SEC Commissioner Calls on Corporate Boards to Address Cybersecurity—Refers to NIST Cyber Framework as “the Bible”

by Davis Wright Tremaine LLP
Contact

While attending the "Cyber Risks and the Boardroom" Conference at the New York Stock Exchange on Tuesday, June 10, 2014, U.S. Securities and Exchange Commissioner Luis Aguilar called on corporate boards to make sure they are taking the necessary steps to address and oversee their companies’ cybersecurity risks. In a prepared statement, he said that ensuring the adequacy of a firm’s cybersecurity measures “needs to be a critical part of a board of directors’ risk oversight responsibilities.” He said that “(e)ffective board oversight of management’s efforts to address these issues is critical to preventing and effectively responding to successful cyber-attacks and, ultimately, to protecting companies and their consumers, as well as protecting investors and the integrity of the capital markets.”

During his remarks, Commissioner Aguilar reviewed a number of recent high profile data breaches which generated media attention and raised public awareness about the issue:

  • The October 2013 cyber-attack on the software company Adobe Systems, Inc., in which data from more than 38 million customer accounts was obtained improperly;
  • The December 2013 cyber-attack on Target Corporation, in which the payment card data of approximately 40 million Target customers and the personal data of up to 70 million Target customers was accessed without authorization;
  • The January 2014 cyber-attack on Snapchat, a mobile messaging service, in which a reported 4.6 million user names and phone numbers were exposed;
  • The sustained and repeated cyber-attacks against several large U.S. banks, in which their public websites have been knocked offline for hours at a time; and
  • The numerous cyber-attacks on the infrastructure underlying the capital markets, including quite a few on securities exchanges. 

In addition to the frequency of the attacks, Commissioner Aguilar expressed concern that the attacks have become increasingly expensive to victim companies. He cited one 2013 survey indicating that the average annualized cost of cyber-crime to a sample of U.S. companies was $11.6 million per year, representing a 78% increase since 2009. He noted that the costs were not restricted to direct economic loss, but included reputational harm that significantly affects a company’s bottom line. 

The role of board oversight in cybersecurity came into sharp focus late last month when a prominent proxy advisory firm urged the ouster of seven of Target Corporation’s ten directors for failing to protect the company from a high-profile data breach that compromised 40 million credit cards. Commissioner Aguilar stated that “one would expect that corporate boards and senior management universally would be proactively taking steps to confront these cyber-risks.” He cited to one report indicating that boards are not spending enough time or devoting sufficient corporate resources to addressing cybersecurity issues. He suggested that boards should be more involved in reviewing annual budgets for privacy and IT security programs, assigning roles and responsibilities for privacy and security, and receiving regular reports on breaches and IT risks. 

While expressing concern about the lack of board involvement in cybersecurity issues, Commissioner Aguilar offered suggestions for enhancing cybersecurity measures. He noted that the National Institute of Standards and Technology (NIST) released the Framework for Improving Critical Infrastructure Cybersecurity in February 2014. The NIST Cybersecurity Framework is intended to provide companies with a set of industry standards and best practices for managing their cybersecurity risks. The Framework encourages companies to proactively prepare for and manage cybersecurity risks. As we predicted in our advisory on the release of the Framework, and as Commissioner Aguilar noted, although the Framework is structured to provide voluntary guidance for any company, it is likely to become a baseline for corporate best practices and assessing the extent of exposure to legal or regulatory liability for cybersecurity shortcomings or for insurance coverage purposes. He stated, however, that the Framework will be “a bible without a preacher if there is no one at the company who is able to translate its concepts into action plans.”

Commissioner Aguilar also stated that there is no “one-size-fits-all” approach to preparing for or responding to cyberattacks, but strongly encouraged boards to invest time and resources into developing an incident response plan consistent with best practices for companies in the same industry. He concluded his remarks by stating that “board oversight of cyber-risk management is critical to ensuring that companies are taking adequate steps to prevent, and prepare for, the harms that can result from such attacks. There is no substitution for proper preparation, deliberation, and engagement on cybersecurity issues. Given the heightened awareness of these rapidly evolving risks, directors should take seriously their obligation to make sure that companies are appropriately addressing those risks.”

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Davis Wright Tremaine LLP | Attorney Advertising

Written by:

Davis Wright Tremaine LLP
Contact
more
less

Davis Wright Tremaine LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!