Cybersecurity threats are on the rise across the business world—and employee stock ownership plans, or ESOPs , are no exception to the threat. These tax-advantaged stock vehicles—used to facilitate employee ownership of businesses—offer an especially appealing target for digital theft.
When employee financial and professional livelihoods are at stake, it’s crucial to build digital defenses into everyday processes for everyone. Explore the risks facing ESOPs—and uncover what leadership can do to proactively prevent breaches.
ESOPs are attractive to employees—and cybercriminals
ESOPs have long been valuable vehicles for transferring company ownership to a business’s employees. Not only do they support business owners slowly transitioning out of their roles, they reward dedicated employees with a stake in the company and capital gains tax deferrals.
When the business thrives, so do employees participating in an ESOP, encouraging enhanced productivity and innovation. ESOPs can contain millions of dollars, becoming a valuable asset for participants—and enticing marks for criminals.
With many employees involved in an ESOP, any could unintentionally expose security gaps. A lack of knowledge about cybersecurity best practices—regarding password sharing, phishing, and other common attacks—can lead to downstream losses.
Security breaches have both monetary and reputational consequences. When an attack occurs, an ESOP’s customers can lose confidence in the confidentiality of their information and trust in the company as a whole. Depleted confidence lowers market valuations, which ultimately hurts employees with a stake in the stock ownership plan.
How can ESOP participants minimize security risks?
As security threats increase, employees play an increasingly important role in preventing breaches. It all starts with spreading awareness on how breaches can occur and using technology—and best practices—to remove vulnerabilities.
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Employee training: Even small incidents like opening unvetted links in emails and other communications can introduce weaknesses to a system. Businesses should instruct all employees on how to identify attacks through training programs that promote robust discussions and a culture of awareness. Frequent reminders of the importance of cybersecurity and tie-ins to their own experiences encourage alertness and prevent unintentional security breaks.
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Authorization controls: Businesses can further limit the risk of exposure by restricting system access to essential personnel. Promptly revoking access for employees leaving the company is another vitally important tactic.
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Software security checks: Before selecting a software partner, businesses must thoroughly vet the provider’s security and encryption measures to ensure they follow all best practices for safeguarding confidential information.
Specialized fraud prevention brings long-term support
Businesses that rise to meet growing security threats both avoid public embarrassments—and protect the ESOP’s and employees’ futures. First American Bank’s full-service Treasury Management group offers specialized fraud prevention to serve evolving treasury and risk management needs, including:
- Check fraud prevention
- Payee verification
- ACH payment filters
With over 20 years of representation on the ESOP Association’s finance committee, First American Bank has the expertise to help employee-owned businesses shore up their ESOP defenses and create a more secure legacy. Armed with agile digital defenses and full oversight, ESOPs of all sizes can protect their systems, data, and reputations with confidence.
