Data security and reputations : Risk or Opportunity?

New technologies have changed the way large organisations and companies interact with the public. Online consumerism means that purchases can be made online, at arms length. The distance from the traditional means of more physical exchange entails a level of trust not necessary in personal exchange, making reputational capital indispensible for digitally orientated businesses and business units. But scandals around data security mean that this has sometimes been difficult to achieve, and scandals at any one company can hurt reputations across a sector. Issues of trust are particularly important for companies trying to bridge the digital divide, tapping into a source of millions of customers, in the UK alone, that are currently not online. Those already mistrustful of new technology are likely to be further dissuaded by any data scandal in the media.

Cyber crime is on the increase and, in the US especially, and has become a focus for a lot of media attention. Organisations such as Target, Apple and even the University of Michigan have had their data security protocols shown to be inadequate in the face of increased pressure from hackers. The University of Michigan has had to instate a five-year insurance guarantee for those affected by data breaches, and are now more liable to identity theft. This type of guarantee represents the potential costs when an organisation’s reputation is damaged in this manner. If data security is breached in more organisations, costly remedies, including insurance will become increasingly necessary in order to regain public trust.

The amount of cases of data crime of late in the US has meant that the story has become amplified in the US media, with increased potential for reputational damage for the companies involved. As more cases of data mismanagement come to light, previous cases are referenced meaning that a company that suffers data loss may receive an initial amount of negative media content, followed by more negative content as similar stories come to light – thus amplifying the reputational damage around the event.

Banks have invested heavily in digital banking tools, with online banking and banking apps, for example. The reputation of these services is imperative, as one requires high-levels of trust in an IT systems that control access to people’s incomes, savings and loans. In moving towards digital banking, banks have reduced costs, but the reputation of these services is pivotal to their use. Banks, therefore, face significant reputational risks from perceived threats to their current operations from cyber crime.

The insurance sector faces two main reputational threats from data crime: their ability to honour insurance against cyber crime in the context of rising online crime as well as there ability to guard against cyber crime affecting their own business. Insurers handle vast amounts of sensitive client information, any threat to which, would surely dent impressions of a specific insurer or group of insurers, with major implications for their reputations.

Many of those companies involved in professional services, including the “big four” have moved into data security consulting. This has been an important growth opportunity for these businesses. It also represents a potential reputational hazard. If these companies, that are now giving advice on cyber security, were to fall victims of the crimes themselves, it would surely undermine their authority in this area, causing immense reputational damage. This damage could also undermine authority in other services that these companies provide – entailing a significant reputational risk for these companies.

As companies come to rely ever more heavily on digital technologies that require trust, the reputation of these systems and these companies will become increasingly important. Any threats to these systems will entail reputational damage from a public that fears for the safety of their personal data, and investors and analysts that who asses the viability of these new systems and the companies that run them.