In today’s fast-paced world, compliance is often thought of as a necessary evil that only hinders business. It is seen as a burden and a cost; however, it is crucial for your business’s success.
While it can initially seem too costly, with the right approach, it can be both cost-saving and reputation-saving in the long run. Without a good compliance policy, you can suffer tremendous reputational damage and financial loss.
However, it’s not about merely enforcing policy. You need to build a culture of compliance that will allow you to make smarter decisions regarding the costs and risks of dealing with sensitive data.
Failing to protect sensitive data and ensure compliance can affect your reputation in many ways. Let’s go over some of the most damaging consequences of ignoring compliance.
Damaging effects of data breaches
As companies collect more and more data, we’re witnessing many high-profile data breaches that shook the public. At the same time, consumers are becoming more aware of threats to their privacy and demand more protection of their sensitive data.
Ignoring compliance, suffering data breaches, and improperly handling incidents can deal a serious blow to your reputation.
Let’s take a look at the consequences of some of the infamous data breaches over the years.
Although not the freshest case, the way Uber handled their data breach in 2016 is a perfect example of what not to do. When they discovered a breach, they decided not to be transparent about it and own up to their mistakes. Instead, they paid the attackers to delete the data and stay silent. Unfortunately for them, the breach was revealed the next year nonetheless.
Result? Major financial penalties and a loss of customers’ trust. Although the data breach was revealed in late 2017, the damage to their reputation was so severe that their consumer perception dropped by 141.3% that year.
Bouncing back from such reputational damage can take a long time. However, the blow can be softened if you respond quickly and efficiently right after the breach happens.
Take Target, for example. They also experienced a data breach, and although their reputation also suffered some damage, they quickly managed to bounce back. The main difference between Target and Uber was that Target took a more transparent approach and showed dedication to quickly implementing improvements.
Unfortunately, not all companies are as big and recognizable as Target. For smaller businesses, it would be way harder to bounce back from such a disaster. That’s why it’s better to implement a preventative approach and avoid breaches to the best of your ability.
Balancing risks while staying compliant
Data protection is, without a doubt becoming more crucial than ever. Customer databases and company emails contain vast amounts of private data, from payment records to contact information.
That’s why there are strict regulations in place that determine which data should be kept and for how long. Businesses have to follow these laws in order to avoid legal issues and prevent reputational damage.
However, prescribed data retention periods can sometimes be quite long. While having a long email retention policy might be useful, as it leaves you with an easily searchable database of past communications and decisions, it also comes with risks.
The longer you keep email records, the higher the risk that some sensitive data will be exposed through unauthorized access or a security breach.
The tricky part is balancing these risks while also abiding by relevant laws. You can’t simply delete sensitive information to prevent its exposure if regulatory bodies require you to keep it for a certain period of time. Premature deletion of data can cause financial losses, and it can even land you in court — and you can imagine that legal issues are never good for your reputation.
That’s why it’s essential to ensure compliance with relevant retention laws and implement the best practices to protect sensitive data while it’s in your possession.
Losing customer trust means losing business
It’s no surprise that customers tend to lose trust in a business if their private data gets leaked. Unfortunately, they will also be more likely to share this negative experience with others than if it was a positive one — and with social media and online reviews, bad news travels fast.
Once a data breach happens, and the reputational damage is done, it’s hard to undo it. If you fail to protect their sensitive data once, your customers will lose trust in your business, and they’ll fear that their data will be exposed again. This will make even your most loyal customers questioning their dedication to your business.
With an increased customer churn rate, you’ll end up with an unstable customer base and won’t be able to make predictions and plans for future growth. Without a reliable customer base, you’ll have to spend much more time and resources to attract new customers. Attracting new customers is never easy, but it’s even more challenging when your reputation is already damaged.
Suffering financial losses
With high churn rates also comes the drop in total revenue. Reputational damage means less trust, and less trust means fewer customers, which ultimately results in decreased profit.
What’s more, not only do you risk losing customers after a breach, but your stock prices will likely also drop.
In 2021, the average cost of a data breach in the US was $9.05, according to IBM’s Cost of a Data Breach Report. With added costs of containing a data breach, you risk suffering financial losses that you may not be able to recover from.
This sure sounds like a lot, but we didn’t even mention the fines and fees for failing to ensure compliance.
So, although the initial expenditures of compliance may seem high, it will end up costing less than the fines and fees and the additional financial losses caused by damaged brand reputation.
Failing to keep up with competitors
In today’s social media-fueled world, one misstep is enough to ruin your business. Once bad word of mouth spreads, both your current customers and your prospects will turn to your competitors.
On the flip side, if you create a culture of compliance and ethics in your company, you can show that you really care about protecting customers’ privacy and set yourself apart from the competition.
This doesn’t only mean having a good internal compliance policy and implementing strong cybersecurity practices. It also means vetting third parties and making sure they are compliant as well and that they won’t cause any privacy issues.
Due diligence might seem tedious and unnecessary, but it can make or break your reputation.
Over to you
Even though it might seem complicated and costly, compliance should never be ignored. Compliance is not only a legal issue. Failing to meet compliance can cause serious damage that will affect your entire company — from the marketing department to your legal team.
Dizzying fines, legal penalties, reputational damage, and financial losses are simply not worth ignoring compliance.