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Joel Berg

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at

Cyber Security

Into the Breach

State and federal regulators are increasingly looking at cyber defenses, not just breaches.
By: | June 2, 2014 • 4 min read

Think of it as a seatbelt check for cyber security.

Just as police set up checkpoints to audit compliance with seatbelt laws and other rules of the road, state and federal regulators appear increasingly likely to gauge whether companies are following the rules of data protection.

“It’s a logical move, unfortunately, because of Target and all of the other breaches that have occurred, and even breaches within federal agencies,” said Jerry Irvine, CIO of Prescient Solutions, an IT outsourcing company in Schaumburg, Ill. He serves on a public-private task force on cyber security.


To date, regulators mostly have been reactive, according to cyber security specialists. After a data breach, companies are expected to notify consumers, and to conduct forensic reviews to determine what happened.

The approach also has included an emphasis on disclosure to investors and other stakeholders. In 2011, the U.S. Securities and Exchange Commission issued guidance calling on public companies to discuss cyber risks and incidents in their regulatory filings.

Recently, however, the focus has broadened to include a closer look at cyber defenses, regardless of whether they have been penetrated. The closer look doesn’t necessarily require new laws, experts said.

In May, the New York State Department of Financial Services said it would beef up assessments of cyber security among state-chartered banks. “The revised procedures are intended to take a holistic view of an institution’s cyber readiness and will be tailored to reflect each institution’s unique risk profile,” according to the department.

The SEC, meanwhile, announced this year that it would examine handling of cyber risks by registered broker-dealers and registered investment advisers.

“I think they’re going to be holding more people’s feet to the fire,” said Bob Parisi, managing director and cyber practice leader for Marsh. “But I think it will be through the application of existing regulations and standards.”

No new rules were introduced in the SEC’s 2011 guidance, Parisi noted. But the document prompted action nonetheless. “We saw an absolute spike in companies reporting risks on annual reports and SEC filings,” he said.

It’s not just public companies and financial services in the crosshairs. All companies are likely to face greater scrutiny.

The approach will vary by industry, said Tom Reagan, large risk underwriter for breach response at Beazley, a specialty carrier. “But it does seem clear that regulators do have the bit between their teeth, and they are determined to reach their goal: protection and safeguarding of consumer and corporate information in the U.S. That’s a good goal.”

One sign of increased scrutiny is a rising volume of breaches first identified by law enforcement, rather than the targets, Reagan said, citing anecdotal evidence from Beazley clients. The calls result, in part, from a 2013 executive order from President Obama asking for greater sharing of information with private entities.

“Law enforcement is taking that to heart,” Reagan said.

Regulators also are digging deeper via post-breach audits, he said. Even when the breach seems small, they want to ensure the damage isn’t worse than initially reported.

“They’re pulling on that thread to see where it goes,” Reagan said, noting that regulators are relying on existing authority to do so.

In one case involving the Health Insurance Portability and Accountability Act, or HIPAA, an investigation by the Department of Health and Human Services found that a breach initially described as affecting seven people had actually affected 1,581. The department also found wider noncompliance with HIPAA’s privacy, security and breach notification rules.


The organization under investigation, Skagit County, Wash., agreed in March to pay $215,000 and work with regulators to strengthen HIPAA compliance, according to the HHS. The breach took place in Skagit’s public health department.

As law and practice continue to evolve in the United States, companies also need to pay attention to developments overseas, said Ken Goldstein, vice president and worldwide cyber security manager for Chubb Group of Insurance Cos.

In many countries, the laws are less stringent, though that is changing.

But even if a company suffers a breach in a country with no rules requiring customer notification, a company’s reputation could still suffer, Goldstein said.

It’s not just regulators who are watching.

“Do you really want to be the company that gets outed by some kind of online expert who’s in the know about breaches, or do you want to make a voluntary notification?” Goldstein said.

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at
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Rating Risk Performance

Organizations with better risk management reap better financial returns, according to research.
By: | April 7, 2014 • 2 min read

Companies that elevate risk management may get a financial boost, according to ongoing research by Aon and The Wharton School of the University of Pennsylvania.

The research, still in its early stages, is designed not as an investment guide but as a benchmarking tool for risk managers.

They can use the findings to show the potential payoff of their efforts, especially if they are seeking greater investment from senior executives, said Chris Ittner, the Ernst & Young professor of accounting at The Wharton School in Philadelphia.

“It’s something to think about because, potentially, there are some financial benefits,” Ittner said.

Since 2010, Ittner and researchers at Aon have been surveying companies around the world about their risk management practices, and scoring them on a “Risk Maturity Index.” More than 1,000 risk managers have been surveyed.


The more advanced a company’s risk management practices, the higher its score on a scale of 1 to 5 — and, based on survey results — the better the financial performance.

Between March 2012 and March 2013, for instance, the stock of public companies with a risk maturity score of 5 outperformed companies with lower scores. Companies with higher scores also were projected to experience lower share-price volatility following market-rattling shocks, such as a disaster on the scale of the Japanese earthquake and tsunami in 2011.

In the months ahead, the two organizations hope to gather enough information to tailor the data by industry and figure out what risk management steps are most effective, Ittner said. The organizations expect to issue two reports per year.

In the meantime, corporate risk managers may be able use the latest data to lobby senior leaders for more attention and resources. They can compare their scores on the Risk Maturity Index to the average, and determine whether any improvement is needed. Some might decide they are doing OK, said Kieran Stack, managing director at Aon Global Risk Consulting.

“It really depends on the appetite and the culture,” Stack said.

The findings of the Aon/Wharton research seem to underscore what investors know intuitively, said Keith Aleardi, chief investment officer of Fulton Financial Advisors in Lancaster, Pa. “It seems to make sense that companies that are diligent on risk management are just likely better-quality companies.”

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at
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Crisis Management

Target as Target

Risk experts grade Target's efforts to manage the reputation damage caused by the data breach.
By: | February 3, 2014 • 4 min read

After fumbling its initial response to a massive data breach, Target Corp. has rebounded, according to experts in crisis management.

However, they said, the retailer still faces challenges in regaining consumer confidence, especially among people directly harmed by the cyber attack, which struck at the height of the holiday shopping season.


In late November and early December, malware lodged in the retailer’s point-of-sale system siphoned off account and personal information for up to 110 million customers. But Minneapolis-based Target is not the only company that may have been struck. Luxury retailer Neiman Marcus suffered a smaller breach, and news reports suggest at least six other retailers have been hit. These other companies likely are keeping a close eye on Target’s handling of the crisis.

Critics have focused, in part, on the company’s early communications. Target appeared initially to underestimate the gravity of the situation, crisis consultants said. For example, Target’s first message to customers apologized for the inconvenience.

“You don’t call something like this an inconvenience,” said Rich Klein, a crisis management consultant in New York City.

Initial email (truncated) sent by Target on 12/19/2013. The original email included an additional 4 pages of information.

Initial email (truncated) sent by Target on 12/19/2013. The original email included an additional 4 pages of information.

Subsequent messages from Target used stronger language, acknowledging customers’ stress and anxiety, he said. Messages also switched from assuming customer confidence to promising to regain it, Klein added, praising the change.

“I would still say it’s so much better to get it right the first time,” he said.

2nd email to guests, 12/20/2013.

2nd email to guests, 12/20/2013.

Still, he added, the company made good use of its Twitter feed and Facebook page. Facebook, for example, was used only to communicate about the breach, not to advertise sales, though it also acted as something of a lightning rod for complaints.

Consultants also panned the company’s decision to extend a 10 percent discount to shoppers during the weekend of Dec. 21, a few days after news of the breach first surfaced. While the discount was a nice gesture, it did not adequately address customer concerns and seemed to suggest the crisis had passed, consultants said.

In addition, the company has occasionally appeared to be behind the news, with information trickling out in the media before being revealed by Target, said Jeff Jubelirer, vice president of Philadelphia-based Bellevue Communications Group. “We should expect more from a retailer of that size and that reputation and that level of success.”

A key turning point came on Jan.13 when the company’s CEO, Gregg Steinhafel, appeared on CNBC, apologizing for the breach, reassuring customers and defending the company’s reaction:

Steinhafel should have been giving interviews in December, said Jonathan Bernstein, an independent crisis management consultant in Los Angeles. “They would have suffered less loss of sales and less impact on their stock value if they had been more assertive from the get-go.”

Other observers gave Target high marks for making a relatively quick disclosure of the breach and offering a free year of credit monitoring to customers. The four-day gap between discovery of the breach on Dec. 15 and public disclosure on Dec. 19 was faster than it’s been in other cases, said Alysa Hutnik, an attorney in the Washington, D.C. office of Kelley Drye.

“I haven’t done the math, but I think that would rate somewhere at the very top,” said Hutnik, who specializes in cyber security issues.

Another high point is the prominent role of Target’s CEO, Hutnik said. “He knows there’s work to be done to earn back customer trust, and it looks like he is taking that obligation seriously,” she said, noting that top executives rarely serve as public faces after a data breach.

Other positive steps include Target’s $5 million investment in cyber security education said Michael Soza, a partner in accounting and consulting firm BDO.

“This latest move … is really going on the offensive to show that they really are trying to get out in front of this thing and really attack what is not just a Target problem,” Soza said.


As long as no other damaging details leak out, most customers will remain loyal to the chain, said Daniel Korschun, an assistant professor of marketing at Drexel University in Philadelphia.

But the company will have to work harder to win back customers who suffered directly. They will be hard to find and hard to soothe, especially if they’ve had to spend hours on the phone undoing damage to their credit or bank accounts.

“Those are the ones where the trust has really been lost,” Korschun said.

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at
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