AgendaWeek: Opinion: A Framework for Board Oversight of Digital Security

April 2022

At this point, nearly every large company has made significant investments in cybersecurity. But
even where internal management of cyber risk appears strong, a board may worry that its oversight
of digital security is inadequate — or that it has no reliable way to assess its adequacy or to
compare its capabilities with other firms’. Recently proposed SEC rules requiring disclosure about a
board’s cybersecurity expertise and oversight of cybersecurity risk make this an even more urgent

Adding to the challenge, cyber risk is unlike almost any other risk, because the threats and their
impact evolve quickly. Risks arise not only from distant actors, such as criminal gangs and hostile
nation-states, but also from employees and third-party providers. Even full-time cybersecurity
professionals are challenged to stay ahead; the majority of directors lack direct personal experience
in dealing with cyber risk.

We developed a framework, called Cyber Oversight Effectiveness Development (COED), that
addresses these gaps and aims at helping boards become more resilient and adaptive. Based on
interviews and conversations with directors from a range of industries, this framework is predicated
on the belief that cyber risk often requires different treatment than other risks, such as health and
safety or fraud.

The first step is to ensure your board has a foundation of cybersecurity oversight in place. Baseline
oversight is essential to meeting the requirements of regulators, obligations to investors and
expectations of the public — ultimately reducing litigation and other risks to the company. Such
practices include determining your risk profile; establishing roles and responsibilities and enforcing
accountability for digital security; and setting up protocols for monitoring and reporting on progress.

While this baseline may be sufficient for some firms, a variety of circumstances could motivate a
board to extend its investment in cyber oversight — for example, if a firm has experienced a major
cyberattack in the past, if digital operations are a major element of value creation, or if a digital
security failure could prompt a cascading crisis (as with large banks or airlines, for example). We
believe that the majority of Fortune 500 companies meet at least some of these criteria, and that
more boards should go beyond the baseline than not.

This is where COED comes in: because cyber threats evolve continuously, the development of
enhanced oversight capability must also be continuous. The COED framework provides a multi-step
process to help gain a deeper understanding of their organizations’ current capabilities, how they
differ from those of others and where they need to aim. COED aims to help boards focus on three
primary elements: staging, intervention and reflection.

Staging is the process of using diagnostic exercises to establish a snapshot of where the board is at
a given moment. COED identifies five stages of board development, ranging from the “ad hoc stage,”
where technological knowledge is scattered and directors are taking cues from the company
leadership, to the “resilient stage,” when directors have a well-developed point of view on the future
landscape and how risk is changing. As the technology, regulatory and threat landscapes co-evolve,
boards will repeatedly traverse these stages.

Intervention entails a series of board actions — including education, reorganization, seeking out
internal and external expertise, running war games, and engaging in scenario planning — that can
accelerate learning and move the board toward greater cyber risk capability and confidence.
And in the reflection step, a board can look back at the original staging assessment, review the
process and results of intervention and identify specific learnings. Third-party experts, including
legal counsel, may be helpful as board and management engage in reflection on the progress they
have made.

The approach repeats over time, ideally on a cadence determined by the board’s view of the threat
environment and its own needs. The key is to enhance the speed of the process so the board’s
management of each successive cyber threat creates greater confidence and results in greater
speed in responding to future attacks.

Using the COED Framework will increase board members’ individual and collective self-awareness,
moving from an emergency “ad hoc” posture toward a stance that is both proactive and resilient.
Getting the most out of the COED Framework will require time, resources and energy, but the payoff
will be greater readiness for digital transformation and value creation that goes beyond the
important goal of protecting the company from cyber criminals.

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