SARS: A Preview of Things to Come?

The contagion in Asia may be under control, but it has some U.S. corporates rethinking their notions about business continuity.
Joseph McCaffertyJuly 1, 2003

Back when companies actually feared Y2K, Convergys Corp. put in place a business-continuity plan that designated “incident commanders” at each of its more than 40 sites to handle emergencies. Now those same commanders are tackling a new, and possibly more virulent, threat — Severe Acute Respiratory Syndrome (SARS).

The Cincinnati-based company, which provides customer-care services, has conducted various scenario-planning exercises for emergencies such as a SARS outbreak, even making preparations to route customer service and other business away from sites in the event of a crisis. “SARS got our attention,” says director of risk management Carol Fox.

SARS has gotten the attention of many companies. To date, the disease has spread to 32 countries and resulted in 784 deaths. And although only 68 American cases have been diagnosed, U.S. companies haven’t been immune. In fact, many are not only curtailing travel to the hardest-hit regions but also rethinking their risk-management strategies to address communicable diseases.

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After all, it’s no longer difficult to conceive of bioterrorists launching an attack with smallpox, botulism, or plague. SARS itself may make a comeback next winter. And while “it’s true that there is a low probability of any one company being affected,” says Lee Zeichner, president of Falls Church, Va.-based Zeichner Risk Analytics LLC, “the potential [is] that it could affect the core business operations and impact revenue and earnings.” Consequently, increasing preventive measures, he says, “is just good planning.”

What’s different about these new business-continuity plans is their focus. In the past, “most plans called for second sites and backup systems,” says Anne Nicoll, a principal at Mercer Human Resource Consulting in Toronto. “The new thinking is around the people-based issues: what do you do when your employees can’t work together in groups?”

She says companies are beefing up their remote networking facilities so employees can work from home, and splitting workforces into “clean teams” so that if one group is quarantined, there’s another group that’s not affected.

In fact, says Nicoll, “it’s not necessarily actual infections causing the disruptions. It’s the needed preventive actions.” For example, while 60 new cases of SARS were reported in Toronto in late May, more than 6,000 people were given “isolation directives.”

The greatest risk to plan for, however, is that key suppliers, especially those in Asia, will be forced to close temporarily due to SARS. “Our suppliers have been informed by the Chinese government that if there is a potential case of SARS in anyone in the plant, they would have to shut it down,” says Michael Umana, CFO of Saucony Inc.

In response, the Peabody, Mass.-based athletic footwear and apparel maker has been increasing its supply of key materials for its core styles and looking for backup suppliers elsewhere. “All of our efforts are on sourcing alternatives,” says Umana.

Standing Alone

Of course, crucial to any business-continuity plan is adequate insurance coverage. But policies typically “cover only interruptions caused by physical damage to a facility,” says P.J. Crowley, vice president at the Insurance Information Institute in New York. To date, there is no SARS-specific coverage, but that doesn’t mean insurers are ignoring the issue. In fact, claims from an outbreak could be “devastating” to the industry, says Crowley, with the largest potential impact on workers’ compensation lines.

They would also raise interesting questions. Can workers’ comp claims be filed for employees who are healthy but can’t work because they are quarantined? “Companies know how to handle employees getting sick. But what do you do when they’re not sick, but can’t work?” asks Nicoll.

SARS has brought these issues to the forefront, says Gilbert Ponniah, vice president of finance at Hewlett-Packard Services in Asia, who recently grappled with the crisis. Mostly, though, the spread of SARS, he says, has reinforced the notion “that the world, our region, is more interconnected than we ever imagined.”