United States: Cybersecurity, Corporate Governance, And Risk Management: Best Practices

Last Updated: May 5 2016
Article by Peter A. Sullivan and Christopher Escobedo Hart

As litigators, we help clients resolve conflicts that have matured into disputes.  In the realm of cybersecurity, we defend claims brought by private parties or governmental entities against companies facing the fallout from a data breach.

In advising clients in the context of litigation, we have identified tools that are available to mitigate or prevent the types of breaches that we see in litigation.  In the area of cybersecurity, companies have begun to consider the issue holistically and as part of a larger compliance and integrity program, rather than shunting cybersecurity issues to the IT department today and litigation counsel tomorrow.  In the face of significant, public data breaches and the losses suffered by the companies that are exposed, executives and corporate boards are now treating cybersecurity as a governance and risk management issue.

What does it mean to say that cybersecurity is now a corporate governance and risk management issue?  In general, it means that companies should look at issues concerning cybersecurity the way they look at other risks they face, examine those risks carefully, and respond appropriately.  To get a handle on the scope and significance of those risks, the nature of the data at risk must first be understood: how does the company use data, what data does it uses, who in the company uses that data, who in the company manages and sees that data, how is that data is stored, and so on.  Analyzing this risk is heavily dependent on the company's business.  The scope of the risk for a large national retailer, which processes point-of-sale personal credit card information from customers in hundreds of stores across the country, will be different from that of a start-up IT services company operating in a single state with local corporate customers.

Nevertheless, there are general practices that would serve all types of companies well.  With this context in mind, we offer the following six "best practices" in managing issues of cybersecurity in the workplace.

Know your data.

What data does your company collect, use, manage, and discard?  How is that data collected, stored, and maintained?  Who has access to it?  If you have given any thought to these questions, you will recognize that the questions are much easier to ask than to answer.  Understanding the answers to these questions requires a patient and thorough assessment of your company's data landscape.  The kind of data your company collects, how that data is used and maintained, and who in the company views it or uses it are all highly relevant considerations in assessing liability in the event the data is compromised.  For example, if your company provides lines of credit to customers nationwide, you might be subject to both state data privacy laws  and federal laws governing companies that provide financing to consumers.  Public companies must also be concerned with federal SEC regulations and enforcement.  Companies dealing with health care or patient information are subject to the federal HIPAA law and state laws governing such information.

Even small private companies that do not collect, maintain, or use personal data from customers must concern themselves with the consequences of a data breach.  Trade secrets might be at stake, for example.  A smart and thorough data mapping will identify where trade secret information and proprietary customer data resides.  But remember that company data invariably includes employee data.  Employee information is as sensitive as customer data; and how that data is collected, stored and maintained must be understood.

Finally "knowing your data" does not simply mean assigning someone in HR or IT the task of creating a data map and filing it away.  It means regularly auditing the type of data that is collected and maintained.  It also means knowing where, physically, such data is kept and who has access to it.  And it means knowing when it can be discarded, and how.  Knowing your data is the first step in managing the risks associated with that data.

Create lines of oversight and accountability.

Now that we know our data, who is going to be charged with protecting it?  Up until recently, one common way to handle the data protection question was to give those responsibilities to the Chief Technology Officer, who managed the company's technology infrastructure and IT staffing.  The virtue of allocating responsibility to the CTO is that he or she will understand well the nature of the data processed and stored within the company.  In practice, however, this is usually not an effective allocation of responsibility.  The responsibilities of a CTO are typically so broad and diffuse that cybersecurity might not get the full attention that it deserves.  For that reason, some companies have taken to the idea of having a specific "cybersecurity officer" as an executive position whose responsibilities are separate and apart from the maintenance of IT infrastructure and staffing.  Even with a separate cybersecurity officer position, there must be close coordination with the CTO.  Finding the right balance has a great deal to do with the specific needs of your company.

Cybersecurity also needs to be a recurring item on the agenda of boards for public companies the same way that safety is often a recurring item of discussion.  Having a knowledgeable board on cybersecurity issues will help set the tone at the top and instill a culture of accountability in cybersecurity.

Create good policies (and stick to them).

It is not enough to know your data and have lines of oversight.  Companies must also create cybersecurity policies that employees can understand and follow.  Policies are necessary for three reasons.  First, they force the company itself to fully understand its risks and how those risks are going to be handled.  You need to know the problem to solve the problem.

Second, if a company has a good policy and actually sticks to it when a crisis occurs, that company is in a far better position to avoid liability.  Often, federal and state laws allow companies to avoid liability if a company can show that it had a reasonable and comprehensive policy in place and followed that policy before, during, and after a breach.  Good policies demonstrate diligence and good faith when the time comes to defend against a claim or charge.

Third, policies help establish a culture of compliance.  They help establish tone at the top.  Policies, whether they be statements of principles or rules to follow, give structure and importance to cybersecurity for the employees who need to carry out those policies.

Train your people.

Your company's employees are the ones who use your company's data.  They need to know what data they are using (and have access to) and what the parameters and limitations are from proper use and maintenance of that data.  As important as creating a cybersecurity policy is, even the best policy will be meaningless if it is simply posted in the dark recesses of your company's intranet, never to be heard from except when it's occasionally dusted off and updated.  A company's policies are only as good as a company's ability to adequately educate employees as to those policies, and train them on how to implement and execute those policies.

Education is the company's opportunity to not just talk the talk, but to walk the talk, too.  Employees need to believe that there is buy-in at the top, and that everyone takes compliance seriously.  Education and training should be an integral part of your company's data security plan.

Create good contracts.

Vigilance in cybersecurity does not end at your company's boundary.  If third parties use data that you collect, you must carefully create and vet contracts with those third parties to confirm that they have acceptable protections in place.  Doing so can mean all the difference in avoiding liability.  Engage knowledgeable counsel in drafting contracts.

Prepare for the worst.

The most common question we get is, "How can I avoid a data breach?"  The answer:  You can't.  Data breaches are the inevitable and foreseeable cost of data ubiquity.  While some breaches are of the front-page news story variety — a hack happening from abroad, stealing trade secrets and compromising financial data — more often breaches happen because of simple human error, like a lost, unencrypted laptop left on a subway.  Or they happen because a company's IT department was so concerned about protecting the "perimeter" — the external threats — that it forgot about the homeland — the internal threats that come from careless or disgruntled employees who have access to more data than they need to perform their job.

That being said, companies that plan for the worst will be best positioned to survive the worst.  Have a business continuity plan.  Have a forensic plan in place to resolve and root out the breach.  Determine which authorities you will need to contact in the event of a particular breach.  Have a crisis management professional lined up to handle the fallout with your customers.  These plans can be collected and kept in a cybersecurity playbook.  Make the playbook ahead of time, and keep it up to date.  If so, you'll be ahead of the game.

Cyberinsurance policies can also play a role.  Cyberinsurance is still something of the "wild west" in insurance products, but the right one can be useful in helping to minimize the exposure and costs that come from a large data breach.  Premiums and terms vary, but insurance can help your company cover many of the costs associated with cleaning up a breach.  Again, having knowledgeable counsel to vet policies is key.


We used to think of cybersecurity as an IT issue,  but gone are the days when all you needed to do to satisfy security concerns was to maintain and update the malware security software.  Cybersecurity is no longer simply a virus-update issue.  The bigness of the data that we collect has utterly transformed the way companies think about security.  In the end, there is no magic bullet that will prevent data breaches.  The pirates and the hackers are too smart and too motivated to get to your information.  But good governance and risk management practices will help your company limit data breaches, and where a breach occurs, following these practices will help the company survive a data breach and the fallout that results.

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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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