Cybersecurity in Private Equity Due Diligence
Dror Karidi, Managing Director of Oaktree Capital Management said, "Cybersecurity should be considered at every part of the investment cycle; this starts with due diligence, followed by fast remediation post-investment, continued engagement, and strong governance at the board level. Historically, many companies had small or nonexistent cybersecurity budgets, and the execution of a comprehensive security strategy in that environment was highly challenging."
In today's interconnected and data-driven world, the words underscore the paramount importance of cybersecurity in the investment landscape. The notion that cybersecurity is an integral aspect of every phase of the investment cycle has never been more pertinent. This article delves into the significance of considering cybersecurity from the outset of due diligence, implementing swift remediation post-investment, sustaining ongoing engagement, and establishing robust governance at the board level.
1. Due Diligence: The Foundation of Cybersecurity in Investments
In the realm of investments, due diligence is where it all begins. Ensuring that a potential investment is not only financially sound but also secure from a cybersecurity perspective is now a fundamental consideration. Failing to do so can result in catastrophic consequences, ranging from financial losses to reputational damage.
Investors must scrutinize a target company's cybersecurity posture as part of their due diligence process. This includes assessing the organization's existing cybersecurity infrastructure, identifying vulnerabilities, evaluating their data protection measures, and understanding their incident response capabilities. Failure to conduct thorough due diligence in this regard can lead to costly and avoidable breaches and regulatory fines down the road.
2. Fast Remediation Post-Investment: Mitigating Risks and Protecting Investments
Once an investment is made, the responsibility for cybersecurity doesn't end; in fact, it becomes even more critical. In the event of security breaches or vulnerabilities discovered post-investment, swift remediation is essential. Delayed response can magnify the impact and compromise the integrity of the investment.
To address this, investors must establish protocols for rapid response to security incidents and have a strategy in place for effective remediation. This not only safeguards the investment but also underscores the investor's commitment to the target company's long-term success.
3. Continued Engagement: Cybersecurity as a Living Strategy
Cyber threats are dynamic and ever-evolving. It is imperative that investors maintain ongoing engagement with their portfolio companies to adapt to these evolving challenges. Regular assessments, updates to security measures, and proactive monitoring are essential components of this ongoing commitment to cybersecurity.
Investors should encourage a culture of cybersecurity awareness within their portfolio companies, ensuring that employees are educated and vigilant about potential threats. Continual engagement with the company's leadership is vital to ensure that cybersecurity remains a priority and evolves in line with changing threats and technology.
4. Strong Governance at the Board Level: Setting the Tone
Strong governance at the board level is a linchpin of a comprehensive cybersecurity strategy. The board sets the tone for an organization's approach to cybersecurity, and without their commitment and understanding of the risks, a robust cybersecurity culture is challenging to establish.
Boards must include individuals with expertise in cybersecurity or, at a minimum, have access to external advisors who can provide valuable insights. Cybersecurity should be a regular agenda item, and risk mitigation strategies should be a fundamental part of board discussions.
The increasing digitization of business operations and the proliferation of cyber threats have made cybersecurity a pivotal consideration for investors.
To thrive in today's investment landscape, cybersecurity must be recognized as an integral part of the investor's playbook, from due diligence to ongoing governance, and everywhere in between.