the board's role in data privacy

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.

The cybersecurity and privacy landscape is intricate.  Organizations are being attacked on all sides, both externally and internally, resulting in historic amounts of personal data being mishandled.  The latest Identity Theft Resource Center Breach report for the United States shows that there was a total of 269 breached organizations with over 11 million records exposed in 2016 (and this number could be much larger, as many organizations do not reveal breach details and numbers).  The endemic nature of data loss and privacy exposure demands subject matter expertise to navigate the threats of our time. It would be grossly imperceptive to see privacy as simply having a privacy policy on your corporate website or an opt-in/opt-out check box next to a marketing request. Privacy has a wide reach.  It not only impacts your customers, it also affects your employees, vendors, partners and your overall contribution to upholding the fundamental rights of individuals. And ensuring an organization is privacy conscious takes top-down investment and education.

Money Talks

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.

Avani Desai

January 4 - Avani Desai headshotAvani Desai is Principal Privacy Leader and EVP of Schellman & Company, Inc. She previously served as Principal and Executive Vice President at BrightLine and has more than 10 years of experience in IT attestation, risk management, compliance and privacy.

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