Page 25 - Delaware Lawyer - Spring 2020

2014; (3) consequently, the personal data of approximately 500 million Starwood guests and sensitive personal information of approximately 327 million of those guests may have been exposed to unau- thorized parties; and (4) as a result, Mar- riott’s public statements were materially false and/or misleading at all relevant times.”139 Moreover, after news of the breach was released, “shares in Mar- riott’s stock fell $6.81 or over 5.5% to close at $115.03 per share on November 30, 2018, damaging investors.”140 While the case remains pending, the allegations are instructive regarding the threat of securities class actions and the types of factual allegations directors and officers may anticipate.
Each enforcement action and securi- ties class action outlined above contains many nuances, confirming data gover- nance and accountability risks will con- tinue to grow in the next decade. As the costs and risks associated with massive cybersecurity incidents become more significant, it seems likely that the en- forcement efforts of the SEC and plain- tiffs’ attorneys could easily grow. The SEC’s guidance, enforcement actions, and growing body of cybersecurity-re- lated securities class action case law may provide additional guidance to boards seeking to understand and evaluate these risks.
Key learnings from these non-Del- aware enforcement efforts include: a) plaintiffs could look to other legal obli- gations and regulations to plead mission criticality and oversight deficiencies; b) an understanding of legal enforcement activity and emphasis by the FTC and other agencies may inform the adequacy of the presence of cybersecurity pro- grams; and c) increasingly claims may arise pertaining to deficiencies of the se- curity program itself or, independently, to issues in specific instances of incident detection and response.
IV.NACD GUIDELINES AND BETTER DATA SECURITY AND INFORMATION GOVERNANCE PRACTICES
If, as many believe, cybersecurity inci- dents are inevitable, officers and directors will face an increasingly difficult chal- lenge to respond systematically to these
enterprise risks in ways that are demon- strable. Although the business judgment rule provides formidable protection, how business judgment is exercised and the defense of its exercise in the area of cy- bersecurity and its oversight is growing rapidly. The situation is more compli- cated because security is but one among many demands on the enterprise. There is an adage that 50 locks on a door may make a door secure, but with so many locks it may no longer be a very good door. Cybersecurity measures are much the same — while companies could take a series of security precautions, directors must help ensure and provide guidance regarding all corporate interests among many potential stakeholders and with substantial personal risk.
With upwards of $8.19 million at stake in “average” U.S. incidents, and much more for certain types of large- scale incidents as the preceding dis- cussions make clear, shareholders have tremendous incentives to look for “red
flags” and failures to detect them.141 And, significantly, the cybersecurity commu- nity itself, commonly through its service providers, frequently seeks to leverage each high-profile incident as a sales and marketing opportunity, often fueling po- tential failed oversight claims.142 As a re- sult of this unique community, corporate directors and officers should be prepared to defend themselves against Caremark claims, regulatory investigations and se- curities class actions in the wake of a cy- bersecurity incident.143
Fortunately, corporate directors and officers are well-positioned to weigh the growing portfolio of concerns and cyber- security has become a routine subject of board-level communications. As infor- mation becomes “intrinsically critical” to enterprise operations, board members can strive to implement a cybersecurity regime that balances the need to pro- tect information from hackers and other nefarious actors with the desire to opti- mize operational efficiency and achieve
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