Digital technologies and commerce have created extraordinary business opportunities for eBAY; they may also present serious risks to privacy and data security.
Breaches of privacy and data security are a growing threat which can result from company negligence or external attacks. Cyber attacks on U.S. computer networks rose 17-fold from 2009 to 2011, according to the U.S. National Security Agency, with many companies not even realizing they were attacked.
According to a 2011 Ponemon Institute study, the per capita cost of a data breach was $194, with an average incident cost of $5.5 million. A separate Ponemon study found data breaches could negatively impact brand value and reputation by as much as 17 percent to
31 percent, with the average loss in brand value ranging from $184 million to more than $330 million.
Unauthorized collection, disclosure, or misuse of personal information can cause great harm to individuals and society – including discrimination, identity theft, financial loss, loss of business or employment opportunities, humiliation, reputational damage, questionable government surveillance, or physical harm.
TRUSTe’s 2012 “U.S. Online and Mobile Privacy Perceptions Report” indicates consumer concerns regarding privacy are increasing and that behavioral profiling remains highly unpopular.
We believe eBAY’s Board has a fiduciary and social responsibility to protect company assets, including the personal information of a variety of stakeholders.
eBAY’s recent partnership with Discover Financial Services to expand PayPal to the physical Point-Of-Sale may put these assets at risk. Risks include privacy breaches, controversies related to consumer profiling, litigation, and a loss in eBAY’s brand value. Given eBAY’s status as a top brand in Ponemon Institute’s “Most Trusted Companies for Privacy” list, we believe a shift in perception could limit future growth.
that the Board of Directors publish a report, at reasonable expense and excluding confidential or proprietary information, explaining how the Board is overseeing privacy and data security risks.
It should be emphasized that the Proposal is not asking the Company to disclose risks, specific incidents, or legal compliance procedures, but rather, we believe investors need to understand more fully how the Board is overseeing the concerns described above.
Carnegie Mellon University’s Cylab published a 2012 report (“How Boards and Senior Executives Are Managing Cyber Risks”) which we believe could be instructional in writing this report. Among Cylab’s recommendations for boards:
- “Review existing top-level policies to create a culture of security and respect for privacy. Organizations can enhance their reputation by valuing cyber security and the protection of privacy and viewing it as a corporate social responsibility.”
- “Review assessments of the organization’s security program and ensure that it comports with best practices and standards and includes incident response, breach notification, disaster recovery, and crisis communications plans.”
- “Conduct an annual review of the enterprise security program and effectiveness of controls, to be reviewed by the board Risk Committee, and ensure that identified gaps or weaknesses are addressed.”
- “Require regular reports from senior management on privacy and security risks.”