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Ninad Barge

The Financial Benefits of Strong Privacy Compliance: A Path to Long-Term Success


Introduction


In today's data-driven world, organizations face increasing pressure to prioritize privacy compliance. While the ethical and legal aspects of data protection are well-known, it's important to recognize that robust privacy compliance programs can also yield significant financial benefits. By avoiding regulatory fines, reducing operational costs, gaining a competitive advantage, preventing data breaches, improving risk management, and increasing shareholder value, organizations can build a strong foundation for long-term financial success. In this article, we will explore the financial advantages of strong privacy compliance and how organizations can leverage them to their advantage.


Avoided Regulatory Fines and Penalties

One of the most immediate financial benefits of robust privacy compliance is the ability to avoid costly fines and penalties imposed by regulatory authorities. Organizations that fail to comply with privacy regulations can face severe consequences. These financial penalties can drain an organization's resources and undermine its profitability. By implementing comprehensive privacy compliance measures, organizations can mitigate the risk of non-compliance and protect their financial stability. 


Some recent examples of penalties imposed for noncompliance are: 


  1. Around May 2023, the Irish Data Protection Commission(DPC) imposed a historic fine of €1.2 Billion on US Tech giant Meta. This record-breaking penalty was imposed for transferring the personal data of European users to the United States without the appropriate data protection procedures, marking a significant event in data protection law. This was considered as a strong reminder to other entities that the GDPR’s regulations need to be taken seriously and non-compliance can result in serious financial consequences. 

  2. Around October 2020, the Hamburg Commissioner for Data Protection and Freedom of Information (BfDI) imposed a fine of  €35.25 million on Swedish retail conglomerate Hennes & Mauritz, popularly known as H&M for violating the GDPR. Due to a technical issue, everyone had access to the data on the company's network drive for a few hours. The press took up the story, informing the Commissioner about the infringement. The case is quite noteworthy since the company acquired sensitive personal data from its employees via whispering campaigns, gossip and other sources in order to develop employee profiles, which were then utilized in the hiring process. The Personal data consisted of medical records, sickness diagnosis and symptoms, as well as confidential details regarding vacation and family issues,

  3. In another case, the Irish data protection commission (DPC) carried out an investigation examining Tiktok’s data practices between July 31 to December 31, 2020 particularly concerning young users. It examined a variety of factors, including platform settings, interactions with child users and age verifications. The DPC’s verdict disclosed several GDPR violations including data processing, transparency and fairness. In response to these violations, the DPC issued a reprimand, ordered TikTok to fix its data processing procedures within three months, and imposed a heavy administrative penalty of €345 million.



Reduced Operational Costs

Effective privacy management can result in streamlined data handling processes, reduced data storage requirements, and improved operational efficiency. By implementing efficient data management practices, organizations can optimize resource allocation and reduce unnecessary costs. This translates into tangible cost savings and improved overall financial performance. By embracing privacy compliance, organizations can enhance their operational efficiency and allocate resources more effectively.


Competitive Advantage and Revenue Growth

Privacy has become a paramount concern for consumers and businesses alike. Organizations that prioritize privacy and demonstrate strong privacy credentials can differentiate themselves in the market. By building a reputation as a trustworthy custodian of personal data, organizations can attract customers who value their privacy. This can lead to increased customer acquisition, improved customer retention rates, and potentially higher revenue. Organizations that invest in privacy compliance position themselves as leaders in data protection, giving them a competitive edge in an increasingly privacy-conscious market.

Avoided Breach-Related Costs

Data breaches can be catastrophic for organizations, resulting in substantial financial losses. Privacy compliance programs that include robust security measures can help prevent data breaches, mitigating the financial impact of such incidents. The costs associated with incident response, legal fees, and reputational damage can be staggering. By investing in comprehensive privacy compliance, organizations can minimize the risk of data breaches and avoid the financial burden that comes with them.

There have been numerous incidents where due to non-compliance of privacy norms have lead to affecting the security thereby resulting into some sort of data breach- 

  1. In 2019, the Information Commissioner’s Office (ICO) announced its intention to fine British Airways £183.39 million for violating GDPR (Article 32 and Article 5 (1) f). What was once claimed as the largest GDPR fine ever levied was decreased to £20 million due to the COVID-19 outbreak and its impact on the aviation sector. The event took place in July 2018 but ultimately was discovered in September 2018. During those several months, the British Airways website rerouted users' traffic to a hacker domain, resulting in hackers collecting the personal information of over 400,000 consumers. The ICO revealed that "variety of information was compromised by poor security arrangements at the company, including login, payment card, and travel booking details as well name and address information."

  2. In July 2019, the ICO announced its intention to fine Marriott International £99 million for violating the GDPR. The penalties were connected to the cyber incident, which exposed personal information from over 339 million visitor records. 31 million of the 339 million people lived in the European Economic Area. Marriott International became vulnerable to a cyberattack after purchasing the Starwood Hotels group. The ICO ruled that Marriott failed to conduct enough due diligence following the acquisition and should have established proper security measures. On October 30, 2020, the ICO issued a penalty notice that explained its judgment. After more than a year, the fine was reduced from £99 million to £18.4 million. In its penalty notice, the ICO explains why it made the decision, taking into account an array of mitigating factors as well as the impact of the COVID-19 outbreak.


Improved Risk Management and Insurance Benefits

Effective privacy compliance demonstrates an organization's commitment to risk management. This can result in lower insurance premiums and better coverage terms. Insurance providers recognize the reduced risk associated with organizations that prioritize privacy protection. By implementing robust privacy compliance measures, organizations can not only protect themselves from financial losses but also benefit from improved risk management practices and favorable insurance terms.


Increased Shareholder Value

Investors and stakeholders are increasingly aware of the risks associated with privacy breaches. They value organizations that have a proven track record of privacy compliance and data protection. By prioritizing privacy, organizations can attract investors and stakeholders who value responsible data management practices. This can contribute to increased shareholder value and enhance investor confidence in the organization's financial prospects.


Conclusion


In conclusion, strong privacy compliance programs offer a range of financial benefits that organizations should capitalize on. By avoiding regulatory fines, reducing operational costs, gaining a competitive advantage, preventing data breaches, improving risk management, and increasing shareholder value, organizations can achieve long-term financial and strategic success. Privacy compliance is not only a legal obligation but also a sound financial decision that can safeguard an organization's stability and enhance its reputation. By adopting best practices and highlighting the financial advantages, organizations can make a compelling case for investing in robust privacy compliance programs. Embracing privacy compliance is a pathway to financial resilience and a testament to an organization's commitment to data protection in an increasingly interconnected world.


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