Part 11: Business Continuity
This is part 11 of a 12-part series describing the consequences of a typical large-scale loss of life incident. Following the framework of the 12 Principles of Crisis Management, I describe these consequences and offer best practice solutions for each consequence.
An immediate business disruption occurs that affects the entire company, often limited to a single part of the operation. A large loss of life event will also result in significant impact on the value of the company. Investors, analysts and financial organizations will begin assessing the ability of the company to respond and recover from such an event. There will likely be an increase in stock trading. Customers and employees will question if the company can remain viable or continue operations – operations that have not been directly impacted by the event.
In transportation (rail, ground, air or maritime) or natural resource businesses, a large-scale loss of life event typically strikes one operation. This may be a single aircraft, ship or rig. The businesses, however, often have multiple planes, ships or rigs. Yet the consequences of that single loss often overwhelm all other operations. You should not, and you may not be able to, stop the other operations, unless it is a safety issue to continue.
The solution is to focus your consequence management plan on the event. As you develop your plan, resource it and create checklists, do so in a manner which quickly separates day–to-day operations from the incident response. In the practical sense, establish a crisis management center (from the first consequence) and an incident management center. The crisis management center focuses on getting your deployable incident management center and deployable teams out the door and managing the incident and other operations until you get people on the ground. After your deployable teams have arrived at the incident site(s), they take over and are often led by the company CEO. The crisis management center then takes a supporting role and focuses on managing the impacts of the crisis on the day-to-day business. A good leader here is often the COO.
To be successful, as you choose your deployable teams, identify people that can step back from their jobs for the deployment period. We use 14-day rotations as a guide. Clearly, there will be an impact from pulling people out of a company for a period of time. Success also requires the ability to identify distinct leaders – one who can focus on the event and another who can focus on the business. It is often too much for one person.
In other events, like a nightclub fire or theater collapse, the event itself completely stops all business operations. In these cases, the same organization philosophy discussed above applies. The only difference is that one leader is not focused on day-to-day business, but instead on how to rebuild the business.
A lot of people question the point of even trying to focus on other operations or rebuild a business after a mass fatality. They feel that no one will trust a brand associated with death. Emotionally, that is a normal reaction, but it is not backed up by fact or reality.
Mass fatality events do have an immediate impact on employees, customers and shareholders. But they can be successfully managed. When they are successfully managed, businesses survive. After all, what can be a worse thing to have happen to a company than loss of human life? So if a company can manage that event, what can’t they manage?
As a company, Kenyon has seen many businesses fail and many survive. Researching what they did and did not do is what led us to develop the 12 Principles of Crisis Management. We also wanted to understand and quantify the financial impact of success and failure in managing these events. So we approached a UK think tank, Oxford Metrica, to do just that. In a report sponsored by Kenyon, “Protecting Value In The Face of Mass Fatality Events,” Dr. Rory Knight and Dr. Deborah Pretty of Oxford Metrica discovered the following:
1. Mass fatality events have double the impact on shareholder value than corporate catastrophes in general;
2. The market makes a rapid judgment on whether it expects reputation to be damaged or enhanced by a crisis. However, shocking news takes time to be digested and, in the case of mass fatality events, the multiplier effect on value takes, on average, 100 trading days to emerge prominently;
3. As with non-fatal reputation crises for firms, the key determinant of value recovery relates to the ability of senior management to demonstrate strong leadership and to communicate at all times with honesty and transparency;
4. For mass fatality events particularly, the sensitivity and compassion with which the Chief Executive responds to victims’ families, and the logistical care and efficiency with which response teams carry out their work, become paramount. There is a 40% value premium associated with the engagement of such specialist services;
5. Irrespective of whose responsibility is the cause of a mass fatality event, a sensitive managerial response is critical to the sustaining and creation of shareholder value.
This report researched 51 separate large-scale mass fatality events covering a 5-year span. It was one in a series of reports issued by Oxford Metrica. Other reports have focused on the impact of catastrophes, cost of disaster for the insurance market, and reputational risks. For more information please refer to www.oxfordmetrica.com.
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