Reporting to CEO reduces risks and costs, but change comes slowly

An increasing number of experts are urging companies to stop having the CSOs and CISOs report to the CIO in order to reduce conflict of interest, risk, even downtime and financial losses, but there hasn’t yet been much evidence of progress.

In most organizations, the CIO and the CSO have very different objectives. And, in fact, those objectives may be directly opposed to one another.

“When the security team reports into the CTO or the CIO, the security team has traditionally been known as the ‘no’ team, and the job of the CIO or CTO is to build products, to build technology,” said Aleksandr Yampolskiy, co-founder and CEO at SecurityScorecard.

As a result, when the CSO reports to the IT department, a focus on risk might get in the way of the CIO being as productive as possible, and that would result in push back, Yampolskiy said.

The conflict of interest might go in the other direction, as well.

“The CISO might identify a security and technology and say, ‘We really need to implement this technology’,” said David Burg, global and US cybersecurity leader at PricewaterhouseCoopers.

“And the CIO would evaluate the technology and might say, ‘There’s a performance hit, that’s unacceptable in my opinion. We’re not going to implement that security technology’.”

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Finally, if the security technology costs money, the CIO would have to decide whether to spend their limited budget on the security project, or on something of more interest to IT.

As a result, PricewaterhouseCoopers recommends that CISOs and CSOs should be independent of CIOs to better allow for internal checks and balances, as well as the ability to escalate security issues to corporate leadership and the board.

It’s all about the risk

In a 2014 security survey of more than 9,000 senior executives worldwide, PwC found that organizations in which the CISO reported to the CIO experienced 14 percent more downtime due to cyber security incidents than those organizations in which the CISO reported to the CEO. In addition, their financial losses were 46 percent higher.

In fact, some regulators have begun looking at reporting structures when evaluating risk, said PwC’s Burg.

In financial services, for example, bank regulators have demanded greater accountability from CISOs and have taken steps to ensure that security leaders do not directly report to the CIO. The role of the CISO is also evolving to include both risk as well as security technologies, and that the reporting line is sometimes split between risk officers and general counsel, in addition to dotted-line reports to IT.

In Israel, there are already laws dictating that CISOs report directly to the CEO, said Shay Zandani, CEO at Cytegic, who is also the former president of ISACA Israel.

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“When a CISO reports into IT or finance, their risk assessment can be overruled by someone whose direct focus is not cyber defense,” he said.

“What makes the CIO a better judge of whether a group of developers should or shouldn’t have insecure access to a development environment, or implementing some restricting rules within the firewall? The CISO should be making that call based on the same information the CIO or CFO has, which will only happen if the CISO is an equal — not a subordinate with no conflict of interest or fears.”

It’s a common assumption that the role of the CISO is to protect IT, said Kyle Kennedy, CISO at Cyber Security Network.

“A CISO’s job is not to protect IT,” he said. “A CISO’s job is to protect the business.”

The IT risk is just part of the overall risk equation of an organization, he said.

“Having the CISO report to a business leader like the CEO or CFO would establish a guideline where all people, processes and technologies in all areas of the business would be in the scope of the CISO and or CSO,” he said.

Little progress

Most surveys show that today’s CSO and CISOs report to the CIO, especially in mid-sized and larger companies. They are more likely to report to CEOs in smaller companies.

For example, according to the PwC survey, 28 percent of CSOs and CISOs at large companies report to the CEO or the board, compared to 43 percent at small companies. Meanwhile, 46 percent report to the CIO at large companies — compared to just 15 percent at small companies.

“We’ve seen a slow change in reporting where CISOs are reporting to CIOs less,” said PwC’s Burg. “We see slower changes in very large corporations, with revenues greater than a billion, and faster changes in governance structure in companies with revenues of less than a billion.”

And not every CISO is eager to make the change.

“I have been a CIO for a $1 billion credit card processor and a CISO with a different credit card processor and I actually believe the CISO should report to the CIO,” said Todd Bell, global CISO at Colorado-based GlobalDataLock. “I realize this may seem old school, however I know first-hand the direct impacts the CIO and CISO can have on each other. For instance, a CISO can make a simple security change that seems innocuous, but not comprehend the havoc this may create for the CIO.”

But many CISOs agree that they will eventually live outside the IT department.

For example, in a recent survey of CISOs by security vendor K Logix, only 15 percent said they report to CEOs today — but 50 percent said that they believe they will eventually do so, because it better allows them to communicate risk to other business units.

“The move out of IT was among the biggest factors in the success of our information assurance and privacy program,” Phil Curran, chief information assurance and privacy officer at Cooper University Hospital, told K Logix. Curran now reports to the compliance department.

IDC predicts that by 2018, 75 percent of CSOs and CISOs will be reporting to the CEO directly.

Meanwhile, according to ThreatTrack surveys of 200 C-level executives of US companies with CISOs, the numbers have actually been moving in the other direction. Between 2014 and 2015 the number of CISOs who report to the CEO actually dropped from 47 percent to 43 percent, while the number of CISOs who report to CIOs grew from 45 percent to 56 percent.

The ThreatTrack survey confirmed other results showing that CISOs at large companies are more likely to report to the CIO, with 70 percent of CISOs doing so at companies with 5,000 or more employees.

One reason? According to ThreatTrack, it’s because more than half of senior executives view the CISO as first and foremost a scapegoat who gets the blame if there’s a breach.

Forrester and Gartner also show the majority of CISOs as reporting to the IT department.

“The surveys from 2010, 2012 and 2015 show little change in this report structure,” said Jody Westby, a professor at the Georgia Institute of Technology and CEO of Global Cyber Risk, who has been doing his own surveys of corporate directors on this topic. This structure creates separation of duties issues and is against best practices, he said.

“Changes to establish independent report likely will require board action.”