The Risky Business of Cybersecurity

Posted by David A. Katz, Wachtell, Lipton, Rosen & Katz, on Wednesday November 5, 2014 at 9:02 am
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Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

The national and economic security of the United States depends on the reliable functioning of critical infrastructure. Cybersecurity threats exploit the increased complexity and connectivity of critical infrastructure systems, placing the Nation’s security, economy, and public safety and health at risk. Similar to financial and reputational risk, cybersecurity risk affects a company’s bottom line. It can drive up costs and impact revenue. It can harm an organization’s ability to innovate and to gain and maintain customers.

—National Institute for Standards and Technology, Framework for Improving Critical Infrastructure Cybersecurity, Version 1.0

In today’s technology driven environment, public companies must constantly confront the challenge of cybersecurity, in its complex, varied, and ever-adapting forms. Cybersecurity breaches regularly fill the headlines, the costs of cybercrime are skyrocketing, and the repercussions of corporate cyber-attacks are felt all the way from chief executives to retail customers. President Barack Obama has stated that “the private sector and the government can, and should, work together to meet this shared challenge,” while FBI Director Robert S. Mueller has described “the critical role the private sector must play in cyber security.” As companies become increasingly dependent on networked technology, and as an expanding number of people conduct transactions and other activities online, cybersecurity will continue to grow in importance for the business community, for the global economy, and for society at large.

…continue reading: The Risky Business of Cybersecurity

Understanding and Implementing the NIST Cybersecurity Framework

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday August 25, 2014 at 9:03 am
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Editor’s Note: The following post comes to us from Paul A. Ferrillo, counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation, and is based on an article authored by Mr. Ferrillo and Tom Conkle.

Why the Cybersecurity Framework was created and why it is so important

Despite the fact that companies are continuing to increase spending on cybersecurity initiatives, data breaches continue to occur. According to The Wall Street Journal, “Global cybersecurity spending by critical infrastructure industries was expected to hit $46 billion in 2013, up 10% from a year earlier according to Allied Business Intelligence Inc.” [1] Despite the boost in security spending, vulnerabilities, threats against these vulnerabilities, data breaches and destruction persist. To combat these issues, the President on February 12, 2013 issued Executive Order (EO) 13636, “Improving Critical Infrastructure Cybersecurity.” [2] The EO directed NIST, in cooperation with the private sector, to develop and issue a voluntary, risk-based Cybersecurity Framework that would provide U.S. critical infrastructure organizations with a set of industry standards and best practices to help manage cybersecurity risks.

…continue reading: Understanding and Implementing the NIST Cybersecurity Framework

White House Releases NIST Cybersecurity Framework

Posted by Holly J. Gregory, Sidley Austin LLP, on Sunday February 23, 2014 at 9:00 am
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Editor’s Note: Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. This post is based on a Sidley update by Alan Raul and Ed McNicholas.

On February 12, the White House released the widely anticipated Framework for Improving Critical Infrastructure Cybersecurity (“the Framework”). Developed pursuant to Executive Order 13636 (issued in February 2013), the Framework strongly encourages companies across the financial, communications, chemical, transportation, healthcare, energy, water, defense, food, agriculture, and other critical infrastructure sectors to implement and comply with its voluntary standards. The provisions set forth in the Framework may establish a new baseline for industry standard practices, and may impact or guide FTC enforcement actions and plaintiff data breach lawsuits.

…continue reading: White House Releases NIST Cybersecurity Framework

Cybersecurity Risks and the Board of Directors

Posted by David A. Katz, Wachtell, Lipton, Rosen & Katz, on Sunday December 16, 2012 at 10:20 am
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Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. This post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here.

As boards of directors examine the risks that their companies face, corporate cybersecurity issues loom large. Forty-eight percent of directors (and 55 percent of general counsel) cited data security as their top concern in a recent study by Corporate Board Member/FTI Consulting. These numbers have roughly doubled since 2008, when only a quarter of directors and general counsel cited data security as a major concern. With revenues, intellectual property, business relationships and customer confidence potentially at stake, directors should consider whether their companies and management teams are adequately addressing the growing threat of cybersecurity in the new high-tech landscape.

Cybersecurity risk is a difficult and intimidating topic for corporate boards to consider. However, it is important to keep in mind that cybersecurity risk is only one of many areas of risk that are overseen by boards of directors and that, in most cases, the usual strategies and procedures for evaluating and managing risk can apply. Directors are not expected to be experts in this area and are entitled to rely upon management and outside experts for information and advice. Nonetheless, directors should request that management reports to the board on the steps the company is taking to mitigate cyber threats, and directors should consider whether the company is appropriately assessing its risks and devoting adequate resources to the issue. The business judgment rule remains the standard for evaluating decisions taken by a board in this area.

…continue reading: Cybersecurity Risks and the Board of Directors

Bank Capital Plans and Stress Tests

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 18, 2014 at 9:12 am
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Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication authored by H. Rodgin Cohen, Andrew R. Gladin, Mark J. Welshimer, and Lauren A. Wansor.

On October 16, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued its summary instructions and guidance [1] (the “CCAR 2015 Instructions”) for its supervisory Comprehensive Capital Analysis and Review program for 2015 (“CCAR 2015”) applicable to bank holding companies with $50 billion or more of total consolidated assets (“Covered BHCs”). Thirty-one institutions will participate in CCAR 2015, including the 30 Covered BHCs [2] that participated in CCAR in 2014, as well as one institution that is new to the program. [3]

…continue reading: Bank Capital Plans and Stress Tests

2014 Annual Corporate Directors Survey

Editor’s Note: Mary Ann Cloyd is leader of the Center for Board Governance at PricewaterhouseCoopers LLP. The following post is based on the executive summary of PwC’s Annual Corporate Directors Survey; the complete publication is available here.

Over the last several years, we’ve observed certain trends that are shaping corporate governance and which we believe will impact the board of the future. We structured our 2014 Annual Corporate Directors Survey to get directors’ views on these trends and other topics including:

…continue reading: 2014 Annual Corporate Directors Survey

Preparing for the 2015 Proxy Season

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday September 26, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Lawrence R. Hamilton, partner in the Corporate & Securities practice at Mayer Brown LLP, and is based on a Mayer Brown Legal Update. The complete publication, including footnotes, is available here.

It is time for calendar year-end public companies to focus on the upcoming 2015 proxy and annual reporting season. This post discusses the following key issues for companies to consider in their preparations:

  • Pending Dodd-Frank Regulation
  • Say-on-Pay and Compensation Disclosure Considerations
  • Shareholder Proposals
  • Proxy Access
  • Compensation Committee Independence Determinations
  • Compensation Adviser Independence Assessment
  • Compensation Consultant Conflict of Interest Disclosure
  • NYSE Quorum Requirement Change
  • Director and Officer Questionnaires
  • Proxy Advisory Firm and Investment Adviser Matters
  • Conflict Minerals
  • Cybersecurity
  • Management’s Discussion and Analysis
  • XBRL
  • Proxy Bundling
  • Foreign Issuer Preliminary Proxy Statement Relief
  • Technology and the Proxy Season

…continue reading: Preparing for the 2015 Proxy Season

Cyber Security and Cyber Governance: Federal Regulation and Oversight—Today and Tomorrow

Posted by Paul Ferrillo, Weil, Gotshal & Manges LLP, on Wednesday September 10, 2014 at 9:00 am
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Editor’s Note: Paul A. Ferrillo is counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation. This post is based on an article authored by Mr. Ferrillo and David J. Schwartz.

In our June 4, 2014 article on cyber security and cyber governance [1] we noted that for many reasons, boards of directors and executives of U.S. companies needed to reexamine how they protect (and respond to the successful hacking of) their most critical intellectual property and customer information. One of the reasons was that all signs out of Washington, D.C. pointed towards increasing federal regulation and oversight of cyber security for public and private companies, and particularly for those in the financial services sector. Further, we foresaw not only heightened scrutiny from regulators, but increasing class action litigation, with plaintiffs accusing boards and management of not taking the appropriate steps to protect company and client data. Our predictions were correct on all fronts.

…continue reading: Cyber Security and Cyber Governance: Federal Regulation and Oversight—Today and Tomorrow

Cloud Cyber Security: What Every Director Needs to Know

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday August 6, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Paul A. Ferrillo, counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation, and is based on an article authored by Mr. Ferrillo and Dave Burg and Aaron Philipp, both of PricewaterhouseCoopers LLP.

There are four competing business propositions affecting most American businesses today. Think of them as four freight trains on different tracks headed for a four-way stop signal at fiber optic speed.

First, with a significant potential for cost savings, American business has adopted cloud computing as an efficient and effective way to manage countless bytes of data from remote locations at costs that would be unheard of if they were forced to store their data on hard servers. According to one report, “In September 2013, International Data Corporation predicted that, between 2013 and 2017, spending on pubic IT cloud computing will experience a compound annual growth of 23.5%.” [1] Another report noted, “By 2014, cloud computing is expected to become a $150 billion industry. And for good reason—whether users are on a desktop computer or mobile device, the cloud provides instant access to data anytime, anywhere there is an Internet connection.” [2]

…continue reading: Cloud Cyber Security: What Every Director Needs to Know

Evaluating Pension Fund Investments Through The Lens Of Good Corporate Governance

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Tuesday July 1, 2014 at 9:04 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the recent Latinos on Fast Track (LOFT) Investors Forum; 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.

I understand today’s participants include a number of trustees and asset managers for some of the country’s largest public and private pension funds. Without a doubt, pension funds play an important role in our capital markets and the global economy. This is due, in part, to the fast growth in pension fund assets, both in the public and private sectors.

For example, since 1993, total public pension fund assets have grown from about $1.3 trillion to over $4.3 trillion in 2011. Over that same period, total private pension fund assets more than doubled from roughly $2.3 trillion to over $6.3 trillion by 2011. As of December 2013, total pension assets have reached more than $18 trillion. This growth was fueled by many factors, including the rise in government support of retirement benefits, and the increased use by companies of pension plans as a way to supplement wages.

…continue reading: Evaluating Pension Fund Investments Through The Lens Of Good Corporate Governance

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