IT governance

1. IT governance ISACA SA Awards Ceremony 20 April 2007 Presented by: Mervyn E. King S.C.

2. Introduction • Information age • Members of global village • Willingly or unwillingly • Real time • Transparency – cornerstone • Sunlight/disinfectant • Electric light/policeman • Ultimate light – Telecommunications and IT Mervyn King SC

3. Changed corporate world (1) • Integral to society • Shareowner profile changed • Conformance and performance • UN Human Rights declaration • Environmentalists • Information communication technology • Activism • Triple bottom line Mervyn King SC

4. Changed corporate world (2) • Capital a scarce resource • Borderless world • Click of a mouse • Make or destroy markets • Rely on reports from companies • Capital flows affected by electronic communication • Flows towards good governance Mervyn King SC

5. Changed corporate world (3) • Shareowner revolution • Global institutional investor • Conduit for person in street • Where were the directors? • Where were the institutional shareowners? • Strategic importance of IT systems – not only enabler Mervyn King SC

6. Changed corporate world (4) • ICT • Important strategic role – pervasive • Flatter structures – online • Industries converge • Governance role? Mervyn King SC

7. Governance a process • Governance about process • Enterprise – strategic • Risk for reward – failure • Good governance and failure • Acceptable • Bad governance – failure – scandal • Not acceptable Mervyn King SC

8. Compliance • Mindless whether voluntary or compulsory • Compliance officer • Apply mind • Not suitable for business • Explain • Market ultimate compliance officer Mervyn King SC

9. Enron • Had the trappings of good governance • Quantitatively compiled • Non-executives • Good board attendance • Committees of board • Yet dysfunctional Mervyn King SC

10. Enron – why? • Self-interest • Greed • Dishonest – SPE’s and off balance sheet • Apparently to prop up share price • Codes will not help • Intellectual dishonesty Mervyn King SC

11. A director’s duties - responsibilities • Good faith • Care • Skill • Diligence Mervyn King SC

12. Incapacitated person • Human being • Best interests, care, skill, diligence • Decent citizen thing to do • Company an artificial citizen • Incapacitated • Director, heart, mind and soul Mervyn King SC

13. Quantitative governance compliance • Voluntary or compulsory • Not the answer • Quality governance • Based on intellectual honesty • Incapacity awareness • Corporate sins – awareness • Intellectually naïve questions • IT governance the same Mervyn King SC

14. IP and IT • Manual processes to systems processes • Processes and risks locked into IT • IP locked into IT • Staff told “how” to use systems • The understanding of the IT? • In the IT department and CIO • “Black box” scenario Mervyn King SC

15. Two levels of IT governance • Technical and IT process level – first • Business process level strategic – second • CIO and colleagues need to understand the business • Aids company to realise strategies • IT governance specific to each business Mervyn King SC

16. IT governance • Legislate • Cobit or ITL • Legal framework needed • Due care • Due diligence • These are the essence of information security Mervyn King SC

17. Regulate IT governance? • Not for level two • Management of processes to realise business strategies • No generic rule • To regulate all businesses • Even adapt methodologies to suit local environment for level one Mervyn King SC

18. Risk in the use of IT (1) • Strategic importance of information technology • Technology issues • Board members need greater understanding • Duty of care and skill • How else carry out duties? Mervyn King SC

19. Risk in the use of IT (2) • Unaware of operational risks • Because processes not understood • Risk management • Solution? • Representation or outside advice Mervyn King SC

20. Risk in the use of IT (3) • Confidential info outside company • Different codes of conduct • Different values • Different risks • Accountability issues Mervyn King SC

21. Risk in the use of IT (4) • Increasing dependence on outsiders • Outside direct control of company • Process outside, e.g. call centre • Financial and reputational risks • Outside access to confidential information • Information security as part of governance Mervyn King SC

22. Internet Encyclopedia Information security • Napoleon, The Three Musketeers • The wax seal • Information to enemy • Disastrous for battle or the war Mervyn King SC

23. Unauthorised • Use • Access • Disclosure • Disruption or elimination • Changes • Prudent and reasonable steps or legislation • Care and diligence Mervyn King SC

24. Internet Encyclopedia The wax seal • Confidentiality – job application • Integrity – no change without authorisation • Availability – system functioning correctly • Possession – stolen laptop • Authenticity – information genuine • Utility – usable and useful Mervyn King SC

25. The ISO code for information security (1) • The security policy • Asset management • Human resource security • Physical and environmental security • Communications management • Operations management Mervyn King SC

26. ISO code (2) • Access control • Information systems acquisition • Development and maintenance • IS incident management • Business continuity • Regulatory compliance Mervyn King SC

27. Cryptography • Codes • Renders it unusable • Other than authorised user • Encrypted information • Usable again by decryption Mervyn King SC

28. Methods of protection • Legislation? • UK Data Protection Act • The Family Education Rights and Privacy Act • The Health Insurance Accountability Act • The Electronic Communications and Transactions Act Mervyn King SC

29. Sarbanes-Oxley and King • Comply or explain • Comply or else • Legislate against negligence or dishonesty? • Intellectual honesty • Market cap of company • Due care and diligence Mervyn King SC

30. Information security • Steps taken to practice due care • Verified • Measured against reasonable man • Continual processes in due diligence • Activities to monitor protection mechanisms • Maintaining the mechanisms Mervyn King SC

31. Electronic communication • Board pack • AFS online • No more printed AFS • No more published in newspapers • Cautionaries • Faster dissemination of information • Insider trading – more or less? • Security against sensitive market leaks Mervyn King SC

32. IT board representation • IT was an enabler to support the business • Now both supports the business and drives strategy • Strategic decisions on IT improvements and on information availability • CIO on board? Mervyn King SC

33. Laws and regulations • Duty of board to ensure compliance • Bulk of companies SMME • Cannot afford IT expertise inhouse • Have to use service providers • Remember can delegate but cannot abdicate Mervyn King SC

34. Director’s liability • Director is a director • Collective authority • Individual liability • Statutory and common law • Expertise important Mervyn King SC

35. Good practitioners • Aware of four duties • Aware quality above quantity • Aware human frailty • Aware individual liability • Aware not understanding – IT • Intellectual honesty foundation • How legislate about all this or only one aspect? Mervyn King SC

36. Conclusion • Comply or explain • Comply or else • In either regime, quality is the factor not quantity • The market is the ultimate compliance officer • Ultimate responsibility is business success • Balance conformance and performance • Legislation is not the recipe for good governance, corporate or IT • Moses, Congress, Parliament Mervyn King SC

37. “The Corporate Citizen” Mervyn King SC