As the Audit Committee chair for a public company, I am continually evaluating the enterprise risk management (ERM) model to monitor multiple components of risk to the organization. These can be operational risks like talent departures or the acquisition of a new business unit; or financial reporting risks such as the deployment of a new transaction system or new revenue models. But the traditional ERM model struggles to incorporate a component that is arguably one of the more dangerous risks to some companies today: cyber security risk.
In today’s cyber landscape, any company that manages and maintains sensitive data should consider how the Board oversees this risk. This could be via a cyber risk chair or lead director on their Board’s Audit Committee.
As an Audit Committee Chair, I ensure the annual operating plan budget has the appropriate resources, personnel and tools to support the company’s Accounting and Finance functions. If cyber security is a high risk for a company, there should be a similar level of inquiry to ensure that the IT & Security groups have adequate support.
This is not oversight for oversight’s sake. In a recent NYSE study, one in five board directors indicated they only discussed cyber security after an internal incident or one in the same industry. A designated chair or lead director not only can ask the right questions proactively, but can work with management to establish a baseline corporate cyber risk profile, monitor management’s progress towards improvement/objectives, and ensure the right amount of resources are made available to mitigate a company’s risk and ensure its continued trust with stakeholders.
Many companies have already concluded they haven’t supported cyber security adequately — banking is an industry leading the way. Last year, CEO Jamie Dimon announced JPMorgan Chase would be increasing its cyber security spend by $500 million annually. Other financial institutions have followed this lead and made similar out of cycle increases to cyber security spending. In total, financial firms have set aside an <a class="markup--anchor markup--p-anchor" href="http://www.bidnessetc.com/29463-financial-firms-increase-cybersecurity-budgets-to-2-billion/" rel="nofollow" additional $2 billion to revamp their systems above and beyond their current spending run rate.
Modern cyber risks require a paradigm shift for businesses, but many are not ready to evolve to address these emergent issues. In the early 2000s, in the wake of Enron and WorldCom, the Sarbanes-Oxley Act imposed strict accounting reforms on corporate financial disclosures, and the underlying transaction processing systems, to prevent accounting fraud. What followed was a substantial increase in compliance spending to meet these requirements. Today, as we look at costly and highly publicized breaches such as Sony and Anthem, it demonstrates that companies require a new infusion of cyber risk management process.
If you’re in an industry with a high degree of cyber risk exposure — which means you handle and process financial data and sensitive data like PII data, PIH data, PCI data, IP related data — it’s incumbent upon the board and the management team to look at this as a potential operating risk.
Start with these questions:
At the end of the day, managing cyber security falls to the entire management team — it’s not just a CIO or CISO issue but a CEO and executive team issue. Having cyber security represented at the Board level helps ensure that the right level of review occurs as the Board discharges their fiduciary responsibility to monitor overall company risk.
Eric Brown, Chief Financial Officer & Chief Operating Officer
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