Privacy failures dent firms' competitiveness

19 March 2014

Poor online privacy notices are putting New Zealand companies at a global disadvantage, say Gehan Gunasekara and Nora Xharra.

A new study has found that shortcomings in the online privacy notices of listed New Zealand companies are putting them at a significant competitive disadvantage globally. Associate Professor Gehan Gunasekara and summer research scholar Nora Xharra of the Business School's Department of Commercial Law, who undertook the research, also discovered paradoxically that companies which framed their notices primarily to protect themselves from liability were most likely to fall short of the standards required by law.

Gunasekara and Xharra looked at the websites of 108 New Zealand companies – including some of the country's best-known brands – along with 25 foreign companies listed on the New Zealand Stock Exchange (NZX) and a random sample of 18 US consumer services companies listed on the New York Stock Exchange (NYSE).

The researchers assessed privacy notices for legal compliance and best practice against a range of criteria, including accessibility, readability, procedures for privacy breaches, transparency in relation to government requests for personal information and independent privacy assurance. They concluded that the New Zealand companies trailed their international counterparts in a number of measures, including accessibility of privacy notices.

This is particularly troubling as New Zealand companies offering goods and services in Australia are expected to comply with the new privacy rules there, which in most cases include making privacy policies available online.

"Analysis revealed a number of privacy policies that were arguably meaningless, as there was no satisfactory disclosure of the company's personal information collection, use and disclosure practices," they write.

"The readability statistics and the brevity of the notices showed there was room for improvement for both New Zealand companies and those from overseas."

New Zealand companies collecting personal information online were worse than overseas companies at giving individuals the option to access and correct their personal information, in accordance with their respective legal obligations.

Of the New Zealand companies in the study that collected personally identifiable information as part of an online service, only two-thirds told individuals of their right to access and correct it. Similarly, fewer New Zealand companies (68%) than overseas companies (75%) provided a contact point for individuals wishing to access personal information.

Nor did New Zealand companies shine when it came to transparency about information-sharing practices. Of all the privacy notices assessed, it was the NYSE-listed companies that most consistently disclosed that they shared information with third parties, although due to the differing US legal regime they also tended to collect information about individuals from third parties – a practice not generally permitted in New Zealand.

The researchers suggest that best practice is for companies to provide "layered" privacy notices that offer basic, easy-to-understand information at a glance with links to more detailed policies, again in straightforward language.

They add that privacy notices should stand apart from website terms and conditions to reinforce the message that the companies are serious about safeguarding personal information rather than merely protecting themselves from liability.

Gehan Gunasekara

Gehan Gunasekara is an Associate Professor in the University of Auckland Business School's Department of Commercial Law.
Nora Xharra

Nora Xharra is a Research Analyst at Bauer Media Group.

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