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Aug 05, 2023

6 legal ‘gotchas’ that could sink your CIO career

We live in a litigious society and CIOs are no exception when it comes to lawsuits. What can you do to protect yourself? CIOs’ employers and their legal teams provide CIOs with much legal protection

We live in a litigious society and CIOs are no exception when it comes to lawsuits. What can you do to protect yourself?

CIOs’ employers and their legal teams provide CIOs with much legal protection when it comes to performing their jobs. Still, CIOs can be left to fend for themselves if their actions are perceived to cross a legal threshold or when risks inherent to the job are viewed as inadequately addressed.

CIOs have been sued for allegedly accepting kickbacks from companies that their home companies had contracted with, and for failing to secure data that resulted in a major data breach.

This year, Gartner sued a former government research director for allegedly violating her noncompete and nonsolicitation agreements and misappropriating trade secrets.

The bottom line is that CIOs can be sued — and it’s equally true that many CIOs don’t think about that possibility.

What are some of the legal “gotchas” that CIOs should be aware of, and how can they protect themselves?

Here are six issues to keep in mind when it comes to your legal exposure as an IT leader.

These reasons range from breaches of fiduciary responsibility, fraud, self-dealing and conflict of interest, to violations of state and federal laws, questionable employment practices, theft of intellectual property, and mishandling of data.

You might be thinking that your company will defend you for liability, and you might be right if your company has liability coverage for its officers, and you are an officer. But does your company have liability insurance for its executives?

It’s standard for most Fortune 500 companies to have liability insurance for their executives, but a substantial number of private and not-for-profit companies are facing challenges in rising premiums and may not have liability protection.

If you’re interviewing for a CIO job, it’s prudent to find out whether the company you’re interviewing with offers liability protection and indemnification insurance for its executives.

Does executive liability insurance cover everything? No, it does not.

“D&O [director and officer] insurance usually does not cover instances of property damage, illegal acts, and suits among managers,” says attorney Mat Kresz of Kresz Law. “Property damage could potentially not cover damage to computers, network equipment, and data that results from a cyberattack such as a ransomware attack, although cyberliability could pick up where D&O coverage leaves off.”

Kresz also points out that gray area exists when it comes act deemed illegal. “Some policies are directed to excluding conduct that the insured knew was illegal, whereas others could be directed to any illegal activity, whether known to be illegal or not,” he says, adding, “Suits among managers are excluded to prevent insurance fraud, where one manager sues another insured.”

In short, it’s wise to thoroughly review your corporate liability coverage if your company provides it, because not everything is covered.

In one case, a CIO was alerted by staff to a cyberattack that had comprised thousands of customer records. Fearful of the repercussions, the CIO decided not to alert the CEO or the board. Eventually, the breach came to light — when customers began to threaten the company with lawsuits. Needless to say, the CIO was fired. He could also have been sued for negligence and breach of duty.

In my first IT manager’s job, I walked into a situation where my telecommunications supervisor was abusive to her staff and didn’t know the job herself. She had been given her position because she was the wife of a senior vice president.

The IT department I was assuming responsibility for was doing poorly. I knew that there likely was no way I could reverse the bad morale and improve performance without probably firing her, and I had an abundance of documentation that illustrated her inability and unwillingness to do her job.

Mindful that she was the wife of a vice president, I worked hand in hand with HR. I documented performance issues in great detail, and HR and I held a number of joint meetings with the individual. Unfortunately, the poor behavior and performance never changed. Eventually I had no choice but to terminate her employment.

The individual then threatened a lawsuit for wrongful termination and gender discrimination against me and the company. She eventually dropped the threat, but I came away with a lesson learned: Always comprehensively document when you have performance issues and discussions with employees. If it is necessary to meet with the persons involved, engage HR in these meetings so you have a second party witness to your conversations.

When CIOs are sued or fired, it’s often because of a significant cybersecurity breach. The reason for this is because CIOs are ultimately responsible for safeguarding corporate information. When a breach occurs, it is always perceived as being on the CIO’s watch, and the repercussions can be severe.

To reduce risk and to perform responsibilities, the CIO should meet regularly with his/her CISO and/or security team leader to review weekly security monitoring reports, budget for and schedule timely security audits, ensure that appropriate security frameworks and tools are in place, and that employees, the CEO and the board are properly briefed and trained in sound information security policies and practices.

CIOs should be personally engaged in this process, because ignorance when you are ultimately in charge is not a defense in a security breach suit.