Shareholder Proxy Firm to Unseat Target Directors Following Major Cyber Breach

This Way Out

Target’s shareholder meeting will be on June 11, and in what appears to be a first, a major shareholder proxy firm is recommending that shareholders oust 7 of 10 directors following a significant cyber breach, citing them for, “not doing enough to ensure [that the company’s] systems were fortified against security threats.”

The firm is specifically pointing the finger at the directors sitting on the company’s audit and corporate-responsibility committees, alleging that “it appears that failure of the committees to ensure appropriate management of these risks set the stage for the data breach, which has resulted in significant losses to the company and its shareholders.”

Proxy Advisory Firms

“To assist them in their voting decisions, investment advisers (or institutional investors if they retain voting authority) frequently hire proxy advisory firms to provide analysis and voting recommendations on matters appearing on the proxy. In some cases, proxy advisory firms are given authority to execute proxies or voting instructions on behalf of their client. Some proxy advisory firms also provide consulting services to issuers on corporate governance or executive compensation matters, such as helping to develop an executive compensation proposal to be submitted for shareholder approval.”

–       Concept Release on The U.S. Proxy System Agency, July 14, 2010,
The Securities and Exchange Commission.

This call to arms is either a “bold move [which] eloquently underscores cybersecurity as a second-to-none corporate priority for any industry,” or a premature reaction as there isn’t “yet enough evidence that the data breach was due to any neglect by Target’s board or executives.”

How This Affects You

Even firms that do not handle credit card or personal health information, two incendiary factors when considering cyber exposure, cybersecurity is a serious issue by any company. Depending on how the Target shareholders vote, there may be new and unexpected exposures that companies have not considered in the past.

Hackers can either steal valuable information, including trade secrets, or potentially interfere in automated processes from manufacturing to resource extraction.

Find this hard to believe? Consider that hackers shut down a floating oil rig by tilting it, and that Somali pirates help select their targets by viewing navigational data online, leading some ships to either turn off their navigational devices, or fake the data so it looks like they’re somewhere else.


About Ann Longmore

Ann is Executive Vice President of Willis' Executive Risks practice. Based in New York, she has been with the compa…
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