Is Your Company Prepared for Bird Flu?
from
January/February 2007
by John R. Engen
If the pandemic strikes, its effects are likely to be far more devastating than those of a natural disaster or all but the most heinous of terrorist attacks. Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, predicts that a particularly virulent strain, be it the headline-grabbing avian flu or a new variant, could leave half the U.S. population ill and up to 1.9 million Americans dead. Of course, this worst-case scenario assumes that the virus would have made the crucial leap between birds and humans, but the possibility is something board members should consider carefully.
Safeguarding employees would be a top priority, as it is in any emergency, and keeping businesses afloat would pose a major challenge. A disease pandemic could push panicked families into self-imposed isolation. Retailers, airlines, hoteliers, and other outfits whose business depends on intermingling customers could be especially crippled, but few companies would escape a pandemic’s reach. With employee absentee rates soaring and global supply chains disrupted, almost every company would be forced into crisis mode. Says Sherry Cooper, chief economist at BMO Nesbitt Burns, an economic research firm in Toronto: “You’d have a cessation of travel and trade for some period of time, and people would be afraid to come in to work. It’s going to be very tough for many businesses to continue.”
Some companies are gearing up. Gary S. Lynch, head of the business-continuity and risk-management practice at the large insurance broker Marsh, tells of contingency plans by various clients: A big hotel chain, figuring tourism would collapse, is studying how to rent its properties to governments as places to tend the sick. A hospital operator has contracted for refrigeration trucks. “Their in-house mortuaries are too small,” Lynch explains. A communications corporation has built a self-contained “clean facility” within its headquarters to house critical personnel and key operations. Other companies are asking the U.S. government to declare that what they do is “essential” so they can qualify for federal contracts or resources.
Tommy Thompson, secretary of Health and Human Services from 2001 to 2005 and now independent chairman of the Deloitte Center for Health Solutions and a law partner at Akin Gump Strauss Hauer & Feld, says smart boards are reviewing human-resources and health-plan policies for liability, and making sure employees understand what their companies will and won’t do during a pandemic in such areas as meeting payrolls. They’re also identifying who’ll be the key decision-makers in the event of a pandemic, and some are dusting off succession plans in case a company’s top managers succumb to illness. “If your CEO comes down with a lung infection, who’s going to fill in?” he asks.
Thompson, who consults with companies on pandemic planning, delivers the same message to the boards he serves on—those of health-care-technology firm C.R. Bard in Murray Hill, New Jersey, and Centene Corp., a provider of managed-care and related services in St. Louis. “I keep telling them this planning is good for the company. If we have a pandemic we’ll build market share, because our competitors aren’t doing the planning.” He says both companies have started to develop plans.
Many directors whose boards are working on contingency planning decline to give details, saying it would lessen their competitive advantage. An exception is Laboratory Corp. of America, whose business depends on couriers’ picking up medical samples for delivery to 10 testing centers around the country. A pandemic could both spark a surge in demand for the company’s services and create a shortage of people willing or able to transport the samples. Director Robert E. Mittelstaedt Jr., dean of Arizona State University’s W.P. Carey School of Business, says the board discussed this challenge during several recent meetings, asking management, “Do we have backups for our courier networks? Can we bring in people from other areas? What happens if the airline systems are down? Where would you collect and collate samples, and how far would you drive them?” Mittelstaedt says it’s difficult to engage in detailed scenario planning, because no one knows how, exactly, a pandemic would unfold—“but we want to make sure there’s a plan there, while not micromanaging it.”
For manufacturers, supply-chain resilience is a chief concern. Some have been conducting due diligence on the readiness of suppliers, knowing that if critical components aren’t delivered it will render their own contingency plans useless. Others are establishing relationships with alternative suppliers, just in case.
In a survey of 553 global companies, the Conference Board, which does business research, found that nearly 75% had a contingency plan in the works. Among companies with revenues of more than $5 billion, the figure was 95%. Most of these plans, however, were still only in the early stages.
Some directors privately concede that little attention is being paid to the specific challenges posed by a pandemic. Having lived through Y2K, 9/11, and Hurricane Katrina, many outfits feel comfortable that their general risk-management and business-continuity plans will suffice during a pandemic. Nor is there much outside pressure on them to change their thinking. Shareholders don’t seem to care greatly, at least not yet. One big investor, Calpers, recently put itself through two days of pandemic planning but doesn’t screen the companies it invests in for preparedness. “We don’t have enough internal staff,” a spokesman says.
Damian Brew, a managing director with Marsh’s professional-liability practice, says the risk of a pandemic pales against other exposures, including oil-price fluctuations, and adds that underwriters of directors’ and officers’ liability coverage are more concerned with options backdating and CEO pay disclosure. “Boards have a limited amount of time, and there are financial issues that should take priority over something that’s not likely to happen,” he says.
The University of Minnesota’s Michael Osterholm, who has worked extensively on business preparedness, disagrees. He believes that general contingency plans aren’t sufficient for a pandemic. “Most business-continuity plans envision a very limited natural or terrorist-related hit in one specific region of the country—the hurricane hits, the bomb goes off,” he says. “These plans are not something that can handle the 12 to 18 months of global disruption” that a pandemic might spawn.
Directors could find themselves targeted in lawsuits for dereliction of duty. Attorney Mark Mansour, a Washington, D.C.-based partner in the public-affairs practice at Foley & Lardner, points out that Sarbanes-Oxley requires boards to take into account almost every conceivable problem that could put the company in jeopardy. “Not acting to impel management to create a pandemic plan when there’s been all this publicity could be viewed as a lack of fiduciary exercise,” he argues. Adds Kathleen Scott, an attorney with White & Case in New York City: “If the business has trouble functioning, you could have shareholders saying, ‘Why wasn’t there a plan in place?’ You aren’t going to be able to say you hadn’t heard about it.”
