United States: Is Data Really A "Toxic" Asset?

Last Updated: April 15 2016
Article by Richard D. Lutkus, Natalya Northrip and Jaime Raba

In his "Data Is a Toxic Asset" blog post, Bruce Schneier argues that data is a toxic asset and that the lesson all the recent data breaches are teaching us is that storing this asset is "dangerous," because it makes companies vulnerable to hackers, the government, and employee error. Schneier suggests addressing data breaches through stronger regulation at every stage of the data lifecycle and through personal liability of corporate executives. "Data is a toxic asset," concludes Schneier, "We need to start thinking about it as such, and treat it as we would any other source of toxicity. To do anything else is to risk our security and privacy."

Calling data a "toxic asset" sensationalizes the data-security conversation into alarmist territory. The term "toxic asset" has a certain meaning in financial circles and typically refers to assets that become illiquid when they no longer can be sold on a secondary market. This hardly applies to data, which is more of a lifeblood for corporations than toxic asset.

No one can deny that in the past few years the occurrences of data breaches of personal information continued to increase in number and intensify in severity. But is not owning personal information a practicable solution to the problem? We think not. Organizations do need some personal data to run their day-to-day operations, comply with their reporting obligations to the government, market and sell products, and assess and adjust their business strategy. As such, perhaps the better lesson to learn from data breaches is for organizations to be selective about the data they collect in the first place, ensuring that only what is necessary is collected, and to proactively delete it as it is no longer needed.

Another lesson to learn from data breaches is that data needs to be appropriately secured. Many organizations still lag behind times in their understanding and execution of data security. In our experience, this is often the result of data security being an afterthought, rather than something that is woven into the organization's operations "by design." This, in turn, stems from a variety of reasons, such as lack of knowledge about data-security dangers, lack of knowledge about data security processes and technologies that can be employed to address these dangers, a belief that security breaches happen only to others, a hope that the aftermath of a breach will not be disastrous, and a resignation that no matter what security measures are employed, a breach is certain to occur and prevention is useless.

However, being afraid of data breaches to a point of not wanting to store any personal data is like not wanting to ride in a car because of a possibility of an accident. What are the solutions? Schneier argues for additional regulation "at every stage," and for making corporate executives personally liable for data breach fallouts. Thousands of regulations already apply to information governance and data security. The increased cost of additional compliance will be passed on to consumers, while the benefit, if any, will be difficult to measure. Making executives personally liable will likely deter many capable qualified professionals from assuming data protection positions, which would in essence be turned into strict-liability jobs.

We think that the better approach is the balancing of risks, benefits, and costs with the need for data collection and processing. We believe that it is inartful information governance, not data "toxicity" that is the liability. Applying the 80/20 rule to data security, which anticipates that 80% of outcomes come from 20% of inputs, below are our thoughts on how to approach organizational data security.

  1. Self-assessment. Self-knowledge is key. Privacy professionals need to undertake a thorough assessment of the types of personal information their organization collects, stores, processes, and shares with others, including affiliates and third parties, such as processors who process data on the organization's behalf. This assessment should be used to critically look at what the organization is doing now with respect to personal data to help create a plan for better information governance. For instance, almost any category of personal information should have an expiration date and should be deleted from the company's information technology systems when it is no longer useful. Data containing personal information that is no longer needed for the purpose it was collected at best becomes digital debris and at worst, a liability in case of a data breach and in case it becomes relevant to a future lawsuit. This self-assessment should be repeated at regular intervals, such as once a year.
  2. Data security technologies. Based on the self-assessment, the organization should apply right-size solutions to its data, depending on the level of sensitivity of personal information the data contains. For instance, sensitive data can be kept on a separate server with restricted access and encrypted in transit and at rest. Many state data breach notification laws exempt organizations from providing notice to individuals whose personal data was improperly disclosed if that data was encrypted. As such, losing encrypted personal data, while an unfortunate occurrence, should not lead to any damages whether to consumer or to the organization. Encryption can be expensive and not easy to implement, but this very well could be an expense and effort well spent.
  3. Data security processes. Data security functions best when it is part of organizational culture. To achieve this culture, organizations should bring their various stakeholders, such as Legal and IT departments and the leaders of the business units on the same page. Data security needs to be supported by the organization's top executives and taught to all employees with access to personal data. Organizations should adopt and implement policies and procedures tailored to the types of personal data they collect, store, process, and transfer. This documentation should take into account all applicable laws and regulations. Special consideration should be given to any foreign jurisdictions where the organization has operations or from where the organization sources personal data. This documentation, likewise, needs to be updated in response to any material changes uncover by the periodic self-assessment.

Data security can be complex, take time away from the main operations, and cost a lot. Through the employment of appropriate security measures, processes, technologies, and people organizations can be successful in their information governance. If not touching personal data is not an option for your organization, remember that those organizations that are disciplined and strategic about their data security policies and practices are the ones that will fare well in both protecting their data and in minimizing the damage should those efforts fail.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Richard D. Lutkus
Natalya Northrip
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