Consumers in the digital marketplace rarely think twice about allowing companies access to their personal information, and the companies that are amassing this data are enjoying the unprecedented business opportunities that such access entails. This exchange of information does, however, come with substantial liability risks; that information can easily fall into the wrong hands. This feature of the e-commerce landscape is causing both consumers and companies to ask: Is privacy dead in the Information Age? To explore this question, NACD Directorship Editor in Chief Judy Warner sat down with former White House Chief Information Officer and founder of consulting company Fortalice Theresa Payton during a Monday evening session at the 2015 NACD Global Board Leaders’ Summit.
In short, privacy isn’t dead, but our concept of privacy is undergoing a transformation. Payton said that as business leaders and consumers, we need to have serious conversations about what the new—and correct—lines of privacy are. “We own some responsibilities as business leaders and government officials,” she said. “Data is hackable and breaches are inevitable. Don’t aid and abet hackers.”
It turns out that companies are inadvertently aiding and abetting hackers. First, some organizations fall victim to their own, outdated view of building cyber defenses: Set up as big a firewall as you can around the company’s data assets; install anti-malware and antivirus software—done. This is a losing defensive strategy; it fails to take into account the mechanics of how and why these major breaches continue to happen.
According to Payton, companies with poor data hygiene are the most susceptible to cyberattacks. When companies kept analog files, they would shred records when storage space was exhausted or when data reached a certain age. In a digital environment, storage space is cheap and seemingly limitless, meaning that data could—and probably will—live on servers for years. As time goes on and a company reorganizes, data is forgotten, creating prime points of entry for hackers. Adopting a data-“shredding” strategy is imperative.
In addition, the tools needed to hack into a system have become both affordable and readily available. Now anyone can be a hacker—and those who have chosen this path grow more adept at their craft every day. Taken altogether, this is a recipe for potential disaster.
Payton outlined best practices for maintaining optimal data hygiene:
Don’t keep all of your data in one place. For data you need to retain, “segment it to save it.” In other words, divide that information among multiple digital locations so that if one location is compromised, a hacker hasn’t gained access to the entirety of the data the company holds.
Create rules around when you no longer need data and set a schedule for “shredding” it.
“Shred” any data that you don’t need. Keep only data related to the attributes of consumer behaviors and get rid of the specifics (e.g., names and social security numbers). Doing so will reduce your risk of being held accountable when a breach happens.
Furthermore, she stressed that directors should be sure to ask certain questions as they work with management to hone the company’s cybersecurity strategies:
Have we identified our top critical assets—those that if held for ransom, lost, or divulged, would destroy us as a company?
Who has access to those assets? How do we grant access?
Have we drilled for a cyber breach disaster?
Do we have a liability plan that will cover the board should critical assets be breached?
The word hacker carries many connotations, most of them negative. But is it possible that hacking can be a force for good? During his keynote speech at the 2015 NACD Global Board Leaders’ Summit, technologist, author, and self-described hacker Josh Klein offered a fast-paced dive into the misconceptions that directors and executives may be perpetuating without even recognizing their error.
“Disruptive trends in technology, culture, and business are converging,” Klein observed before exploring four areas in which this convergence is creating unprecedented opportunities.
Code. In 2006, the cost to develop a website was exorbitant by any standard. Today, thanks to the multitude of free web-development tools now on the market, the cost is next to nothing. In Klein’s words, “It’s getting cheaper and cheaper to validate your business concept.” This fact alone will grow the pool of competition exponentially, because anyone who knows enough code to use these tools and has a marketable business plan can start a company. Anyone from legitimate start-up entrepreneurs to criminal masterminds can code a site, which means that companies must anticipate and plan for competition of varying legality and ethical standing.
Culture. “Tech doesn’t spring from the ether,” Klein pointed out. “It emerges from the attitudes and desires of users.” Information can be shared and spread almost instantaneously, increasing the likelihood that a company will at some point receive undesirable attention. According to Klein, technology creates a meritocracy via democratic exposure of reputation. But instead of trying to hide negative feedback, companies should get ahead of the problem and own it as best they can. He cited AirBnB as one example of how digital technologies have created marketplace meritocracies. Responding to an incident in which an AirBnB guest caused significant damage to a host’s home, the company rolled out a million-dollar host guarantee policy. This move both acknowledged the problems with the company’s old business processes and affirmed its commitment to improving those systems and protecting AirBnB hosts.
Competition. With the rise in sources of competition, businesses that rest on their laurels and become complacent about their success are putting themselves in a dangerous position. Looking out over the audience, Klein underscored the obvious: “We’re all sitting here, and the innovation may be happening someplace else.”
Future Context. To many of us it seems that everyone is connected by the Internet, but only about one-third of the world’s population is online. Klein observed that the remaining two-thirds may be illiterate and may not have bank accounts; they do, however, participate in the black market, which is currently valued at $10 trillion and accounts for $1 in every $7 exchanged, making it the second largest market on the planet. Companies must anticipate how these demographic shifts will create new business demands and transform the face of e-commerce.
Klein ended by entreating his audience not to panic but instead to begin experimenting, learning, evolving, and to do this all as quickly as possible. “Do it now, because if you’re not, someone else is.”
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.