Securities and Exchange (SEC) Commissioner Luis Aguilar recently called on corporate boards to ensure the adequacy of corporations' cybersecurity measures, underscoring the broad duties that the board of directors owes to a corporation, especially overseeing risk management.
Board oversight of cybersecurity matters has come under greater scrutiny during the last few months. In May, prominent proxy advisory firm Institutional Shareholder Services suggested that seven of Target Corporation's 10 directors be removed from the board for failing to protect the company from a high-profile data breach that compromised the personal information of up to 70 million customers. The SEC has noted that cybersecurity incidents can result from deliberate attacks or unintentional events.
In remarks at the New York Stock Exchange on June 10, 2014, Commissioner Aguilar stated that given the known risks posed by cybersecurity attacks and threats, corporate boards are expected to proactively address such risks – such as the threat of significant business disruptions, substantial response costs, negative publicity and lasting reputational harm – through effective management of the corporation's infrastructure to prevent and respond to cybersecurity threats. Commissioner Aguilar recommended that boards use the National Institute of Standards and Technology's (NIST) recently released Framework for Improving Critical Infrastructure Cybersecurity (the "NIST Cybersecurity Framework") as a roadmap to assess the company's cybersecurity measures and facilitate a proactive approach to planning for potential cyber-attacks and intrusions. As noted by the Commissioner, the NIST Cybersecurity Framework is voluntary guidance, but it likely will become a standard for best practices by companies with respect to assessing legal or regulatory exposure related to cybersecurity vulnerabilities and for insurance coverage purposes.
Commissioner Aguilar acknowledged that many boards lack the technical expertise required to translate the NIST Cybersecurity Framework's concepts into action plans and cited a few potential solutions a board may take to address this knowledge gap. First, Commissioner Aguilar referenced mandatory cyber-risk education for board members. In addition, the Commissioner implied that boards should include representation by members with a good grasp of information technology issues that pose serious risks to the company. The Commissioner also discussed creating a separate "enterprise risk committee" on the board that would foster a "big picture" approach to company-wide risk that could help improve risk reporting and monitoring as well as a greater focus on whether the company has adequate resources and support for company personnel responsible for risk management.
While much of his remarks focused on the role the board of directors should play in instituting appropriate safeguards and measures to address cybersecurity risks, Commissioner Aguilar also stressed the need for companies to have the right personnel in place to carry out effective cyber-risk management policies put in place by proactive boards and company executives. For example, companies should consider hiring a privacy or security officer who would focus on cybersecurity risk and implementing effective and appropriate prevention and mitigation plans to deal with cyber-attacks and data breaches.
Given the heightened awareness and prevalence of cybersecurity attacks and data breaches with significant and damaging consequences for companies in a variety of industries, boards need to devote time and resources toward ensuring that management has developed a well-constructed and deliberate response plan that is consistent with best practices for a company in the same industry. These plans should include whether and how a cyber-attack needs to be disclosed (both internally and externally, if necessary) as well as how the company will act to remedy the attack or breach.