In today's fast-paced business landscape, safeguarding your organization's cybersecurity and ensuring cyber compliance are often touted as essential measures to avoid costly pitfalls such as business disruptions, ransomware payouts, and regulatory fines. These concerns are valid, as neglecting to address technology-related risks can inflict significant immediate financial damage.
However, it's equally critical not to overlook the potentially more substantial long-term repercussions of security breaches and compliance violations on your business: a diminished valuation. In fact, protecting your organization's valuation should stand as a paramount consideration when crafting your cybersecurity and cybercompliance strategy. Here's why it matters:
The Valuation Equation
Valuation eclipses earnings in significance, rooted in a simple mathematical reality. Businesses are valued based on a multiple of their earnings. Thus, a company's true financial worth extends beyond its recent cash flows or quarterly gross profits. Ultimately, a company's worth is what someone is willing to pay for it, determined by their perception of its future valuation potential.
Consider the case of Amazon, whose market capitalization soared to over $5.7 billion in 2003 before recording its inaugural profitable quarter. Investors valued Amazon not solely for its earnings but also for its robust growth, commanding share of the burgeoning online retail sector, scalable business model, and powerful brand. At that juncture, Jeff Bezos was already a multibillionaire. This underscores another crucial point: valuation is central to evaluating a company's financial health and is the primary metric for major investors and executives. Investors seek increased share value, making valuation growth pivotal to executive compensation.
In summary, both a company's financial performance and its leadership's personal wealth are intrinsically tied to valuation. Safeguarding this valuation yields substantial rewards, while neglecting it can yield devastating consequences.
The Peril to Valuation
How do cybersecurity and cybercompliance intersect with valuation? The answer is straightforward: when a company faces security or compliance breaches, its valuation takes a hit. This adverse impact on valuation often overshadows short-term earnings setbacks, just as positive valuation impacts dwarf earnings growth.
Consider MGM Resorts as a recent example. When a phishing attack crippled MGM's properties in September 2023, experts estimated a loss exceeding $80 million due to a week-long shutdown. However, the immediate decline in share value amounted to approximately $1 billion. Investors viewed this as a signal of poor management, recognizing that customers affected by the breach might never return. Several customers initiated a class-action lawsuit, alleging insufficient protection and inadequate communication about the breach's unfolding. Investors also worried about the broader impact on MGM's brand and potential regulatory consequences.
While your company might not be valued in the billions like MGM Resorts, the same principle applies. A cyberattack doesn't merely disrupt sales for a few days; it permanently erodes customer trust, damages your brand, and raises doubts about your leadership's competence, all of which can gravely affect long-term valuation.
A Three-Pronged Strategy
To emulate Amazon's success rather than facing MGM's challenges, consider these three crucial steps:
Conduct an Independent Risk Assessment: You cannot mitigate risks you are unaware of. Begin by having experts evaluate your risk exposure, encompassing security gaps and compliance shortcomings. Assess these issues in the context of their potential impact on your business.
Address Your Weaknesses: Once you have a risk assessment in hand, take action to rectify vulnerabilities, starting with those posing the greatest threat to your company's value. Solutions may range from more robust multi-factor authentication (MFA) implementation to enhancing employee training to combat phishing attempts. Prioritize measures based on your specific business risk exposure.
Engage an Expert Security and Compliance Leader: Technicians can execute tasks, but true executive-level leaders design, optimize, manage, and continuously enhance an efficient cyber risk mitigation strategy. Such leaders maximize your finite resources to minimize exposure to cybersecurity risks and compliance failures.
Remember, security and compliance are not merely IT concerns; they are executive-level and board-level issues that directly influence company performance and valuation. Approach them accordingly.
If you seek to implement a strategic approach to safeguarding your company's valuation, consider the benefits of a virtual Chief Security Officer (vCSO). To learn more, schedule a call with us!