NetworkTigers discusses the consequences and true cost of data breaches for businesses.
After a successful hack, there’s immediate pressure to resolve the issue on network managers, systems administrators, and cybersecurity IT personnel. Whether the hack involves the threat of ransom or outright theft of funds, it’s evident that being victimized by a data breach is bad for business.
However, there are many more consequences for companies that have been breached that may not be as immediately obvious. These long-term and large-scale consequences are part of what makes being victimized in a data breach so debilitating for businesses in the modern economy. Hacks take their toll not just through the immediate damage and disruption that they wreak but also through these larger consequences.
Reputation damage
Would you trust a company after they were hacked? What if they failed to report it, and you had your own identity stolen and suffered personal losses? Many businesses pass on expenses to their vendors and clientele when sensitive information is breached. Customers may lose faith in business leaders. This is especially true when they have to take personal action to protect their finances after entrusting credit card information and personal identifiers to a company.
Because of this, studies show that 81% of consumers agree that they would stop engaging with a company or brand online after a data breach. While some consumers may return, 21% say they would “never” return to a business post-breach. Overall, an IBM study reports that 75% of consumers refuse to buy from companies that they do not trust to protect their data.
Regulatory fines
Failing to report a data breach can now be met with new consequences from the federal government. The Civil Cyber Fraud Initiative holds companies accountable when they receive government funds through contracts, loans, grants, or reimbursements and fail to report data breaches. In the Biden Administration’s effort to crack down on cybercrime and intrusions that put American military personnel at risk, businesses can also be fined for failing to invest in minimum cybersecurity standards.
Even non-military contractors can be hit with hefty regulatory fines and fees. In early August 2024, the Securities and Exchange Commission (SEC) announced $850,000 in fines for financial services company Equiniti Trust Company for failing to handle two cybersecurity incidents appropriately. Equiniti (formerly DBA American Stock Transfer) lost not only $4.78 million when an employee transferred funds to bank accounts located in Hong Kong but also had to pay SEC fines on top of the loss. A second data breach resulted in a hacker stealing the Social Security numbers of account holders with Equiniti and transferring just under $2 million to linked accounts.
Employee Turnover
Businesses know that loss of consumer trust can be damaging–but what about losing the faith of your own employees? One major hidden consequence of data breaches is higher staff turnover due to identity theft. Employees may have their payroll information, including names, addresses, social security numbers, and linked bank accounts, exposed in a data breach. Dealing with those consequences can lead to a lack of employee trust, lower motivation, and higher employee turnover. Cybersecurity firm Encore reports that over half of office workers, C Suite executives, and business leaders surveyed said they would reconsider working for their own company after a bad data breach. The loss of valuable talent after a successful hack can set your company back in its forward-facing position in the market and internally.
Stock drop
Part of a company’s value is its business holdings, name recognition, reputation, and, of course, share price. The stock market consequences of a data breach can be debilitating. Consider Equifax in 2017, whose share prices dropped by 60% after their computer networks exposed the personal information of 147 million customers. Capital One recently lost 14% value during the two weeks after it was revealed that their records were breached in 2021. And after Facebook’s Cambridge Analytica scandal, it lost nearly 40% in the stock market.
While companies can recover market value after a breach, some consequences can be longer-lasting. For instance, companies may be penalized by losing valuable investors and have to divert more time to finding funding alternatives. Class action lawsuits and regulatory fines can add to the overall financial loss, driving away smaller shareholders.
Operational chaos
Online vandalism, problems with executing legal contracts, cyber insurance issues, delays in payroll, and non-compliance with state business regulations are all possible additional penalties related to a data breach. All of these snags can lead to a loss of real dollars, as well as complicating priorities for a business. Who deals with what after a data breach? Who should handle media consequences and HR concerns, minimize the damage, communicate with customers, notify vendors, and more? Experiencing a data breach can throw an organization into a state of chaos. Strong companies may recover, but not all can.
The true cost of data breaches extends far beyond the immediate financial loss or disruption. From damaged reputations and regulatory fines to employee turnover and long-term operational chaos, businesses face many consequences that can be difficult to recover from. Understanding these risks is essential for companies looking to protect not only their data but also their future. Proactive cybersecurity measures and preparedness are critical to mitigating the lasting effects of a breach and ensuring long-term stability.
About NetworkTigers
NetworkTigers is the leader in the secondary market for Grade A, seller-refurbished networking equipment. Founded in January 1996 as Andover Consulting Group, which built and re-architected data centers for Fortune 500 firms, NetworkTigers provides consulting and network equipment to global governmental agencies, Fortune 2000, and healthcare companies. www.networktigers.com.
All articles sponsored by NetworkTigers.
