The Circular Future - A Quantum Lifecycle Partners podcast

Cybersecurity meets circularity

• Stephanie McLarty, Kyle Marks • Season 1 • Episode 32

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Can preventable data breaches be a thing of the past? Join us as we sit down with Kyle Marks, the visionary founder and CEO of Retire IT, who is revolutionizing IT asset disposition (ITAD) with a vendor-agnostic approach. Kyle’s journey from Retrobox to leading Retire IT is filled with insights into the critical intersections of cybersecurity and IT asset management. Learn how his firm acts as a fiduciary, ensuring that your ITAD processes are defensible and secure while allowing you to keep your trusted vendors.

This episode unpacks the real-world challenges of IT asset disposition, from tracking serial numbers to maintaining an unbroken chain of custody. Through personal stories and professional experiences, we explore the innovative tracking systems and software that can achieve near-perfect accuracy in IT asset management. Hear about the complexities and risks of poor ITAD practices, including the recent SEC regulations and the financial repercussions faced by companies like Morgan Stanley due to data breaches from mishandled IT equipment.

Kyle’s new book serves as a cornerstone of this discussion, providing actionable strategies to safeguard your business against cybersecurity risks. Understand the importance of segregation of duties, equipment verification holds, and partnering with certified vendors to prevent conflicts of interest and ensure accurate reporting. Whether you're a seasoned professional or new to IT asset management, this episode offers valuable advice on establishing robust ITAD programs to protect your company's data and reputation. Tune in for indispensable insights from a leader at the forefront of IT asset management!

 Click here to buy Where the IT Lifecycle Ends: How Non-Compliant IT Asset Disposition Creates Unnecessary Exposure    


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Want to be a guest on The Circular Future podcast? Email Sanjay Trivedi at strivedi@quantumlifecycle.com


Speaker 2:

A preventable data breach is quite possibly a company's worst nightmare. So why don't more companies take properly managing their old IT equipment more seriously, and what can we do about it? Welcome to the Circular Future your access to thought leaders and innovations. To help you be a business sustainability champion, even if it's not your core job. I'm your host. Stephanie McLarty, head of Sustainability at Quantum Lifecycle Partners. Did you notice I said preventable data breach? That's because with a secure and responsible IT asset disposition program, these issues can be avoided. Still, a lot of companies remain in the dark ages around their IT equipment, but there is one man trying to change that in a unique way. With me is Kyle Marks, founder and CEO of Retire IT. Over the past 20 years, kyle has managed over 20,000 ITAD projects with Retire IT. Kyle also served Aeroelectronics as president of US Micro and has an MBA from Harvard Business School, and he's actually just wrote a book which we'll talk about. Welcome to the podcast, kyle.

Speaker 1:

Well, thanks, steph, I'm glad to be here.

Speaker 2:

Well, we're very happy that you're here and I'm really curious to get into your book. But first a couple of questions. First, what are three things the world should know about? Retire IT.

Speaker 1:

Well, that's a great question. And, first and foremost, we're a consulting firm. So we're not the traditional ITAD vendor or electronics recycler everyone thinks about. So we don't own a truck, a shredder, a warehouse. If I turned my camera around, you'd see an office full of people.

Speaker 1:

We're not the traditional that's probably the first thing and probably one of the most biggest misconceptions that we manage the process, how many? We work with a network of partners. The second thing is we are what I refer to as a fiduciary, so we sit squarely on the side of the table with our clients and preach what we refer to as defensible disposition. It's always in their best interest. We're siding with them. And probably the third is that we're vendor agnostic. So, even though we work with a network of partners we've worked with that are vetted under contract, we also work with we call it bring your own vendor where sometimes clients already have an established relationship with a trusted, certified vendor. We're happy to work with them. Again, it's not who you choose, as much as how it's managed is what's important. So those would be the three things I would emphasize about us.

Speaker 2:

Awesome, thank you, and you've piqued my interest around defensible disposition. Did I get?

Speaker 1:

that right? Yes.

Speaker 2:

All right, We'll talk about that. First of all, walk us through how you got into this space, because I know your journey is a bit of a unique one and I'm sure our listeners would love to hear it.

Speaker 1:

Well, it will be a little over 20 years. I got into it with a company Some remember it was called Retrobox. It was a fellow who wasn't a classmate of it, an alumni of Harvard Business School, had started a computer recycling firm called Retrobox and it was based in Columbus, ohio, where I'm originally from, and I'd I'd moved around the country with other other companies. I was looking for an entrepreneurial industry or a person who was in. An industry that was fragmented, that had a lot of legs. It was going to be around for a while. It was kind of messy and I found this guy who had started this company and it was sort of ground zero. There were three companies here in Columbus Redemtech, retrobox and Tech Disposal and they almost seemed like they were kind of the ground zero of computer recycling for business computer recycling. I joined him because he wanted to help scaling the company and selling it within a couple of years and I was looking for an owner operator that I could help with that.

Speaker 1:

That was accomplished pretty quickly and I wanted to stay in the industry but I didn't want to stay with the company that had acquired it. I wanted to build a company that I feared competing against because I saw a lot of problems, mainly that logistics was such a huge cost and such a big risk. It didn't make sense shipping computer assets around the country from California back to Columbus, ohio. So my vision for RetireIT was to be more like AAA than the tow truck I don't know if that's a US, assume your audience is more US based but for more like FTD than the florist and build a network of trusted partners. It would keep the costs low. It would have a lower environmental impact.

Speaker 1:

And I quickly discovered that there was a bigger issue, which was chain of custody. My clients would have an inventory of equipment and I would get a corresponding inventory when the equipment was delivered at my partner's and I struggled with confirming those were the right assets. You could pick up a hundred laptops. You'd get a report from the recycler that they got a hundred laptops but only about three quarters of the serial numbers would match. So it was very problematic because you didn't know if the problem was on the client side with their inventory or the recyclers. Or you know, an 8 could look like a B or a G could look like a 6.

Speaker 1:

And so again, I'd moved around the country enough times that probably some of my furniture still had moving tags. So I thought if that industry could use tags to solve a problem, maybe ours could, and so I bought a label printer. I taught myself how to print barcodes. I started sending stickers to my clients and I'd ask them to humor me and label the equipment before we scheduled the pickup. And then I would tell my downstream partners I wouldn't pay them unless they scanned my tags in addition to giving the inventory. And lo and behold, all of a sudden we're tracking virtually 100%. Then I had to write a lot of software to account for the two keys, because now you have a tag ID and a serial number and there's a lot of different combinations that can occur. But it solved a lot of problems. That's how I got into the industry, was I thought I saw a better way of doing it from a cost savings perspective, and then it evolved into being more about chain of custody and governance risk compliance.

Speaker 2:

But to this day that's still how we operate has a huge impact, and you clearly applied that entrepreneurial thinking to this problem. So you've gone on to write a book, or I should say to release a book, because it's actually more about the images. It's largely a picture book all around IT asset disposition, it asset management it's called when the IT Life Cycle End. How non-compliant it asset disposition creates unnecessary exposure. So, kyle, why did you write this book?

Speaker 1:

I wrote the book. It's actually been a a a kind of a lifelong a effort in terms of my illustrations. I've always been drawing things, doodling things. Illustrations help capture the essence of an issue. It also allows people to look at something and not take it personally, kind of find some humor in it. I've always been a fan of the Far Side cartoon. If you remember that and the title of the book, you know when the IT Life Cycle Ends. I loved the book as a child. Where the Sidewalk Ends. You know Shel Silverstein.

Speaker 1:

I've always, or I've, liked to use illustrations in my presentations, whether it's at a conference or when it's a webinar. And you know, I don't know who said it, but somebody actually said I should put it together in a book and I did. I didn't tell anybody what I was doing, but it was. It was a lot of fun. A lot was left on the cutting room floor.

Speaker 1:

The reason, from a timing perspective, I did it now was because the SEC cybersecurity rules went into effect in December. Rules went into effect in December, more than a year ago. They deemed ITAD a cybersecurity risk when they fined Morgan Stanley $35 million for a pair of breaches that they had had a few years before, and there's a lot of misconceptions I wanted to clear up, and there's also a couple of best practices that again are vendor agnostic that I believe every company should be applying. Itad is one of the most interesting business activities because there's usually not a single person that's responsible or accountable for it. Some people think it falls under IT asset management, others look at it under facilities or maintenance or under IT, but there's not a chief IT asset disposition officer in a company, and so oftentimes there's a lot of siloed activities, and I thought a book with illustrations could bring people to the same table and have conversations about some of the gaps and how they fix it.

Speaker 2:

Yeah, I found the pictures incredibly helpful. A couple of my favorites are there's one where there's a gentleman standing against a wall and there's tons of leaks coming out, and each of the leaks represent something different, and he's trying to cover them all. I thought that was really powerful. Another one that I really like is towards the end of the book, where there's a dog sitting at a vet and you make the point that disposal tags are like hiding medicine in treats. I thought about our dog and thought that actually makes a lot of sense. And, by the way, when we're talking about ITAD because we always love acronyms it's IT Asset Disposition and ITAM, IT Asset Management. So, Kyle, where do you think we are missing the mark in this industry? I mean, you speak in the very intro of the book. You speak about the unspeakable problem in this space. So where are we missing the mark?

Speaker 1:

Well, there actually hasn't been any consequences to speak of, you know, for noncompliance or for bad you know activities and that will change. You know I'm not sure when you know it could change tomorrow if the SEC starts enforcing things more, right. So there's plenty of rules and regulations on the book or already on the books, if you add them up and I didn't do this, but I've read at the local, state and federal level, there's over 550 that affect IT asset disposition, just in the US, right. And if you go across the pond and look at Europe with GDPR or AsiaPAC, there's plenty of regulations but there's only a handful. You can count on one hand how many times companies have paid the price for noncompliance.

Speaker 1:

Exposure has historically been the result of disclosure, and disclosure historically has been voluntary. Nobody willingly or voluntarily raises their hand and said they've had a breach. And the book illustrates how current paradigm is somewhat rigged to sweep the problems under the rug. Nobody is paid to look for problems. Nobody is incentivized to bring the problems forward. In fact, it's quite the opposite. There's perverse incentives for people to sweep the problems under the rug and keep the problems hidden.

Speaker 1:

It's one of the reasons why, when the SEC fined Morgan Stanley, they came out and said that it was astonishing the failures. What I find astonishing is it is now kind of recently coming to light because it's an open secret in our industry about these problems. If you talk to others who have been in the industry for a while, there's always missing assets, there's, you know, always discrepancies. They're never disclosed and it's completely rational, totally understandable. You know, if your people don't voluntarily call up the police and say, hey, I was just speeding on the way to work, would you mail me a ticket? Right, and so yeah, that's probably why there hasn't been.

Speaker 1:

But now that you've seen the Morgan Stanley incidents, you know the two breaches. The OCC fined them 60 million dollars. There was a class action lawsuit that followed Actually many of them. They were consolidated into one and then that settled for another $60 million. And then two years later the SEC weighed in. This is all one relating to one company's problems and then recently, last November, five states settled for another $6.5 million. So it's sort of the breach that won't go away.

Speaker 2:

And ultimately, the core of the issue is that the companies did not manage their old IT equipment. So, basically, it equipment got out there, data got leaked. Is that the source of the breach? For those of us who aren't as familiar For?

Speaker 1:

Morgan Stanley, there were two breaches and it's very important you actually keep them separate. One might ask why did Morgan Stanley disclose them both at the same time? And your guess would be as good as mine. One was inevitable. It came out because some assets were not properly processed. They didn't hire a qualified vendor. However, the assets passed through qualified vendors' hands, but ultimately they were resold and data was accessible. The person who bought the equipment reported it, so that breach was coming out. The second breach, which for our industry is a lot more problematic, was really more of a he said, she said. Initially, morgan Stanley reported that during the wind down of Aero, aero Electronics had become probably the biggest vendor in our industry. They abruptly, in July of 2019, announced they were exiting the industry, basically gave almost no reason.

Speaker 1:

A year later it was disclosed. That's when the breach occurred. Morgan Stanley said they did what was called a records reconciliation exercise and discovered that some assets they thought had been sent to Arrow Arrow didn't have a record of and then they disclosed that as the second breach. It turned out it was a total of 42 servers out of several hundred couldn't be accounted for by serial number. Anybody who's been in this industry knows those assets may not have actually been lost. They could have been lost in the building.

Speaker 1:

So if two technicians are working at Quantum Kyle and Stephanie and we have two different client deliveries at the same time, I'm working on one pallet, I put something down on the floor, you bump into it, you pick it up thinking it was off on your pallet. That asset's not lost, it's lost in the building. It's lost from reporting. That could have explained a lot of the problems. It's one of the things when I talk in the book about three safeguards, one of them being equipment verification holds. You know where you actually receive the equipment, report on it and hold it until you confirm chain of custody. That in and of itself could have solved, you know, a lot of problems for Morgan Stanley because the assets may not have been lost. If you're trying to reconcile inventories a year later and those assets are long gone, then you know repurposed and resold or recycled. There's no way of correcting an inventory.

Speaker 2:

So it sounds like, in terms of the risks for companies, there is significant business risk, financial risk, brand risk and now and what I learned from the book even personal risk, because, under the new SEC ruling, executives can be held responsible for this, which I think that's great, so okay. So you talked about safeguards, so walk us through these safeguards the best IT asset disposition managing companies actually do. What can companies do to prevent this?

Speaker 1:

Well, they have to recognize the conflict of interest, and every single data security regulation has an element of segregation of duties, and so you need to separate duties so you don't have the fox watching the hen house. And with respect to IT asset disposition, if you're responsible for managing the lifecycle of the assets, you shouldn't also be responsible for the retirement process? So a company either has to hire a third party to manage the process or have a separate person in the organization manage the disposition. The teachers shouldn't be giving the answers to the student and having them grade it themselves, right.

Speaker 2:

Right or in the accounting industry, it's the same thing Like. Whoever receives the check-in should not be the one recording it in the books and depositing it in the bank, and all of that 100% Generally accepted accounting principles.

Speaker 1:

You know accounting 101, you know you need to have that segregation of duties and you know, if you think about ITAD as reverse procurement, you wouldn't have somebody, you know cutting the PO and the check, you know, and doing all everything at once. So segregation of duties is an absolute, certainly a must have. We also talk about I mentioned equipment verification holds. You know you would not jump out of an airplane without a backup parachute. I don't care how many times you do it and your primary issue has never failed you don't want to be caught.

Speaker 1:

And with the equipment verification hold you have hourly employees receiving equipment and they're being compensated for receiving them quickly. You know they're scanning anything that's available, you know, or they're keying it in. And so there are going to be inventory capture problems. Right, being able to go back and get a second look at an asset capture, the correct inventory identifier will. You know, 99% of inventory discrepancies can be cleared up if you get a second look at it. And then the third piece is we preach disposal tags. You know 99% of inventory discrepancies can be cleared up if you get a second look at it. And then the third piece is we preach disposal tags and minimally a separate identifier.

Speaker 1:

You know, maybe you have asset tags on your equipment already. They don't work as well as disposal tags. But if you rely solely on serial numbers, you're just not going to be able to close the gap. You're going to have too many discrepancies and unaccounted for items. Disposal tags will account for 99% of assets. They also serve a really important function because it helps identify what needs to be tracked.

Speaker 1:

When the clients are labeling the equipment. They're saying this is important. We need you to capture an inventory and there are certain devices that aren't necessarily always captured. It could be, you know, a smartphone or this IP phone I have next to me. Is that an asset or is that a commodity that's just going to be recycled? Some assets, like smartphones, don't have a readable serial number right.

Speaker 1:

So you know, putting a barcode, you know it makes it very easy to prove chain of custody. Disposal tags also deter theft right, because if Stephanie is getting ready for a disposal project to take off and she has a room full of equipment, if somebody opens the door and sees that all the equipment has neon colored barcodes, they're a lot less likely to take it. When the driver shows up to pick up the equipment, especially if it's an environment where there's some assets that go and some that don't, you can give instructions and say only take the assets with tags and you get an accurate count. It deters theft in transit and certainly when the equipment's received at a facility, it alerts that facility that this equipment needs to be accounted for and is going to be. You know the inventory is going to be reviewed and so I believe it takes a. It puts them on a heightened sense of awareness in terms of capturing inventory out of the first time.

Speaker 2:

And to you know, going back to your book and the visual aspect, the visual markers for our listeners. Kyle held up the disposal tags. They are bright, yellow, big barcode. You can't miss them. So, yeah, I could understand why that would be effective. It's just another visual cue for a number of reasons. Kyle, before we get into our how-to section, I want to ask you one more question, and that is where you think this space is going. If I were to give you a proverbial crystal ball we talked about this back in the very first episode of this podcast, Gary Diamond where do you think the space is going? I'm going to ask you what trends do you think will define the future of ITAD?

Speaker 1:

I think there is going to be the mother of all disclosures will happen. It will relate to ITAD and I think everybody who is a listener should be aware. You know this. The Morgan Stanley case the class action settled. Because that's what happens typically with class actions when the settlement is offered, what happens typically with class actions when the settlement is offered. Now that attorneys understand that this information is readily discoverable just comparing procurement records to disposition records, to current inventory you're going to find gaps. No company can credibly claim to have protected the data on assets that they don't know the whereabouts. So this industry is a plaintiff lawyer's dream come true. There are plaintiff law firms waiting for the next. You know breach disclosure. But even more interesting is you know the SEC motivates whistleblowers with huge compensation. They pay up to 30% of the penalty. In the case of Morgan Stanley and I'm not saying we will never know if there was a whistleblower involved, but that was a $35 million penalty A third of $35 million is a really nice it's a lot of money.

Speaker 1:

That's a lot of money. And now anybody that has inside information in terms of noncompliance it could be a disgruntled employee, it could be a contractor, it could be a vendor. A disgruntled vendor could tip off a regulator and bring down a regulatory inquiry. And, as I said, this information's easily discoverable right. And you combine that with the fact that the SEC also does not allow for plausible deniability. It's an executive's job, you know, to have controls in place, not rely on somebody's. You know good intentions but actually have mechanisms to alert you to non-compliance. And so when I say it's going to be the mother of all disclosures, I don't think it's going to settle very quickly. I think you know time there's a breach, they're going to go the plaintiffs will go for, you know, for the jugular.

Speaker 1:

They won't stop at a simple settlement. The other thing that I'm going to make the prediction that's going to happen is that gatekeepers are going to be implicated in this. Gatekeepers are also considered fiduciaries or accounting firms. Every single public company has firms that test controls not just financial controls but also cybersecurity controls. That is going to become very problematic, because if they've been given a clean bill of health or haven't been testing those controls, then they're going to have a lot of explaining to do. And I might be revealing my age, but I'm old enough to remember when Enron left a $55 billion hole in the economy. It also resulted in Arthur Anderson going away. Because they were complicit in the problems, right. I would encourage the fiduciaries, the gatekeepers and the SEC has made it abundantly clear that they rely on gatekeepers to surface problems right. So I would expect that these accounting firms that are also testing the controls to start auditing this function.

Speaker 2:

Okay, let's move into our rapid fire how-to section, where I ask you how-to questions and you can answer it short or long, all depending on what you feel the answer is. My first one is now that you've walked us through all the potential risks out there, and for some companies, they may be fairly new at this, or even starting from scratch. So, kyle, how to set up an effective ITAD program from the beginning or from scratch?

Speaker 1:

ITAD is the last phase of IT asset management. So that's sort of a difficult question to answer unless you actually put in place some basic IT asset management. I call ITAD the final checkout. So IT asset management and I'm focusing on hardware asset management because there's also software asset management Hardware asset management, software asset management they might run in the same park, but the paths rarely cross. I focus on hardware asset management and if you don't have an inventory, a good inventory of what you've acquired, if you haven't managed the lifecycle throughout, then you're going to have a challenge of accounting for everything at the end. And this I believe it's relatively easy to close the gap at the end of life with tags, with holds, with segregation of duties, but there might be some assets you have not explained and it is not appropriate to retire missing asset without an explanation. That's, and so you do need fundamental, you know best practices with IT asset management. They need to have the resources to do their job and the mandate from executives, assuming that's in place. When it comes to IT asset disposition, you certainly have to work with a qualified vendor, and by that I mean somebody that's minimally R2 or e-steward certified. But that's a starting point, right, that is, you have to. I believe you should.

Speaker 1:

I talked about defensible disposition. It's really a strategy. Tags are certainly an element. I believe you should put a tag on as early in the positioning process as possible. So when the equipment comes out of the rack or off the desktop, you're tagging it and inventorying it and the tag actually sort of protects it, because employee theft is a really huge issue. If somebody walks out the door before the vendor ever shows up, no vendor can protect an asset it doesn't receive.

Speaker 1:

And so, having the assets secured, I do believe it's also important to secure or destroy data before a move. It's not always possible, it's not always practical, but if there is sufficient data in terms of quantity or the type of data that it would result in a breach if it were lost, then I definitely think it's a worthwhile investment to secure, to destroy the data before a move. You either can do it yourself or hire a vendor to do it. But assets, you know data shouldn't travel, and I, years ago, read an article what has more value an armored bank truck or a van delivering your used computers to the recycler? You know it's. If you think about it, you know an armored truck might only have a couple hundred thousand dollars of cash, whereas if you lose a single hard drive, it could result in a seven-figure problem overnight. And I'm not advocating that every disposal project be done with brinks, trucks and armed guards. I'm advocating securing and destroying the data before a move.

Speaker 2:

And thinking ahead too, is what I get from that, like thinking ahead of what are the what-if scenarios of this particular batch of equipment. You know, if a unit got out, if the data got out, what's the what-if scenario, and to protect yourself against that, we do a tabletop exercise with clients.

Speaker 1:

Most clients have a handful of scenarios they think about. You know if something's found in the wrong place or found with clients. Most clients have a handful of scenarios they think about. You know if something's found in the wrong place or found with data, I have actually over 140 scenarios that can happen. Some are benign and not very consequential. Others are much more severe and if you walk through these scenarios, most are preventable, right. And so putting those safeguards in place in advance, will you know, an ounce of prevention is worth millions of cure, right?

Speaker 1:

So absolutely Simple, things like not sharing serial numbers with your disposal vendor. I already use the example of teachers shouldn't give answers to a student and expect them to grade their their own tests. So there are certain you ask me for a step by step by step. There's actually over 122 steps in our process that we do that a client never sees if we do it right.

Speaker 2:

Did you say 122?

Speaker 1:

Correct, wow.

Speaker 2:

Yes.

Speaker 1:

You know it's also comes down to the commercial aspect of it, right, you know the financials. You know how often do you audit bills or how often do you reconcile the or look at fair market values. You know we were looking at every aspect of it. We do what a company should and could do for themselves if they had the wherewithal and the time and the resources to do it.

Speaker 2:

Kyle, you are a wealth of knowledge and you've clearly had so much experience. As we wrap up this conversation, what would you say would be one piece of advice that you would leave companies with IT managers, it leaders, even beyond. What's one piece of advice you'd leave them with?

Speaker 1:

Well, I recognize that this podcast is about circularity. It's not just about data security. However, the one piece of advice is you need to follow the money, and the money is in cybersecurity, and I think that, from an environmental perspective, we're certainly a big proponent of ESG, but we should be using the G to accomplish the E and the S, and we should leverage the cybersecurity aspect of ITAD to get the resources to do what will ultimately benefit from a circularity and a sustainability perspective. The money is in cybersecurity, the resources are not in ESG, and it is a positive externality, right? So let's go to where the budgets are. You know ITAT is cybersecurity. We need the resources. You know we need the money, we need, you know, the attention from senior management to manage it properly, and that's going to benefit us from a sustainability and environmental perspective. Right, we can accomplish two birds, kill two birds with one stone. Let's just use the budgets from cybersecurity to accomplish it.

Speaker 2:

I think that's very wise advice. Follow the money, use cybersecurity to accomplish the rest of the E and the S from the G. And you know, I would say as well, my piece of advice would be to grab Kyle's book We'll put a link to it in the show notes because it is a quick and powerful read. There's people on your team or in your organization that you really want to get on board regarding ITAM or ITAD. This is a great thing to give them to flip through, because it's very powerful, and thank you, kyle. You've been a very powerful speaker as well, so we appreciate you sharing your wisdom here.

Speaker 1:

Thank you for the invite. I love the podcast and I've enjoyed going through and listening to the 20, some other ones and it's fantastic. So I hope this gets the word out and accomplishes what you're trying to do.

Speaker 2:

Yeah, thank you. And remember, if you're looking for a partner in ITAD and e-waste recycling, we'd love to chat. Head on over to quantumlifecyclecom and contact us. This is a Quantum Lifecycle podcast and the producer is Sanjay Trivedi. Thank you for being a Circular Future Champion in your company and beyond. Logging off.

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Stephanie McLarty

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Sanjay Trivedi

Producer