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Shielding the Boardroom: Managing Third-Party Data Risks with Confidence
- Directors' Institute
- Jul 29
- 10 min read
Not too long ago, corporate boards focused on familiar concerns — financial oversight, succession planning, shareholder value, and compliance checklists. Cybersecurity? That sat with the CIO. Vendor relationships? Procurement’s problem. But in 2025, that thinking is outdated — and dangerously naïve.
Today, your organisation could suffer a massive data breach not because your systems failed… …but because a third-party payroll provider clicked the wrong email. Because a marketing agency used unsecured cloud storage. Because a SaaS platform didn’t update its encryption protocols.
The truth is: You can do everything right internally — and still end up in the headlines, courtrooms, or shareholder crosshairs — all thanks to someone outside your firewall.
Welcome to the era of third-party data risk — a growing blind spot for many Indian and global boardrooms. From the U.S. Target breach to evolving cases in India’s BFSI and IT sectors, real-world examples show that third-party missteps can cause catastrophic financial and reputational damage.
And regulators aren’t going easy either. With India’s Digital Personal Data Protection (DPDP) Act coming into enforcement, and SEBI, RBI, and global frameworks tightening their grip, board members can no longer afford to look the other way.
This blog isn’t here to scare you. It’s here to equip you.
Over the next few minutes, we’ll unpack — in plain English — what third-party data risk is, why it’s become a board-level responsibility, and how you can manage it with confidence, even if you’re not a cybersecurity expert.
Let’s begin.
What Are Third-Party Data Risks?
Your Company’s Data Is Only As Safe As Your Weakest Vendor
Third-party data risks refer to the vulnerabilities your organization faces when sensitive information is shared with external partners — vendors, suppliers, contractors, cloud providers, marketing agencies, consultants, or even AI platforms. These partners often have access to critical data or systems, but unlike your internal teams, they don’t operate under your direct control.
In today’s digital ecosystem, it’s not just the big IT vendors that you need to watch. Even the friendly outsourced HR agency, your ad-tech partner, or that startup SaaS tool your sales team signed up for could be quietly holding your customer data — sometimes in unprotected environments.
Now here’s the uncomfortable truth: if they mess up, you pay the price. Legally. Financially. Reputationally.
A Boardroom Nightmare Waiting to Happen
Let’s say you’re a board member at a mid-sized Indian NBFC. Your internal IT systems are locked down, regularly audited, and compliant. So far, so good.
But you’ve outsourced customer onboarding to a third-party agency. They handle KYC documents and store them on their own cloud servers — without full encryption. One day, that server gets hacked. PAN cards, Aadhar copies, and addresses get leaked online.
What happens next? Customers lose trust. Regulators come knocking. The media smells blood. And suddenly, the board is forced into crisis mode for a breach it didn’t even know was possible.
Who Counts As a Third Party?
Many board members still think of third parties as just "vendors." But in reality, the net is much wider. Here’s who might qualify:
Cloud service providers (AWS, Azure, Google Cloud)
HR/payroll platforms (e.g., Darwinbox, Zoho People)
Creative and advertising agencies
Tech freelancers and consultants
BPO firms and offshore development teams
Legal, audit, and advisory firms that store confidential files
According to a 2024 Deloitte survey, the average enterprise works with over 300 third-party vendors who handle sensitive data in some form. In fast-growing Indian industries like fintech, healthcare, and ecommerce, that number is even higher.
Why Are Third-Party Risks So Dangerous?
Here’s what makes these risks especially tricky — they’re often invisible until it's too late. Most companies don’t track what access each vendor has. Many don’t update their contracts when regulations change. And too often, no one knows what happens to shared data after a contract ends.
Common risk triggers include:
Weak vendor cybersecurity practices
No multi-factor authentication
Lack of regular vendor audits
Outdated or one-size-fits-all contracts
No breach notification clause
Uncontrolled data sharing across multiple vendors
Worse still, many Indian companies — especially mid-sized ones — rely on trust rather than formal due diligence. In today’s regulatory environment, that’s a recipe for disaster.
Why Should Board Members Care About Third-Party Data Risks?
Because Ignorance Is No Longer a Defence
Until recently, many boardrooms treated third-party risks as something for the CIO or compliance team to handle. But the game has changed. With rising cyberattacks, stricter data privacy laws, and investors now holding boards accountable for operational resilience — third-party data governance is now squarely a board-level responsibility.
You can outsource operations. You can’t outsource accountability.
Regulators, customers, and shareholders all expect the board to have visibility and control over how the company’s data — especially sensitive personal information — is accessed, stored, and shared by external partners.
Real Case: When Reputation Got Outsourced Too
Let’s take a real-world Indian example.
In 2022, Infosys faced significant reputational damage in Australia when its name surfaced in a government review over a subcontractor’s mishandling of sensitive immigration data. Although Infosys itself wasn’t directly at fault, the data exposure occurred through a third-party vendor within its delivery chain.
This incident sparked questions from Australian MPs, triggered scrutiny from the Home Affairs department, and briefly made Infosys the centre of a political debate — all because of an unseen weakness in its third-party ecosystem.
The lesson? Even if your core systems are secure, you’re still vulnerable through the extended digital supply chain. And once your brand is in the headlines, nuance gets lost. Stakeholders will expect the board to respond, explain, and take action — fast.
Compliance Risks Are Skyrocketing
India’s new Digital Personal Data Protection (DPDP) Act has changed the rules of the game. Under this law, the primary responsibility lies with the data fiduciary — the company collecting or controlling the data — not the third-party processor.
Translation? Even if the data breach happens at a vendor’s end, your board could still face:
Penalties from the Data Protection Board of India
Legal notices for non-compliance
SEBI inquiries (for listed entities)
Escalation to audit committees and risk committees
The penalties under DPDP can run into ₹250 crore per violation. That’s not just a line item — that’s a full-blown governance crisis.
Investors and Proxy Advisors Are Watching
Cybersecurity is increasingly being bundled under ESG governance, especially in IT-heavy sectors, BFSI, and consumer-facing businesses. Proxy advisory firms now evaluate:
Whether boards are aware of third-party digital risks
If cyber oversight appears in committee charters
Whether companies report on third-party due diligence practices
In short: This is no longer a "nice to have." It’s part of how your company is valued, both in terms of market trust and ESG metrics.
The Board Must Lead the Culture Shift
When boards ask better questions, companies make better choices. It's not about micromanaging tech — it’s about signalling that third-party risk matters.
Simple questions like:
“How many vendors currently access customer data?”
“Do we audit our third-party partners regularly?”
“Are our contracts aligned with the DPDP Act?” can spark critical improvements in governance, data hygiene, and risk resilience.
Who Is Responsible for Managing Third-Party Data Risks at the Board Level?
It’s Everyone’s Problem — But the Board Sets the Tone
Third-party data risk lives in a murky space: it feels technical, but it triggers legal, reputational, and strategic consequences. That’s why it’s no longer the sole domain of IT or compliance.
While day-to-day management may lie with the Chief Information Security Officer (CISO), Chief Risk Officer (CRO), and procurement teams, the board holds ultimate accountability — especially after new regulations like India’s DPDP Act make governance a formal obligation, not just good practice.
In short: You don’t need to configure firewalls — but you do need to ask the right questions.
Who’s Actually on the Hook?
Let’s break down where the buck stops.
The Board of Directors
Owns strategic oversight of digital risk
Must ensure there’s a third-party risk management (TPRM) framework
Should review data governance and cyber risk reports regularly
Is expected to understand (at a high level) where data lives and who handles it
Risk and Audit Committees
Should include cyber and vendor risk in the risk register
Can ask for regular reporting on vendor onboarding, audits, and exit plans
Need to ensure risk heat maps include third-party exposure
CIO / CISO / CRO / Compliance Heads
Handle operational risk controls and monitoring
Conduct vendor due diligence and risk scoring
Maintain the third-party inventory and access logs
Ensure contracts, tools, and processes are aligned with compliance standards
Company Secretary & Legal Teams
Ensure that contracts reflect regulatory expectations
Lead on compliance disclosures in board reports and filings
Help ensure breach response plans are legally watertight
A Common Governance Mistake Boards Make
One of the most frequent gaps? Boards assume vendor risk management is part of IT — and IT assumes the board is already across it.
The result? No one’s driving ownership at the top.
It’s like assuming someone checked the fire extinguisher — until the flames are at the door.
Why the “Tone from the Top” Matters
When the board starts asking about third-party access, breach reporting, and contract controls, it signals urgency to the rest of the organisation. Vendors are vetted more carefully. Contracts get smarter. Risk teams prioritise what's truly important.
Want to build a culture of resilience? Start by asking, “Who’s watching the watchers?”
How Do Third-Party Breaches Typically Happen?
It Never Starts With Alarms — It Starts With Assumptions
When we imagine a data breach, most of us picture a hoodie-wearing hacker pounding away at company servers. But the reality? Most breaches sneak in quietly — through a forgotten vendor, an unchecked contract, or a misconfigured tool no one’s monitoring anymore.
Third-party data breaches are less like a heist and more like a leak in a pipe you didn’t know was connected to your house.
Let’s Walk Through a Hypothetical Breach
You’re on the board of a growing Indian healthcare company. Everything’s running smoothly. The internal security team is solid. Patient data is encrypted. You're proud of how far the company has come.
To improve marketing reach, the company hires a third-party analytics firm — let’s call them DataSense — to run personalized campaigns. The CMO signs off. IT is only partially involved.
DataSense is granted access to anonymized patient records to track engagement — or so everyone assumes.
But six months later, a breach hits. An unsecured Amazon S3 bucket on DataSense’s cloud server — accidentally left public — exposes thousands of health records, some still linked to personal identifiers. It’s picked up by a cybersecurity researcher, tweeted, and then reported in the media.
Suddenly:
The regulator (under India’s DPDP Act) issues a notice.
Customers are furious.
The board faces an emergency meeting.
Investors want answers.
And the big question lands on your table: “How did we not know this vendor had full access to sensitive data?”
The 5 Most Common Ways Third-Party Breaches Happen
Weak or No Vendor Security Controls Some vendors don’t have enterprise-grade security — but they’re still handling enterprise-level data.
No Access Segmentation Vendors are given broad access to internal systems or databases without proper restrictions. “Just in case” access becomes “just too risky.”
Poor Onboarding and Offboarding Hygiene Vendors are onboarded without due diligence, and when contracts end, no one revokes access or deletes stored data.
Shadow IT and Departmental Deals A department (like marketing or HR) signs up for a third-party tool without going through IT or compliance. These tools fly under the radar — until they crash into it.
No Real-Time Monitoring or Breach Alert Mechanism Breaches at the vendor’s end go undetected — and you only find out when your customers or the media do.
The Harsh Truth: It’s Not If, It’s When
In today’s interconnected world, third-party breaches are not an anomaly. They’re a statistical likelihood — especially for companies dealing with personal data, financial info, healthcare records, or digital payments.
That’s why boards can’t wait for the sirens to go off. They need to design for breach resilience, not just breach prevention.
When Do Third-Party Risks Become Most Dangerous?
Risk Loves Chaos — Especially the Kind That Looks Like Growth
Third-party data risks are not just background noise. They intensify at certain moments — especially when your company is undergoing major changes. And ironically, those moments often look like success: scaling rapidly, entering new markets, launching digital tools, or acquiring other businesses.
But behind the scenes? Governance can’t keep up. Vendor controls fall out of sync. Data access spreads faster than the paperwork. And suddenly, you're not sure who has access to what anymore.
A Growth Story — With a Hidden Data Bomb
Picture this: You're on the board of a well-funded Indian edtech company scaling into Tier 2 cities. The growth is electric. Sales are surging. New partnerships are being signed weekly. To handle the volume, the company quickly onboards multiple third-party service providers — content agencies, AI analytics tools, local customer support vendors.
In the rush to scale:
Some vendors are added without going through compliance.
One of them stores student data (including phone numbers and academic records) in an unencrypted database.
Another vendor shares credentials among their internal team to "speed things up."
Contracts? Still being finalized.
And then comes the breach. It’s a low-level attack, but it leaks thousands of student profiles — and just like that, the brand’s trust, built over years, is damaged in days.
This happens more often than we’d like to admit.
High-Risk Moments for Third-Party Exposure
Let’s break down the common scenarios where third-party data risks explode:
During Rapid Scaling or Expansion More vendors. More systems. More integrations. But often, no time to set proper access controls or evaluate vendor risk thoroughly.
Mergers, Acquisitions & Strategic Partnerships Inherited vendors come with unknown data practices. Integration plans often overlook third-party relationships or shared infrastructure.
Cloud Migration & Digital Transformation Moving data to the cloud often means involving external migration partners. Misconfigured storage buckets or relaxed access permissions are frequent culprits.
Launching New Digital Products or Customer Portals Developers often use external APIs, analytics SDKs, and test environments — many of which aren’t covered under your existing governance model.
End-of-Contract Transitions When a vendor contract ends, companies often forget to revoke access, delete stored data, or audit what’s left behind. That leftover access is a ticking time bomb.
Boards Must Ask: Are We Scaling Securely?
Growth and innovation are great — until governance lags behind. And the irony is, most breaches during these phases aren’t due to malicious intent — they’re caused by good people moving too fast without clear boundaries.
This is where the board must push for:
Scenario testing: “What happens to our data if a vendor leaves tomorrow?”
Audit trails for data access during M&A and product launches
Crisis readiness when onboarding happens at warp speed
Conclusion: The Confident Boardroom Starts With Clear Eyes
Third-party data risk isn’t just a technical issue — it’s a governance failure waiting to happen.
In today’s connected world, every strategic move your company makes — expansion, innovation, cost-efficiency — involves partners. And every partner introduces a new risk window.
But here’s the good news: Boards don’t need to become cybersecurity experts. They just need to ask sharper questions, demand better oversight, and treat data risk like the reputational and financial threat it truly is. In short? Shielding the boardroom means knowing where your data goes when it leaves your front door — and making sure someone’s guarding it every step of the way. Now more than ever, that’s not a luxury. It’s a leadership imperative.
Our Directors’ Institute - World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out efficiently, helping you make a significant contribution to the board and raise corporate governance standards within the organization.
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