The devastating impact of data breaches on brand reputation

The devastating impact of data breaches on brand reputation

Financial loss is the immediate and hard-hitting consequence of data breaches.

Hariom Seth

Any company handling data is susceptible to data breaches. IBM in 2023 conducted a study of 553 companies on the cost of data breaches, according to which a majority of organisations within the study had at least 1 major data breach in the past year. Healthcare was the most affected industrial sector by cyberattacks. Studies by sources like PwC have stated that data breaches are among the top reasons that ruin a brand’s image and have multifaceted repercussions, causing legal and financial setbacks as well. These studies also revealed that apart from external cyber attacks employees too were responsible for the accidental leakage of information.

The main targets for such cyberattacks tend to be small and medium-sized companies since they are easy to penetrate by hackers. As small companies spend the least on cybersecurity they tend to be the most affected sector by cyber attacks. Certain small companies such as Code Spaces had to shut down due to heavy financial losses.  

Data breaches shatter trust

Studies have revealed that customers affected by data breaches stop doing business with the brand and may inform others about their negative experience resulting in some customers venting out on social media. Customers know that their information and once their data is breached, they are likely to move towards working with the competitor instead. A customer losing trust in a company is the most devastating and long term setback for that company. Therefore, the affected company must comply with data privacy and compliance regulations in order to build and nurture trust with their customers. Companies should even highlight their data protection policies and infrastructure to acquire new customers and strengthen trust with current ones.

Cause financial loss

Financial loss is the immediate and hard-hitting consequence of data breaches. The direct cost can include compensating customers, upgrading cybersecurity infrastructure, regulatory penalties and legal fees. Indirect financial loss includes the stock prices of the company plummeting post cyberattack. This usually happens since the sentiment towards the company changes and investors too are sensitive to the public perception of the company. Data breaches can significantly erode an investor's confidence. A very popular example of share prices plummeting after a data breach is of Verizon acquiring the affected company Yahoo for a price $350 million cheaper after Yahoo suffered a data breach.

Public scrutiny

As mentioned earlier disgruntled customers might vent out on social media or even approach media houses to expose companies that suffered a data breach. News can spread fast making the company global news. Journalists make sure they dissect each and every detail about the data breach case and find the root cause and culprits behind it. IT becomes extremely difficult for companies to hide details in such situations and must have a plan ready to face these information hungry journalists. They need to be swift with regular updates on the situation and be upfront and transparent about the entire situation. They must leverage multiple media channels and take responsibility of their actions.

What can be done?

The best solution for cybersecurity is to prevent it all together. In order to do so a company must have a dedicated CIO chief information officer and a CISO chief information security officer who can take the responsibility of cybersecurity, build a long-term strategy, and lead a team of cybersecurity specialists. This builds a strong cybersecurity posture of the organisation and builds a culture prioritising cybersecurity. This will lead to each employee being mindful of various breaches and reduce accidental leakages. The short-term impact mentioned above is indeed devastating but long-term impact should also be mitigated such as loss of competitive advantage, reduction in credit rating, and increase in cyber insurance premiums. This can only happen when the entire organisation is part of the long-term cybersecurity mindset.

The article has been authored by Tagglabs founder Hariom Seth.