In today’s digital age, the role of a Chief Financial Officer (CFO) has evolved beyond the traditional financial management responsibilities. CFOs are now key strategic partners who play a crucial role in steering their organisations through the complexities of a rapidly changing business landscape. One aspect that has gained immense importance in recent years is cyber security.
As stewards of financial risk management, CFOs play a crucial role in cyber security. A recent PwC survey found that 75% of CFOs are now involved in making high-level cyber security decisions.
In this blog post, we explore why CFOs must recognise cyber risk as a financial risk and invest accordingly to safeguard the organisation’s financial health and cyber security.
Treating Cyber Security as a Business Risk
Cyber security threats should be viewed not merely as IT issues but as business risks that can significantly affect a company’s bottom line. Investing in cyber security may seem like a significant expense, but it’s crucial to consider the potential costs of not investing. With the average data breach cost reaching $4.45 million, a 15% increase over 3 years, the return on investment for robust cyber security measures is evident.
The Real Cost of Cybercrime
Data breaches have become a common headline in recent years, affecting organisations of all sizes and industries. The cost of a data breach extends beyond IT expenses to legal fees, regulatory fines, and the loss of customer trust.
Regulations governing data protection and cyber security are becoming increasingly stringent. The General Data Protection Regulation (GDPR) has imposed strict data protection requirements, with hefty fines for non-compliance. U.S. technology giant, Meta, was fined $1.3 billion in May 2023 after an Irish court ruled that it violated GDPR laws related to data transfers between the E.U. and the U.S. CFOs need to ensure that their organisations are compliant with these regulations to avoid costly penalties. Failure to do so can severely impact the financial stability of the company.
Impact on Shareholder Value
A cyber security incident can lead to a significant drop in stock prices, eroding shareholder trust and value. According to a 2021 study by Comparitech, companies that experienced data breaches saw their stock prices decline by an average of 7.27% in the days following the breach.
Cyber attacks, such as ransomware, can disrupt business operations for extended periods. It’s important to consider the financial ramifications of downtime, including lost revenue, recovery costs, and potential penalties for failing to meet contractual obligations. Hackers breached NHS systems in England and Wales, causing system outages and disruptions that cost an estimated £50 million, accounting for lost productivity and emergency repairs.
A 2022 cyber attack on a Toyota supplier, for example, forced the automaker to halt production for a day, affecting 13,000 vehicles.
Increased Insurance Premiums
Recent research reveals a troubling trend in the insurance industry – some insurers are implementing a staggering 200% premium hike for organisations that have fallen victim to cybercrime.
A successful data breach can have lasting effects on an organisation’s reputation, potentially signalling to customers, suppliers, and other commercial partners that the organisation’s risk management and information security controls may be inadequate.
Investing in Employee Security Awareness Training
Global security spending is predicted to grow 8.1% annually, reaching $174.7 billion by 2024, according to IDC. One critical aspect that CFOs must consider is employee Security Awareness Training. Employees are often the first line of defence against cyber threats, but they can also be a weak link if not adequately trained. Here’s why CFOs should prioritise this investment:
1. Mitigating Insider Threats: Insider threats, whether intentional or accidental, can lead to significant financial losses. Employee training helps reduce the risk of internal breaches.
2. Phishing and Social Engineering Prevention: According to CISCO’s 2021 Cybersecurity Threat Trends report, about 90% of data breaches occur due to phishing attacks. Cyber security training helps employees understand how to respond to and recover from incidents quickly, minimising the impact on business continuity and financial stability.
3. Immediate and Long-Term Cost Savings: Investing in training may seem like an expense, but it’s a cost-effective way to prevent potential financial losses caused by security incidents.
4. Regulatory Compliance: Compliance with data protection regulations is critical. Well-trained employees are less likely to mishandle sensitive data, reducing the risk of costly fines.
5. Strengthening the Human Firewall: Employees who are security-aware become a valuable part of the organisation’s defence against cyber threats, strengthening the overall security posture.
Building a Cyber-Resilient Culture
Cyber security is no longer a peripheral concern for CFOs; it’s a core business issue. By understanding the financial implications of cyber risks, investing in effective cyber security measures, and fostering a culture of cyber resilience, CFOs can help safeguard their organisations in this digital age.
Recognising the importance of employee Security Awareness Training as an integral part of this strategy, CFOs can fortify their organisation’s defences and protect its financial health in an increasingly interconnected and vulnerable digital landscape.