Resource: Articles

When poor data management leads to disaster

Effective, mindful data management is often enforced through a carrot-and-stick approach. The carrot is the huge security benefits. The stick is destruction.

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When poor data management leads to disaster

Effective data management is often a legal requirement for several different types of companies that manage certain types of data.

Legal regulations such as the Data Protection Act and the General Data Protection Regulation require companies that process or manage sensitive and personal data types to process them using strict principles.

In practice, strong data management principles are enforced using a carrot-and-stick approach. 

Positive, proactive data protection and management is rewarded through greater efficiency and higher security reducing the risk of the business being ground to a halt.

The stick comes in the form of legal sanctions, fines, criminal charges and reputation damage so significant that it can ruin a company. This is one reason why companies that become victims of data breaches and/or ransomware attacks typically pay said ransom.

There are a lot of companies that have been significantly damaged by data breaches and poor data management, one of the biggest being the security breach surrounding Sony’s PlayStation Network in 2011.

Some data breaches, however, can lead to the destruction of a company.

Wonga

A company known for predatory lending practices and exceptionally annoying advertisements, Wonga was a payday loan company that was in a precarious position following legal restrictions surrounding short-term loans and compensation claims that had arisen as a result.

However, what would ultimately end the company would be a significant data breach that affected 245,000 of their British customers, exposing their names, addresses, bank information and even digits of their bank cards, potentially exposing said vulnerable customers to fraud.

Just over a year later, Wonga fell into administration, and whilst its reputation was already somewhat chequered due to its harmful practices, the data breach destroyed any chance of the company regaining the trust of customers again.

Yahoo

Formerly one of the biggest online companies in the world, Yahoo’s reputation had declined by the end of the 2000s, but two of the biggest data breaches in the history of the internet threatened to destroy the company entirely and led to a seemingly terminal decline.

Two data breaches were reported in 2013 and 2014, which according to a later 2017 disclosure, affected all 3bn Yahoo user accounts, allegedly working by using fake web cookies to gain access to any account without the need for a password.

This breach was discovered in 2016 when 200m accounts were auctioned on a dark web marketplace, exposing the scale of the fraud and leading to international investigations about why Yahoo took so long to disclose the breach, as well as the company’s previous history of poor data security.

It had a direct effect on Yahoo’s planned acquisition by Verizon, who sliced $350m off of the proposed purchase price and would pay part of an expensive $117.5m settlement deal for the breach, as well as face a $4.6bn write-down of its entire media division.

Whilst the company has survived as of 2023, owned primarily by private equity firm Apollo, it has faced several major challenges since then, including laying off 20 per cent of its workforce.

With its primary business being the main victim of the largest data breach in history, Yahoo highlights the vital importance of data management, as the cost of neglecting it can be catastrophic.

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