporation unique? Is it the technology or your research and development? Is it your insight into financial transaction or merger and acquisition? Is it [about] manufacturing processes or distribution processes?

Every board and every management team knows what is most important to them being successful as a corporation. It is likely that those things are the areas that [the board] would want to focus on with assessing cyber risk. If you look at that area and say this is what is most important to us as a corporation, and this is the technology that we depend on to do that activity, now I can say that is sufficient or it is insufficient relative to the amount of risk I am willing to accept in that area. There may be other areas that aren’t core to the business, and so you are willing to accept a different amount of risk or put different systems in place that kind of sandbox it—[systems] that put a fence around, or that separate or provide different controls to allow [the lower-risk] activity to run more openly, whereas [higher-risk areas are] much more controlled and much more precious.

Additional NACD resources

NACD’s Director’s Handbook Series: Cyber-Risk Oversight

NACD—Building a Relationship With the CISO

NACD—Assessing the Board’s Cybersecurity Culture

NACD—Cybersecurity Risk Oversight and Breach Response