The spate of unprecedented cases of accounting fraud at the turn of the century left heads of industry like Enron, Tyco International and WorldCom egg-faced and Congress in reckoning. These last-straw scandals shed light on the inadequacies of the regulatory framework of the time and how members of the American corporate landscape were uncommitted to its obligations. In reaction, Congress took a firmer hand on financial reporting and bore Sarbanes-Oxley (SOX) in 2002 to intensify disclosure requirements. Of the many new SOX mandates, financial experts were required to be members of audit committees and participate in board decisions, given that the investigations of the aforementioned scandals showed that board members were not exercising their responsibilities and did not have the expertise to understand the complexities of their own businesses.
More than 14 years later, professionals in the privacy sphere are starting to develop similar sentiments about the lack of privacy expertise at the top of most businesses. With the scarily increasing numbers of data breaches and records being exposed, combined with a backdrop of general mistrust by the public, it really seems to be time to bring privacy experts to the board table.
For those of you who are not as evangelical about privacy, maybe talking dollars and cents is the language best used to drive home that maintaining the privacy of personal data is not a side issue and can have a significant impact on an organization’s financials. Fines for exposed data are increasing, as are class action lawsuits against companies, from disgruntled customers who have been victims of personal data exposure to government regulators. A recent fine of $10 million was imposed on TerraCom Inc. and YourTel America Inc. by the Federal Communications Commission (FCC) for failing to “properly protect consumers’ proprietary information.” Also, the FCC continues to “up the ante,” fining AT&T $25 million for privacy violations against 280,000 customers. As part of their redress by the FCC, the company was ordered to bring in a compliance officer who “shall be privacy certified by an industry certifying organization.” Fines and drops in share prices that often correspond with breaches are driving the demand to usher privacy experts into the boardroom. As was the case for Gregg Steinhaffel and Beth Jacob, CEO and CIO of Target Corp. after their well-known data breach in 2014, board members themselves are starting to realize they can be dethroned if privacy safeguarding isn’t taken seriously enough, and their consciousness of that has to be reflected in who they team with.
Privacy and the Board: Putting Privacy First
Not taking privacy seriously is costing organizations in financial and reputation damage. Privacy needs to become part of board culture in the same way that financial concerns were addressed after SOX.
Privacy needs to be embraced by the entire organization and then be driven by the tone at the top from the board. Organizations need to be proactive. As consumers become savvier about their privacy rights, their expectations about how a company handles privacy will most certainly grow and solidify. In a recent study by Deloitte, “Building Consumer Trust: Protecting Consumer Data in the Consumer Product Industry,” research showed that 80 percent of consumers indicated they were more likely to buy from companies that actively protect their information.
To create a company culture where privacy is respected and protected, the board has to understand how to achieve it. This requires an individual like a CPO to work with the board to help them understand the areas of the business that need privacy focus and a strategic roadmap. A board initiative around privacy will filter down throughout the entire company and create an ethos, putting privacy first. This will build a better company, create more trusted customer relationships and ultimately protect both internal employees and your customers’ information.Corporate Compliance Insights is a wholly owned subsidiary of Conselium Executive Search, the global leader in compliance search.