Just how profitable is privacy?

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Like honesty, privacy is good policy. And it's also profitable.

Proponents say proper privacy practices are also 'good for business'. Now it appears there's actual evidence to back up this proposition.

A recent survey suggests there are some correlations in consumer perceptions of a company's privacy practices, trustworthiness, and market standing.

Conducted by Carlson Marketing Canada, a Toronto-based market research firm, and the Ponemon Institute, a privacy research think-tank based in Elk Rapids, Mich., the survey solicited feedback from 4,100 Canadian consumers to determine which companies they perceived as most trustworthy for honouring their privacy commitments, and what factors they used to make their assessments.

This Canadian survey looked at consumer perception only, and did not correlate the findings to actual privacy practices, explains Larry Ponemon, chairman of the Ponemon Institute. But the institute has conducted other recent studies in the U.S comparing perception scores to privacy practices. "We found a high correlation between the two. Companies that get better ratings tend to have a better privacy program and do things better from a privacy and data protection perspective," says Ponemon.

But consumer perception is tricky, he says, as sorting out the factors and correlations that make or break a company's reputation for trustworthiness is a complex exercise. It may be tempting to assume a security breach making headlines will affect a company's ranking. In most instances this is in fact the case, with companies dropping precipitously in their rankings, and losing as much as 1 to 1.5 per cent in market value permanently after a breach, says Ponemon.

But some companies defy this assumption. For example, National City Corp., a financial institution based in Cleveland, retained its high ranking even after a publicized breach, he says. According to feedback from respondents, consumers approved of the way the bank responded to the breach. The bank contacted all affected customers by phone instead of by mail to inform them a breach had occurred, and provided a credit monitoring service. It later provided information by mail about how customers could determine if their data was used in identity theft and how to protect themselves.

"This letter contained no hype about how great the bank was or how concerned it was – it just laid out the facts in plain English," says Ponemon, explaining that the bank's good standing might be attributed to the 'The Tylenol Effect'. In that famous case, Tylenol's principled response to a product-tampering incident in 1987 earned its customers' loyalty.

People will overlook a company's negatives if the positives outweigh them, says Ponemon. "So Tylenol is noted as a textbook case for good ethics and not for bad packaging design."