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The Tip of the Iceberg: Data Protection and Cyber Risk

GCs are central to any coherent cyber security strategy, but many feel their skills are overlooked. Results from our survey suggest recent high-profile cyber attacks are only the beginning of the story…


Bob Jett, chief privacy officer at Crawford & Company notes that ‘People used to joke that when a GC hears of a cyber attack or data breach they would breathe a sigh of relief and say, “Thank God, that one falls to the IT team”. Today that joke wouldn’t make sense. No serious corporate legal professional thinks cyber and data risks are off their radar.’

Britton Guerrina, deputy global general counsel for technology and shared services with Deloitte Touche Tohmatsu Limited, echoes this view. ‘Cyber and data protection are increasingly important and should be top of mind for any legal team. The legal and regulatory risks in these areas have increased and continue to do so, with countries introducing increasing regulatory requirements, many of which are contradictory.’

Corporate counsel may be increasingly aware of the dangers posed to their organisations from cyber attacks, but the results to our survey of over 200 senior counsel across the US and Canada suggest their organisations take a very different view.

While 91% of legal teams were aware of their organisations’ cybersecurity efforts, only 18% said they were heavily involved in these efforts. In fact, an alarmingly high number of teams (39%) were not involved at all, while nearly two thirds (63%) were either not involved or only involved to a small extent.

Even legal teams that are involved in their organisations’ cybersecurity strategy are typically confined to a fairly narrow role. By far the most likely task falling to legal teams is ensuring the security of their own communications, data and files (84%) or providing strictly legal opinions on regulatory compliance (47%). Just under a fifth of teams (19%) reported being involved in their organisation’s wider cyber response planning, while only 7% were monitoring cyber threats across the organisation as a whole.

Businesses not involving legal teams in their cybersecurity efforts should take note: over half (53%) of the senior counsel surveyed rated their organisations’ cybersecurity defences as either poor or average. Just 13% said their organisations had excellent protection against cyber threats.

The limited involvement of legal teams when it comes to cyber security efforts is particularly puzzling given the obvious advantages lawyers would bring to the process. As Britton Guerrina notes: ‘Legal involvement is critical for various reasons, and lawyers are able to guide efforts in a wide range of areas, from helping to design the security programme to comply with privacy, employment and other local laws to advising the cybersecurity team on cyber regulatory requirements.

Legal teams can also assist with the roll out of security tools while addressing any legal impediments. They can advise which legal and regulatory requirements apply to a breach based on the facts and circumstances presented, determine whether breach notification requirements (regulatory or contractual) have been triggered, and craft notifications, interact with regulators, law enforcement, and so on. In my view, legal and cyber need to partner together, along with risk, in order to protect the organisation effectively.’

However, as Michael Shour, general counsel and secretary for Banyan Software, observes, this is likely to change as the regulatory and reputational stakes increase. ‘Legal is actually very well positioned to spearhead this area, but it is often not an area where management wants legal to focus, due to the limited resources. As class actions and cyber-related litigation increase over time, I suspect that this will continue to require an increasing amount of legal involvement.’

Plugging the leaks

Monitoring cyber risks may still be deemed a low priority for legal counsel, but the related issue of data privacy is fast becoming a key part of the legal team’s role. As one respondent, senior counsel for data and privacy at a global media and telecoms business, puts it: ‘Data protection is a growing issue, and not just because of the rise of serious and very damaging incidents which we all read about in the news. From a compliance perspective, it is the increase in country-wide and global regulations. Business has to operate as smoothly as possible, and it is our job as legal to help it do so within these regulatory boundaries.’

When asked to identify the most pressing cyber threats their organisations faced, nearly half (49%) of corporate counsel pointed to the risk of customer data being compromised. Theft of confidential business information was seen as the next most pressing risk, reported by 28% of those surveyed. As Naseem Bawa, general counsel for InteraXon, a leading maker of brainwavecontrolled computing technology and applications, points out, in the digital economy data is a chief driver of value. ‘Data is part of a company’s IP and without stringent safeguards to protect and enhance its value you are leaving your doors unlocked.’

For comparison, just 2% said that direct monetary loss through theft was their organisation’s most pressing concern. While theft can be costly, it is often nowhere near as expensive as dealing with the regulators. For businesses that have yet to experience a significant data breach, comments one senior legal and compliance counsel at a large retailer, the uncertainty over consequences can be troubling.

‘The big unknown here is the way a regulators will respond. The marquee cases have been in the financial services industry, and there is some evidence that regulators will look at what a retailer is doing around data and compare it with the systems and controls that have been put in place by financial institutions. Obviously, these financial institutions have far more robust datasecurity arrangements in place, which is potentially something that could damage our position in any litigation.’

These risks are especially pressing, continues the respondent, in a world where customer interaction is increasingly digital.

‘Mobile payment apps and e-commerce are becoming the principal vector through which fraudsters are able to infiltrate business systems. It’s a data security issue but it’s also a cybersecurity issue that goes right to the heart of our business. That means the legal team needs to know how our IT systems work, with at least some degree of accuracy, and how those systems can sink us.’

For those unfortunate enough to suffer a breach affecting customer data, knowing how to respond is key. The advice from one general counsel at a large US medical insurer is to bare all. ‘If customer data has been compromised then you need to tell them, and you need to help them take whatever steps are needed to mitigate the risk they now face. In the first day or so after an incident everyone is scrambling around to collect as much information as possible before the company needs to report the incident, but often it will be too late for the customer if you wait a day. Bite the bullet and tell them what has taken place. And, of course, have a plan ready so you aren’t worrying about drafting the message during a firestorm. If you are facing a situation where you need to email potentially millions of customers, you will really be thankful that you planned ahead of time.’

This planning, many agreed, is among the most important steps that GCs can take. As Richard Brzakala, director of external legal services at Bank of Canada, comments, ‘The old maxim “Trust but verify” applies here. You may have best-in-class cybersecurity in place, but it needs to be tested continuously. It’s not a question of if things go wrong. They will go wrong. You will experience a cybersecurity incident or data breach eventually, so be prepared.’


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