We recently released the first BakerHostetler Data Security Incident Response Report, which provides insights generated from the review of more than 200 incidents that our law firm advised on in 2014. The report shows that human error was the number one cause of data security incidents we worked on last year, with employee negligence responsible for incidents 36 percent of the time. Other leading causes were theft by outsiders (22 percent), theft by insiders (16 percent), malware (16 percent), and phishing attacks (14 percent). Yesterday, Randy Gainer explained how to use information security assessments to identify and mitigate security vulnerabilities. However, as our report demonstrates, preventing unauthorized access is just part of the solution. Further, our report is limited to security incidents and does not even address data privacy and data hygiene (retention and destruction) issues. To fully address data privacy and security, companies should develop a comprehensive Information Governance (IG) program for managing their data. This blog post will outline a 10-step process to develop and maintain an IG program by (1) Identifying Data Assets; (2) Conducting Privacy and Security Assessments; (3) Regularly Reassessing; (4) Identifying Responsive and Mitigating Measures; (5) Implementing the Measures; (6) Monitoring the Operation and Evaluating the Effectiveness of the Program: (6) Conducting Education and Training; (7) Addressing Data in the Hands of Third Parties; (9) Preparing for Incidents; and (10) Considering Insurance. IG programs mature over time, but if your organization is not committed to developing and maturing an IG program, it will be inadequately prepared for the inevitable data privacy and security incidents that it will incur. Conversely, starting the process of good IG management will reduce the likelihood of incidents and better prepare a company for addressing them when they occur.

Effective IG requires an enterprise-wide approach and sets policies and procedures according to the business value of the information and its need for protection. That value proposition is based on business considerations as well as legal and regulatory requirements and attendant risk. IG programs are most effective when they reflect the input of all relevant data stakeholders, including business units, legal, privacy, risk management, records, compliance, IT, and IS. Accordingly, the first step is to establish a governance structure for the program with buy-in from all the stakeholders and accountability to a leader or group of program leaders that reports to management and the board. Once responsibility and oversight are established, the program leadership can then go about the process of developing an appropriate and defensible data governance and privacy and security program by undertaking the following 10 steps:

  • Identify Their Data Assets. Data has become a valuable corporate asset, some of which is essentially held in trust for the data subjects and some for the benefit of the shareholders. An organization satisfies its obligation to protect its information by first understanding what information it has; the extent to which the information is valuable or necessary; how it is generated; where it is located; and how it is used, processed, transferred, and shared. Little-known data files and databases often contain sensitive personal information, transaction data, R&D results, and corporate financial records. Companies find this data within and without the organization’s possession, sometimes under the control of related third parties such as service providers. There are various forensic IT tools and vendors that can conduct a data audit and produce data maps and profiles to assess current security measures. We recommend that companies engage these vendors through outside counsel to support a position that the work product is privileged. BakerHosteler regularly designs and manages data due diligence inquiries for clients, an essential first step toward privacy and security.
  • Conduct Privacy and Security Assessments. After identifying data assets, companies should operate to satisfy the legal requirements for data privacy and security by ensuring that (1) the data is collected and used consistent with the privacy policies under which it is collected and all applicable laws and self-regulatory schemes; and (2) the security measures implemented are appropriately responsive to a fact-specific risk assessment. With regard to privacy, this requires a review of diligence results to determine whether data is treated as required by law and commitments to third parties, including that it is used and shared consistent with the manner the company (or third parties from which it received the data) represented to the data subjects when it was collected, or that consent has otherwise been obtained. In addition, companies should track and target risks and consider self-regulatory schemes and best practices, including Privacy-by-Design, which counsels for collecting only the data that is absolutely necessary and to retain only what is needed for as long as it is actually needed. This is simply good data hygiene, and related to data retention and destruction policies that are also part of a good IG program. With regard to security, the mere implementation of seemingly strong security measures is insufficient. Those measures must actually defend against the particular threats the organization faces, and must address its reasonably foreseeable risks and vulnerabilities. Thus, a thorough assessment of the potential risks to the organization’s information systems and data is critical before any security measures are deployed. This involves identifying potential threats to the protected information assets, considering both internal and external threats. For each identified threat, the company should then evaluate the related risk by (1) assessing the likelihood that the threat will materialize, and (2) evaluating the potential damage that will result if the threat materializes. This process will be the baseline against which legally compliant security measures can be selected, implemented, measured, and validated. Assessments are not one-time or even annual exercises, and any new data practice, including new or revised products or services and the acquisition of new data, including through mergers and other corporate transactions, need to have impact assessments that look at data privacy and security implications so that the company can adequately address the impacts before they occur.
  • Regularly Reassess. Beyond the need for assessments of new data and data practices, overall program policies and practices need to be regularly reassessed. Privacy and security are moving targets. Thus, companies must constantly monitor ever-changing laws, best practices, self-regulatory schemes, threats, risks, and vulnerabilities, as well as the measures available to respond to them. Companies must conduct periodic internal reviews to evaluate and adjust their data privacy and security programs in light of material changes to or development of
    • the organization;
    • technology;
    • business practices;
    • new products and services;
    • the law, self-regulation, and best practices;
    • internal or external threats; and
    • operation or work environment.

Any other circumstances that may have a material impact should also be considered.

  • Identify Responsive or Mitigating Measures. With regard to privacy assessment results, an organization may require changes to policies and procedures to meet its new or evolving practices. If material changes are desired or necessary, they should apply only to new data absent consent, and the applicable existing privacy policy representations should continue to apply to previously collected data absent opt-in consent. With regard to security, based on the results of the risk assessment, an organization should identify the security measures most appropriate for its business, the types of information involved, and the specific risks it faces. Such security measures should be selected and designed to manage and control the risks identified during the security assessment. Security laws do not typically specify which security measures or which technology companies must deploy, but rather are to be reasonably designed to achieve a reasonable level security, taking data sensitivity and potential harm into account. Based on an understanding of the risks the organization faces and a determination of what level of risk is acceptable, a company can identify correspondingly appropriate safeguards to combat any unacceptable risks, and a risk-and-budget-based deployment schedule. Security efforts must also be reasonably measured, and certain methods of so-called “active defense” could result in civil and/or criminal liability.
  • Implement the Measures. As with any plan or corporate policy, it is of no value if it sits on the shelf. For the plan to be effective, the company needs to ensure that it communicates its policies and procedures to those it allows to access or maintain its data, including employees and vendors; monitors for compliance; and enforces its standards and requirements. This includes implementation of accountability measures. The company should have known and accessible procedures to address complaints and disputes, and the program leadership should be accountable to the C-suite and board, which should have the ultimate oversight of the program.
  • Monitor the Operation and Evaluate the Effectiveness of the Program. Merely implementing data privacy and security measures is not sufficient. An organization must also ensure that such measures are properly put in place and that they are effective. This includes conducting regular testing and monitoring of the operation and the effectiveness of those measures over time to assess whether the chosen measures are sufficient to control the identified risks. It also involves monitoring employee compliance with policies and procedures. The question here is simply: “Do we know whether our data privacy and security program is working?” Tracking and benchmarking indicators of program performance and maturity can help establish what is working and where improvements are necessary. In doing this, it is important to select enough relevant metrics and ensure they are objectively measured and accurately reported. For more information on examples of developing appropriate data-protection performance measurement tools, see the best practices of the NIST Interagency Report 7564 (“Directions in Security Metrics Research”) and Chapter 3 (Performance Measurement) in the International Association of Privacy Professionals’ (IAPP’s) Privacy Program Management – Tools for Managing Privacy Within Your Organization. Relevant metrics include adequacy of notice at collection, consistency of access and use with policy, conformity with retention/destruction policies, results of security assessments, use of privacy impact assessments, employee policy knowledge, and number and severity of incidents and response time and effectiveness.
  • Conducting Education and Training. Training and education for employees are critical components of any compliance program. Even the very best physical, technical, and administrative security measures are of little value if employees do not understand their roles and responsibilities. Data privacy and security education begins with communication to employees of applicable policies, procedures, standards, and guidelines. It also includes implementing a data privacy and security awareness program; providing periodic reminders; and developing and maintaining relevant employee training materials (such as user education concerning permitted and prohibited data collection, storage, processing, use, transfer, and sharing; virus protection, password management, and other security measures; and discrepancy reporting).
  • Address the Data in the Hands of Third Parties. Organizational obligations regarding data privacy and security extend not only to the data in a company’s possession, but also to its data in the possession of a third-party service provider or business partner. Outsourcing information processing to a third party, or sharing data with business partners, does not relieve an organization of its privacy and security obligations. For instance, businesses need to scrutinize the security measures of the outsource providers with whom they contract, and the providers’ in-place measures – contractual and otherwise – to respond to breaches. Thus, third-party relationships should be subject to the same risk management, security, privacy, and other protection policies that would be expected if a business were conducting the activities directly. This generally involves three basic requirements: exercising due diligence in selecting service providers and business partners; contractually requiring implementation of appropriate privacy protections and security measures; and monitoring the performance of the third parties that have access to your data. For more information on this, see the recent blog post by Tanya Forsheit available here.
  • Prepare for Incidents. Data protection programs need to be designed to respond to requests (including by litigants, the government, and data subjects), inquiries (including regulatory investigations), complaints (including by whistle blowers and consumers), compliance failures, security breaches, and disasters and other business interruptions. There should be preparedness plans and systems in place for all. Data protection incident response is similar in many respects to a good business continuity and disaster response plan, and indeed is a component of such planning. Key to the ability to respond is preparedness, which is having not only well-conceived plans and procedures, but practical exercises to build the experience necessary to respond effectively when the time comes. This can be done through tabletop exercises putting response team members through likely scenarios, including litigation, public controversy, internal and external breaches, and natural and man-made disasters. BakerHostetler has facilitated hundreds of data incident preparation tabletop programs for clients. Furthermore, state laws and federal and state healthcare information laws may require data security incidents to be reported to regulators, data subjects, and the public. These laws are far from consistent, and confusion may result if there are different obligations from state to state under identical facts, so having the ability to expeditiously address those requirements in the event of an incident, typically through outside legal counsel, is part of appropriate response preparedness.
  • Consider Insurance. Also, companies should consider various cyberliability, adverting injury, errors and omissions, and business interruption insurance policies to help mitigate the costs of potential issues. Understand your policy coverage and exclusions, and those of your vendors and business partners, and consider additional coverage. Work with experienced legal counsel and risk management professionals to prepare for and complete an application and to negotiate terms and exclusions.

Given the ever-growing complexity of the data privacy and security landscape, and the risks of mistakes and noncompliance, companies big and small should develop information governance and data privacy and security assessment and compliance programs tailored to their circumstances. Compliance programs should include an assessment of an organization’s data collection, processing, use, storage, and transfer practices to ensure that the organization’s privacy and security policies are accurate and sufficient. The organization’s practices, and those of its vendors, should then comply with those policies. Ongoing impact assessments should be applied to new products and practices, and the program should be regularly evaluated, and re-assessed. Finally, companies need a contingency plan in place to prepare for near-inevitable compliance failures and other privacy and security incidents.

This blog post is based in part on the data privacy and security chapter edited by BakerHostetler lawyers and published in the Corporate Legal Compliance Handbook, 2nd Edition (Wolters Kluwer). For further discussion on how to develop and maintain an IG program, see “Avoid Drowning in Data: Developing, Operating and Refining a Robust Data Management and Protection Program” by this author and published in the May edition of ALM’s e-Commerce Law and Strategy, available here. Other excellent resources for developments and best practices include the International Association of Privacy Professionals (www.privacyassociation.org) and ARMA International (www.arma.org).