Let's examine both sides of the security regulations debate.

Sarbanes-Oxley (SOX), government regulations passed in 2002 primarily as a response to egregious corporate behavior (a la Enron and others), turned six years old on July 30. Much has been said and written about SOX and its kin (HIPAA, GLBA, PCI DSS, SAS 70, etc.) in those six years as to whether these government regulations and industry standards actually help protect investors and consumers or whether they are merely a costly noose around the neck of U.S. businesses, strangling productivity for no discernable benefit. Now that SOX is six, is it any more obvious as to whether regulations and standards have made a positive difference?

Before going any further, readers should note that I make a living, at least partially, from helping businesses address these regulations in an effective and cost-efficient manner. Nevertheless, I've attempted to make my comments as unbiased as possible and to support them through third-party opinions.

IT organization criticisms against government and industry regulations can be lumped into three main categories: 1) vagueness of regulations and standards, 2) regulation compliance versus improved information security management and, 3) cost of compliance. Because of these criticisms, as the argument goes, these regulations and standards have not had a positive impact. Let's look at each of these individually.

Regulations/Standards Are Too Vague to Be Useful

I've heard this complaint levied many times against various regulations and standards.

My position on this is that the people who have this complaint misunderstand the fundamental objective of the regulations. Government regulations and most industry standards don't address specifically how an IT organization must implement and manage information security. Instead, they describe the business policies--abstract business behaviors, if you will--that an entire organization must enforce. As such, most regulations and standards, in my opinion, are very clear on the behaviors you need to enforce.

When you take a little time to think about it, this makes sense. First, it's the behavior being enforced that is most important to regulators, not how it is enforced. Second, it would be impossible to determine (much less to document) exactly how policies should be enforced for every possible application on every possible system and every combination of other factors that occur across the hundreds of thousands of businesses impacted by those regulations. Finally, there is no one right way to enforce a particular behavior. So even it were possible to define all of the possible scenarios in which a behavior would have to be enforced, it still wouldn't be possible--nor would it make sense--to pick one of the myriad of ways that behavior could be enforced.

Sarbanes-Oxley, for example, says that certain C-level executives must certify that the company has adequate financial controls in place to ensure the validity and accuracy of corporate reports and, further, that this certification be attested to by a certified third party. These controls do require proof that policies are actually implemented, but they do not mandate specific technologies, systems, or settings required to adequately or accurately enforce policies.

HIPAA, among other things, defines the behaviors that must be enforced to protect confidential medical information. Again, neither SOX nor HIPAA is intended to mandate the use of specific technology or dictate specifically how technology must be used by the IT department to enforce these behaviors.

Even PCI, which admittedly contains some technical mandates (mostly that sensitive data at rest must be encrypted), primarily defines required behaviors associated with credit card data, not which technologies are used and not how those technologies are used to enforce those behaviors. The important thing is the behaviors that are enforced, not how they are enforced.

The criticism against government regulations and industry standards appears, in my opinion, to be invalid. But this doesn't necessarily prove that they have had a positive impact on industry. With respect to this question, Treasury Secretary Henry M. Paulson had this to say about the effectiveness of Sarbanes Oxley in a November 2006 speech: "Overall, I believe our corporations are better governed today. Directors are more independent, more aware of real and perceived conflicts, more diligent about their fiduciary responsibilities."

My own personal sense is that part of the improvement in "governance" of corporations includes management taking a larger, more proactive role in information security. While management may still not participate to the degree required, any increase is good.

Compliance Versus Improved Information Security Management

The main criticism in this category is that a company can pass a compliance audit for regulation/standard "X" (fill in whichever one you want) with little or no real improvement to the company's information security management posture.

I believe this criticism also comes from the same fundamental misunderstanding of the intent of government regulations and standards. As mentioned above, their primary objective is to improve corporate behavior so investors can rely on the financial data reported by corporations.

This objective has a secondary--not primary--impact on information security management. The impetus for SOX was to prevent or ensure the detection of poor, misleading, or downright illegal accounting practices used to distort the fundamental financial position of a company. From an IT point of view, Enron's financial data wasn't "hacked" (by insider or outsider) outside of the standard financial application; it was manipulated using fully authorized (in terms of access control) means by authorized people through standard financial applications. Better information security management would not have changed what happened at Enron.

But the IT organization is tangentially impacted by these regulations. One aspect of investor trust in financial statements is the "integrity" of the information being reported. Information security has a role to play in ensuring integrity but only in the sense of preventing unauthorized access to data, not in the sense of detecting or preventing authorized people from intentionally entering misleading data. As such, it doesn't seem too surprising that an organization can pass a compliance audit with little improvement in information security management specifically.

It does cause me grave concern, however, that the IT portion of compliance audits often misses serious weaknesses in the ability of the IT organization to prevent or detect unauthorized data access. But this problem existed long before government regulations like SOX, HIPAA, and GLBA. And as I have said, the primary goal of these regulations is improved corporate behavior, not specifically improved IT access control. So I don't perceive this shortcoming as a failure in regulations.

This complaint, in my opinion, is better directed at the firms responsible for attesting that the proper controls are in place. It's neither the regulation nor the intent of the regulation that fails; rather, it is the auditor responsible for attesting to management's claims that the appropriate controls are in place.

So, even if there is some validity to the criticism that an organization can pass one or more compliance audits without improving information security management, improved information security management was not the real goal. The real question is "Have government regulations and industry standards improved the behavior of businesses?" not "Have they improved the level of information security management?"

And while it is possible for those seeking merely a "ticky mark" to pass a compliance audit, those organizations that take it seriously do actually improve information security management. In his remarks about the IIA South Eastern Regional Conference on Compliance, James Deluccia IV reported that a panel discussion had noted that "SOX identified how weak many of the technology controls were surrounding the controls of the financial reporting systems."

Cost of Compliance Outweighs Benefits

The most serious criticism of government regulations and security standards is that costs of compliance outweigh the benefits to business and society. This has been the big complaint against SOX in particular. It's difficult to find real data to support or refute this argument.

One way to test this hypothesis, though, is to look at the number and quality of IPOs on domestic exchanges versus foreign exchanges for periods before and after the passage of the SOX act, the idea being that the costs associated with having to comply with SOX would cause fewer companies to raise capital through domestic IPOs; and further, of those choosing domestic public markets, a greater percentage should carry relatively higher risk (otherwise, they would have raised capital privately and avoided the costs of compliance).

And there has been a reduction in new IPO listings on domestic markets since the passage of SOX. But at least one academic study indicates that government security and compliance regulations are not the culprit for the reduction in new IPO listings. A July 2007 paper by Professors George Andrew Karloyi and Rene M. Shulz, Ohio State University, and Professor Craig Doidge, University of Toronto, looked at whether Sarbanes-Oxley was responsible for the reduction in the number of cross-listings on the U.S. exchanges as well as the Main Market in London. They concluded that "Our evidence is consistent with the theory that an exchange listing in New York has unique governance benefits for foreign firms. These benefits have not been seriously eroded by SOX."

Obviously, there is a cost to compliance. I don't believe the available evidence proves those costs to be excessive or to outweigh the benefits.

So What's the Verdict?

Many criticisms have been laid against government regulations and new industry standards related to corporate governance and information security. While these criticisms are sometimes not totally off the mark, often the criticisms are made based on anecdotal information rather than on real evidence.

On the other hand, we cannot yet prove that new regulations and standards have improved the overall level of information security either. But there are security experts out there who believe they have. For example, Piscitello and Phifer said in a 2007 report, "Organizations may not be happy about being forced to implement privacy controls and audits, but these regulations certainly have raised security awareness.... have contributed to overall network security." They go on to say, "The financial and legal repercussions of non-compliance have prompted thousands of companies to track and control data access to a far greater degree than any prior imperative.... In short, regulations have raised 'C-level' awareness and sensitivity to security threats and associated business risks."

If these claims can be backed up by real evidence, then I think one would have to agree that government regulations--like SOX, GBLA, and HIPAA--and industry standards--such as PCI DSS and SAS 70--have been a boon for information security.

Patrick Botz, an internationally known information security expert, is the President and CTO of Botz & Associates, a firm specializing in information security services for IBM i, AIX, UNIX, and Linux environments. 

With decades of experience in key system security positions, Patrick's expertise includes security strategy; security policy enforcement; password management and single sign-on; industry and government compliance; and biometrics.

As Lead Security Architect at IBM and founder of the IBM Lab Services security consulting practice, Patrick worked with IBM customers worldwide and achieved intimate knowledge of system security capabilities and pitfalls on a broad spectrum of platforms, with special emphasis on IBM i (formerly AS/400), AIX, Linux and Unix operating systems. He architected the SSO solution for OS/400 and i5/OS, and he holds several security-oriented patents. 

Early in his tenure at IBM, Patrick lead the AIX workstation tools team for CAD/CAM systems in Rochester, MN. Previous to IBM, he worked for Control Data Corporation with responsibility for CDC's Basic compiler, and for ETA Systems, Inc., a wholly owned supercomputer manufacturing subsidiary of CDC, where he was the team leader for the distributed, Unix-based Electronic Computer-Aided Design (ECAD) tools.

Patrick is the author of numerous trade press articles and a co-author of the book Expert's Guide to OS/400 and i5/OS Security.  In addition, he is a worldwide speaker on various platform-specific and general security topics.

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