Advanced cybersecurity strategies boost shareholder returns
Companies demonstrating advanced cybersecurity performance generate a shareholder return that is 372% higher than their peers with basic cybersecurity performance, according to a new report from Diligent and Bitsight.
Boards under pressure to fortify cyber oversight
The escalation in the frequency and severity of cyber incidents has positioned cyber risk as one of the foremost challenges confronting boards. With cyber threats becoming increasingly sophisticated and pervasive, boards are under pressure to effectively address cybersecurity risks to safeguard their organizations’ interests.
With projected financial losses from data breaches estimated to reach approximately USD 10.5 trillion by 2025, and new pressure from regulators like the SEC, the oversight role of the board becomes even more crucial. Boards are prioritizing robust oversight mechanisms to mitigate cyber risk and protect their organizations’ financial health and reputation.
However, the approaches boards take to address cyber risk vary, prompting questions about the effectiveness of different board governance structures and strategies.
The report also reveals that highly regulated industries, such as healthcare and financial services, have the highest cybersecurity ratings, and companies with either a specialized risk committee or audit committee achieve better cybersecurity performance compared to those with neither, with ratings of 710 and 650 respectively.
“These findings show that cybersecurity is not just an IT problem — it is an enterprise risk that has material impact on a company’s near-term performance and long-term health, and one that management and the board needs to be up to speed on,” said Dottie Schindlinger, Executive Director of the Diligent Institute. “With increased pressure from regulators for organizations to demonstrate how they oversee cybersecurity, now is the time for boards and leaders to build their competency around cyber risk.”
“Cybersecurity is no longer about simply mitigating risk, it’s now a key indicator of financial performance. Companies must treat cybersecurity as a cornerstone of their business strategy, guided by clear, ambitious benchmarks, and backed by the full support of their boards,” added Dr. Homaira Akbari, CEO of AKnowledge Partners, Board of Director member for Banco Santander and Landstar System and member of Bitsight’s Advisory Board.
Security rating and financial performance
Companies with advanced security ratings create nearly four times the amount of value for shareholders as companies with basic security ratings.
The average total shareholder return (TSR) for companies with advanced security performance ratings over a five-year and three-year period was 71% and 67%, respectively, while companies in the basic performance range delivered 37% and 14% TSR over the same time frames.
Companies with a higher number of independent directors are more likely to have advanced security ratings. About 76% of directors on the boards of these companies with advanced security ratings are independent, compared to 66% in the basic security performance category.
Specialized risk or audit committees enhance cybersecurity performance
The median cybersecurity rating for companies with specialized risk committees is 730, compared to 720 for companies with just audit committees, indicating there is not a significant difference in the ability of the audit committee to oversee cyber risk compared to a specialized risk committee.
Having a cybersecurity expert on the general board is not enough – those experts need to be directly involved with cyber oversight. Companies with cybersecurity experts on either audit or specialized risk committees achieve an average security performance rating of 700, whereas companies with cybersecurity experts on the general board, but not on either committee attain a security rating of 580.
Highly regulated industries excel in cybersecurity compared to others
The healthcare sector had the highest average security ratings overall at 730. Of the companies with advanced security performance ratings, 33% came from the financial services sector, with an average rating of 720.
By comparison, 24% of companies with basic security performance ratings came from the industrials sector, and the sector with the lowest overall performance rating was the communications sector, at 630.
“The research shows that market leading companies that prioritize cyber risk management outperform their peers,” said Derek Vadala, Chief Risk Officer, Bitsight. “This cannot be achieved without a strong understanding of cybersecurity performance and clear benchmarks shared across the executive team and board. The role of the CISO has shifted. Cyber risk is a key component of business performance.”