A system and method can support security management in a network environment. A switch in the network environment includes a switch chip, which is configured with a secure management key (M_Key) prior to one or more external links becoming operational. Furthermore, a local daemon in the switch can monitor the secure M_key on the switch chip, and persistently store a current M_key used by a local subnet manager (SM). The current M_key is a state that is dynamically updated in a fabric in the network environment.