Global Cyber Summit Sends Message to Boardrooms
Corporate directors’ mindsets regarding cybersecurity fundamentally need to change. As one participant at April’s inaugural Global Cyber Summit hosted by the Global Network of Director Institutes (GNDI) noted, “We have to go from ‘is it possible we’ll be attacked?’ to ‘it’s probable;’ from ‘how much does it cost?’ to ‘how much should we invest?’; and from ‘can we control cyber threats?’ to ‘how can we keep pace?’”
In the words of another participant, “Yesterday’s approach to cyber at many companies was compliance. Today, the approach is risk management, and the imperative for the future is resiliency.” With the passage of last week’s Protecting Cyber Networks Act and National Cybersecurity Protection Advancement Act, the nation moved one step closer to greater resiliency. Both bills made clear lawmakers’ expectation that companies should share information regarding cyber breaches not just with the government, but also with each other. By sharing information about cyber hacks with peers—via information sharing and analysis centers (ISACs) or information sharing and analysis organizations (ISAOs)—and the Department of Homeland Security, companies may be able to improve their cyber defense. Experts at the summit discussed information sharing in light of the massive threat cyber-breaches pose. While information sharing is important to an effective cyber defense, corporate directors should not view it as a panacea. Instead, “it is another tool in the company’s toolbox.
At April’s summit, the GNDI, the National Association of Corporate Directors (NACD), and the Washington Board of Trade convened more than 200 directors and cyber experts from around the world for a three-day conference to explore the board’s role in effectively overseeing their companies’ cyber defenses. Supported by AIG, the Center for Audit Quality (CAQ), and KPMG, the event provided directors the opportunity to gain insight from experts including Shawn A. Bray, director of INTERPOL Washington; Larry Clinton, president and CEO of the Internet Security Alliance; Richard Knowlton, director of the Internet Security Alliance for Europe and group corporate security director at Vodafone; Jan Hamby, rear admiral, U.S. Navy (Ret.) and chancellor of the National Defense University; Tim McKnight, chief information security officer of General Electric; and Arne Shönbohm, president of the Cyber-Security Council Germany.
Five boardroom imperatives emerged from the event:
- View cybersecurity as an enterprise-wide risk issue.Without a doubt, cyber-risk poses a significant threat to companies of all shapes and sizes. From the boardroom perspective, however, it should be viewed not as a technological issue, but as an enterprise risk that is addressed like all other risks disclosed in the MD&A. “Security—not merely cybersecurity—is the key.” Directors should ensure that the company is properly structured to respond to an attack and has plans for both breach prevention and cyberattack response. And don’t be complacent. As one participant at the cyber summit advised, “If you ask management how we’re doing on cyber-risk management and they say, ‘great,’ don’t accept that as an answer.”
- Identify your critical assets.Throughout the summit, speakers noted the interdependent nature of cyberattacks. No company is an island, so achieving a perimeter-defense strategy that attempts to protect the entire enterprise is virtually impossible. Instead, management must identify what assets, if breached, would bring the company down: the “crown jewels.” Directors should ensure that defense efforts identify and prioritize them. As part of this identification process, the company also can assess its most vulnerable points, making sure to account for third-party contractors’ potential weaknesses. If a vendor in your supply chain is hacked, are your assets still protected?
- Ensure adequate resources for your information technology (IT) teams.Cybersecurity should be viewed as an investment in the company’s future, not as a cost center. Panelists noted a growth in the use of a chief information security officer (CISO), separate from a chief information officer (CIO). Regardless of the leadership structure employed, however, directors must remember that cybersecurity is largely a human issue. Does the c-suite have the staff and training needed to effectively defend the company against hacks? If the company is not going to develop an internal security defense program, how will it acquire one from outside? Is the IT team staffed with both technology professionals and security experts? Broadly, the company should run ongoing employee cybersecurity education programs throughout the enterprise.
- De-jargon the board dialogue. The technical nature of cybersecurity can create a formidable barrier to effective board oversight. While it is critical for the board to receive reports on the company’s cyber efforts on a continuous basis, CIOs, chief technology officers (CTOs), or CISOs may deliver the reports in jargon. Panelists noted that the solution, however, is not necessarily to invite a cyber expert to sit on the board. Instead, the entire board should comprise directors who are equipped to ask the probing questions necessary for effective oversight. The board can invite experts to speak to the board on cyber issues and ask management to provide “de-jargoned” reports in clear, actionable terms.
- Incorporate cyber into your strategy and every business decision. Panelists stressed the need for directors to address cyber issues proactively—starting with prevention—rather than waiting to respond to a breach. To do so, cyber should be an aspect of the front-end of business decisions: strategy, legal, and financial. Does the CIO (or CISO, CTO) play a role in strategy and tactical decisions? Does the CIO have a working relationship with the IT teams at third-party vendors? In an M&A scenario, do you assess the cyber vulnerabilities of the target company? These questions can help bring cyber-consciousness to board decisions.
For more on guidance on the board’s role in cyber-risk oversight, download the NACD Cyber-Risk Oversight Handbook here. Kate Iannelli, Alexandra Lajoux, and Ashley M. Marchand contributed to this report.
Vía Boardroom http://bit.ly/1GCJ6fp
Improving Transparency for Executive Pay Practices
Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff. Related research from the Program on Corporate Governance about CEO pay … show all text
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Improving Transparency for Executive Pay Practices
Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff. Related research from the Program on Corporate Governance about CEO pay … show all text
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The following post comes to us from Nitzan Shilon at Peking University School of Transnational Law. This post is based on his recent study, CEO Stock Ownership Policies—Rhetoric and Reality. He conducted this study while being a Fellow in Law and Economics and an S.J.D. (Doctor of Laws) candidate at Harvard Law School.
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Boris Feldman is a member of Wilson Sonsini Goodrich & Rosati, P.C. This post is based on a WSGR alert authored by Mr. Feldman, Robert G. Day, Catherine Moreno, and Michael Nordtvedt.
On March 24, 2015, the U.S. Supreme Court issued its decision in Omnicare, Inc., et al. v. Laborers District Council Construction Industry Pension Fund et al., addressing when an issuer may be held liable for material misstatements or omissions under Section 11 of the Securities Act of 1933 for stat… show all text
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Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here) and The Myth that Insulating Boards Serves Long-Term Value by Lucian show all text
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Corporate Governance on Flipboard
Daily Corporate Governance and CSR news: http://bit.ly/1xnedV5
Twitter: http://twitter.com/ToGovern
#CorpGov #ToGovern #CSR #Risk
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Corp secretarial support staff ensure compliance, #corpgov requirements are met. http://bit.ly/1Bi0elj
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Social Media Success Interview with Ted Rubin ~via @Everyday_MBA | Ted Rubin, Professional #KeynoteSpeaker, #RonR
Stay tuned after the interview for five actionable items you can do today, and for the rest of the week and beyond, to immediately take advantage of the ideas and advice in this interview. Plus hear bonus comments from Ted.
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We disagree. Business thinking is busier, bigger and better. Its influence is now much more profound — but can’t be measured by old fashioned yardsticks.
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Britain’s choice
May 2nd – May 8th 2015
Read for free via: econ.st/1EuzWRr http://pic.twitter.com/BbWMIKR4vp
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Some Lessons from DuPont-Trian
Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here) and The Myth that Insulating Boards Serves Long-Term Value by Lucian show all text
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That was the feedback from team members to a recent survey about the state of collaboration within our department. The feedback was consistent that collaboration was…well…inconsistent. It all depends on who you’re working with.
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Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here) and The Myth that Insulating Boards Serves Long-Term Value by Lucian show all text
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Compliance & Corporate Governance – The missing piece of the puzzle
By Adrian Blundell-Wignall – Director, OECD Directorate for Financial and Enterprise Affairs
Directors and C-suite executives have never been as powerful as they are in today’s global market. The scope and wealth of the world’s 100 largest listed companies – with an estimated combined market capitalisation of more than $15 trillion[1] – rivals that of many countries’ GDP. Whether, how and to what extent these leaders decide to make good use of this power is a key challenge for us all. Each time they choose to steer their companies toward integrity, they increase their company’s potential to have a positive impact on our markets, governments, societies and our environment.
It’s easy to lose sight of that, however. Whether by error, neglect or by actively choosing to engage in reckless risk-taking, corporate scandals continue to make headlines. When the OECD conducted its autopsy of the financial crisis, we found that, in many cases, enterprises did not take a firm-wide approach to risk and risk management was considered non-essential to a firm’s business strategy.[2] Risk managers were often separated from management and not regarded as an essential part of implementing the company strategy and, in many cases, enterprises did not take a firm-wide approach to risks facing the company.
It would be misleading and irresponsible not to credit all of the governments, companies and boards who have made huge strides since the crisis. This includes ensuring that boards more adequately address risk, including compliance risks related to, for instance, bribery, anti-competitive business practices or violation of labour standards and human rights. Today, most jurisdictions require that the board assume responsibility for risk management. According to a recent survey of corporate governance practices in 42 jurisdictions, more than half set out board responsibilities with respect to risk management either in law or regulations (26 per cent) or in codes (33 per cent).[3] Almost two-thirds of jurisdictions require or recommend the implementation of an enterprise-wide internal control and risk management system (beyond ensuring the integrity of financial reporting) – see Table One and Table Two.
Despite this progress, there remains a gap between what business leaders embrace as their corporate commitments and the reality of their actions.
There is a disconnect between how many companies make business decisions, often with the best intentions, and how those decisions are linked to decisions taken to ensure compliance and responsible risk management. A 2014 PwC survey on the state of compliance,[4] for example, indicates that even in the companies that have taken the important step of establishing a compliance committee, only a fraction include representatives with connections to the company’s business units (such as business operations or sales and marketing).
A parallel EY survey[5] from the same year indicates that there has been a reduction in the level of reporting on compliance issues to boards. It also showed that six per cent of survey respondents, including C-suite executives, are willing to justify unethical behaviour, such as misstating company financial performance. These findings jibe with the findings of the 2014 OECD Foreign Bribery Report,[6]which shows that 53 per cent of the 400-plus foreign bribery cases included in the report took place with the involvement of some level of corporate management or even the CEO – see Figure One.
And then there are the enforcement statistics: of the world’s 50 largest corporate penalties imposed since 1990, 42 per cent of all cases and 64 per cent of all fines were imposed only in the last two years.[7] Six of the 41 companies on the list appear more than once; one appears four times. Not only are these fines painful for the companies involved, but non-compliant companies increase the cost of compliance for those that are trying to play by the rules – for example, by creating a necessity for stricter or more vigilant regulations and/or enforcement, loss in market and investor confidence, more limited access to finance, etc.
All this begs the question to which we at the OECD are trying to respond, “What is the missing piece of the puzzle?”. There is no shortage of laws, rules, principles, guidelines or advice for companies. And, all relevant actors claim to be on the same page as to what is needed in order to pursue business interests responsibly and with integrity. We believe that the nexus between compliance and corporate governance is the key to bridging this implementation gap.
The OECD Principles of Corporate Governance, currently under revision to align them more closely with the corporate governance practices that have evolved over the decade since their adoption, remain the internationally recognised standard in this field. The OECD Principles focus on the responsibilities of the board. These responsibilities include setting the ethical tone of the company and being satisfied that its compliance system is fundamentally sound. For boards that take these responsibilities to heart, what does this mean in practice?
When answering that question, it is easy to agree with broad statements about corporate misconduct (it’s bad), the role of the board (it’s important) and links to a corporation’s compliance and risk management functions (they should be there). It is harder to know what this means for boards and the companies they oversee (beyond hard work and long-term dedication). We have, therefore, decided to focus our efforts to help companies implement this chapter of the Principles. We hope that this will enable us to better understand why some companies fail to prevent corporate misconduct and find practical ways to build effective compliance into corporate governance.
We will be happy to report on these efforts in the coming months. Any Ethical Boardroom readers who would like to engage with the OECD on this issue are invited to visit http://bit.ly/1CaLWd0 to find ways to get involved.
About The Author:
Dr. Adrian Blundell-Wignall is the Special Advisor to the Secretary-General on Financial Markets and Director in the Directorate for Financial and Enterprise Affairs (DAF) at the OECD. DAF supports governments to improve the domestic and global policies that affect business and markets. Key areas of work include anti-bribery, competition, corporate affairs, international investment, financial markets, insurance and private pensions.
He is founder and chairman of a charitable foundation (The Anika Foundation) that raises and invests an endowment fund to provide scholarships in a critical area of healthcare. Mr. Blundell-Wignall is an Australian citizen. He has a 1st class Honours degree and a PhD in Economics from Cambridge University, UK. He is the author of extensive publications on financial markets and monetary policy in learned journals and books, as well as broker analyst studies and reports.
FOOTNOTES 1 PwC, Global Top 100 Companies by market capitalisation, 31 March 2014 update, available at http://bit.ly/1HURYAq 2 OECD (2014), Risk Management and Corporate Governance, Corporate Governance, OECD Publishing, available at http://bit.ly/1bAyQcR 3 OECD Corporate Governance Factbook: 2014, OECD Publishing available at http://bit.ly/1NgBfuv, with information updated until December 2014. The survey of measures for ensuring governance of internal control and risk management referenced here included the 34 OECD Members plus Argentina; Brazil; Hong Kong, China; India; Indonesia; Lithuania; Saudi Arabia; and Singapore. 4 2014 PwC State of Compliance Survey available at http://pwc.to/1bAyPWt 5 2014 EY 13th Global Fraud Survey available at http://bit.ly/1HUS1vU 6 OECD (2014), OECD Foreign Bribery Report: An Analysis of the Crime of Bribery of Foreign Public Officials, OECD Publishing, Paris, available at http://bit.ly/1bAyS4y 9789264226616-en 7 See Global Investigation Review’s annually updated Enforcement Scorecard, available at http://bit.ly/1HURYQU
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