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There, but for the grace of God…     ,             gDisaster PDi      t Preparedness:                  dIf it happens to y...
Presentation Overview The importance of planning Planning for WHAT? Impact of a crisis on company value Crisis Managem...
The old axiomIf you fail to plan,   y           p ,  you plan to fail                       3
The Mike Tyson axiom Everybody has a plan  … until th get hit       til they t                        4
Presentation Overview The importance of planning Planning for WHAT? Impact of a crisis on company value Crisis Managem...
What could happen?   Oil/product spill          Product contamination   Blowout                    Product recall   E...
What could happen?   What’s “the next Valdez?”                               7
What could happen?The possibilities are many.How can you begin to think about this?One way:Formal Ri k AF    l Risk Assess...
Presentation Overview The importance of planning Planning for WHAT? Impact of a crisis on company value Crisis Managem...
Impact of Crisis on Company Value“The Impact of Catastrophes on Shareholder Values” Rory F. Knight & Deborah J. Pretty    ...
Recovers v. Non-Recovers“The Impact of Catastrophes on Shareholder  Values”, Rory F. Knight & Deborah J. Pretty         , ...
Recoverers and Non-recoverers Initial share value reduction:   – 5% for recoverers   – 11% for non-recoverers After 50 t...
What Makes a Non-Recover? Massive share price drop – over 10% Potential cash flow impact significant High fatalities M...
What makes a “Recoverer”? Opportunity for management to demonstrate their talent Managements strong ability to deal with...
Other Considerations:Legal Requirements for Duty of Care Canadian Business Corporations Act:   – Every director and offic...
Presentation Overview The importance of planning Planning for WHAT? Impact of a crisis on company value Crisis Managem...
Crisis Management vs. BCP/Disaster Recovery Planning is key to both Crisis Management (or Crisis Response) deals with th...
How do I prepare? A disaster is a disaster (A rose is a rose…) Think about it in advance Separate the forest from the t...
What do I need to think about? Different scenarios Communications Volume/Duration Impacts:   – Financial   – Operation...
(What if it wasn’t our fault?)       It really doesn’t matter…             ll d     ’t   tt                               ...
Communications Issues Internal AND External Who will be our spokesperson(s)?   – Audience?   – Experience? Competence?  ...
6                                                7                                                    8                   ...
How do I handle the sheer volume? Exxon Valdez – bar codes BP/Macondo – 7 to 1700 Union Carbide Bhopal Mayfair Apartme...
Longevity – When will it end?The financial pain?     Sooner th you thi k     S      than   thinkThe logistics?     Not in ...
IMPACT: Financial Issues Cash flow   – Interruption of ongoing operations            p          g g p   – Unexpected expe...
Insurance Claims 101 Claim reporting Dealing with insurers and adjusters – do they  understand your business? Dealing w...
IMPACT: What about ongoing Operations? What if our facility is inaccessible? Where are our people? Are they safe? How d...
IMPACT: What happened to our Reputation? What do our customers think? What do our suppliers think? What do our competit...
IMPACT: What about my people? Distracted Overwhelmed Embarrassed Demoralized Worried … and hit i th wallet      d   ...
Impact – What about my shareholders? Litigation D&O insurance                                       30
Case Study: British Petroleum“Deepwater Horizon” Macondo well blowout (April 20 2010)                20,Over 300 lawsuit...
2.5                                                  3.0                                                        3.5       ...
BP – D&O Litigation $100B in market capitalization lost shareholder derivative claims: breach of fiduciary duty Claim: ...
D&O Insurance Implications Side A and Side A Difference in Conditions Pollution Choice of insurer Limits adequacy All...
Conclusions Have a plan Test the plan Anticipate disruption, impacts and volume Know which outside service providers y...
Thank you            36
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Disaster Preparedness - Are you Ready?

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Disaster Preparedness - Are you ready?

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Transcript of "Disaster Preparedness - Are you Ready?"

  1. 1. There, but for the grace of God… , gDisaster PDi t Preparedness: dIf it happens to you, Are you ready? 1
  2. 2. Presentation Overview The importance of planning Planning for WHAT? Impact of a crisis on company value Crisis Management vs. Disaster Recovery How do some companies successfully handle a crisis? – Case study: The BP Macondo well – Case study: Maple Leaf Foods (listeriosis) – How do I prepare? What do I need to think about? • Communications • Volume/Duration • Impacts: Financial, Operational, Reputational, Staff, Investors – Impact on shareholders – and implications for D&O insurance 2
  3. 3. The old axiomIf you fail to plan, y p , you plan to fail 3
  4. 4. The Mike Tyson axiom Everybody has a plan … until th get hit til they t 4
  5. 5. Presentation Overview The importance of planning Planning for WHAT? Impact of a crisis on company value Crisis Management vs. Disaster Recovery How do some companies successfully handle a crisis? – Case study: The BP Macondo well – Case study: Maple Leaf Foods (listeriosis) – How do I prepare? What do I need to think about? • Communications • Volume/Duration • Impacts: Financial, Operational, Reputational, Staff, Investors – Impact on shareholders – and implications for D&O insurance 5
  6. 6. What could happen? Oil/product spill  Product contamination Blowout  Product recall Explosion p  Product tampering p g Fire  Government interference Pipeline rupture  Unauthorized trading Flood  Fraud/Crime Hurricane  Loss (Death? Kidnap?) of multiple senior managers Tornado  Senior management illness Earthquake/Tsunami  Senior management misconduct Sinkhole  Pandemic (SARS, H1N1, ?) Strikes, riots  “Y2K”/Cyber Risk/Cyber Attack Terrorist attack  Copyright infringement py g g Power outage  Information theft Financial Restatement  Hungarian aluminum sludge 6
  7. 7. What could happen? What’s “the next Valdez?” 7
  8. 8. What could happen?The possibilities are many.How can you begin to think about this?One way:Formal Ri k AF l Risk Assessment, possibly as a starting point i t ibl t ti i t in Enterprise Risk Management … 8
  9. 9. Presentation Overview The importance of planning Planning for WHAT? Impact of a crisis on company value Crisis Management vs. Disaster Recovery How do some companies successfully handle a crisis? – Case study: The BP Macondo well – Case study: Maple Leaf Foods (listeriosis) – How do I prepare? What do I need to think about? • Communications • Volume/Duration • Impacts: Financial, Operational, Reputational, Staff, Investors – Impact on shareholders – and implications for D&O insurance 9
  10. 10. Impact of Crisis on Company Value“The Impact of Catastrophes on Shareholder Values” Rory F. Knight & Deborah J. Pretty 10
  11. 11. Recovers v. Non-Recovers“The Impact of Catastrophes on Shareholder Values”, Rory F. Knight & Deborah J. Pretty , y g y Impact of catastrophe on share value is not strongly influenced by the existence of “cat” insurance In aftermath: “recoverers” and “non-recoverers” After a sharp ( ) initial negative impact: p (8%) g p – average “apparent full recovery” in 50 trading days – High [4x] volume in first few days, – settling to average volume w/in 30 days 11
  12. 12. Recoverers and Non-recoverers Initial share value reduction: – 5% for recoverers – 11% for non-recoverers After 50 trading days: – +5% for recoverers 5% – Little change (from 11% decline) for non-recoverers … but 15% cumulative net decline after one year 12
  13. 13. What Makes a Non-Recover? Massive share price drop – over 10% Potential cash flow impact significant High fatalities Management judged to be a least partially responsible for crisis Management judged to have failed to respond appropriately to the crisis 13
  14. 14. What makes a “Recoverer”? Opportunity for management to demonstrate their talent Managements strong ability to deal with aftermath: g g y – Skills – Risk management p g plan – Claims handling – PR Insurance coverage not that influentialInsurance is not a substitute for good risk management! 14
  15. 15. Other Considerations:Legal Requirements for Duty of Care Canadian Business Corporations Act: – Every director and officer has the duty to: y y (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent care person would exercise in comparable circumstances. Criminal Code s 217 1 (Bill C-45): s. 217.1 C 45): – Every one who directs how another person does work – Duty to take reasonable steps to prevent bodily harm to that person – Breach of Duty or wanton disregard for life or safety: • Criminally negligent causing injury or death: 10 years or life in prison 15
  16. 16. Presentation Overview The importance of planning Planning for WHAT? Impact of a crisis on company value Crisis Management vs. Disaster Recovery: How do some companies successfully handle a crisis? – Case study: The BP Macondo well – Case study: Maple Leaf Foods (listeriosis) – How do I prepare? What do I need to think about? • Communications • Volume/Duration • Impacts: Financial, Operational, Reputational, Staff, Investors – Impact on shareholders – and implications for D&O insurance 16
  17. 17. Crisis Management vs. BCP/Disaster Recovery Planning is key to both Crisis Management (or Crisis Response) deals with the immediate aftermath, and considers all aspects of the potential fallout from the crisis Disaster Recovery (in essence, the implementation of a Business Continuity Plan) begins a little later, and deals principally (but not exclusively) with ongoing operations Both are important 17
  18. 18. How do I prepare? A disaster is a disaster (A rose is a rose…) Think about it in advance Separate the forest from the trees Create a plan Test the plan Publicize the plan plan. plan. plan. Crisis Response vs. BCP 18
  19. 19. What do I need to think about? Different scenarios Communications Volume/Duration Impacts: – Financial – Operational p – Reputational – Staff – Investors 19
  20. 20. (What if it wasn’t our fault?) It really doesn’t matter… ll d ’t tt 20
  21. 21. Communications Issues Internal AND External Who will be our spokesperson(s)? – Audience? – Experience? Competence? – Availability? – The Tony Hayward syndrome P bli R l ti Public Relations vs. C i i C Crisis Communications i ti 21
  22. 22. 6 7 8 9 10 11 12 13 14 15 16 11/12/20 007 Price 1/12/20 008 3/12/20 008 5/12/20 008 7/12/20 008 9/12/20 008 11/12/20 008 1/12/20 009 3/12/20 009 5/12/20 009 7/12/20 009 TSX:MFI - Share Pricing TSX:MFI - Share Pricing 9/12/20 009 11/12/20 009 1/12/20 010 3/12/20 010 5/12/20 010 7/12/20 010 Maple Leaf Foods Three Year Share 9/12/20 010 11/12/20 01022
  23. 23. How do I handle the sheer volume? Exxon Valdez – bar codes BP/Macondo – 7 to 1700 Union Carbide Bhopal Mayfair Apartments Maple Leaf Foods H b Oil Hub 23
  24. 24. Longevity – When will it end?The financial pain? Sooner th you thi k S than thinkThe logistics? Not in your lifetime… 24
  25. 25. IMPACT: Financial Issues Cash flow – Interruption of ongoing operations p g g p – Unexpected expenses Access to capital markets Insurance 25
  26. 26. Insurance Claims 101 Claim reporting Dealing with insurers and adjusters – do they understand your business? Dealing with specialists and technical experts g Dealing with coverage disputes Progress payments Quantifying the loss Claim settlement The role of the broker 26
  27. 27. IMPACT: What about ongoing Operations? What if our facility is inaccessible? Where are our people? Are they safe? How do we communicate? Will we lose Customers? Suppliers? Many hands make light work: “Put our best and brightest on this …” … Availability of – People (including vendors) – Equipment – Capital 27
  28. 28. IMPACT: What happened to our Reputation? What do our customers think? What do our suppliers think? What do our competitors think? What do our regulators think? What does the public think? 28
  29. 29. IMPACT: What about my people? Distracted Overwhelmed Embarrassed Demoralized Worried … and hit i th wallet d in the ll t 29
  30. 30. Impact – What about my shareholders? Litigation D&O insurance 30
  31. 31. Case Study: British Petroleum“Deepwater Horizon” Macondo well blowout (April 20 2010) 20,Over 300 lawsuits for property damage, environmental d i t l damage, economic l i loss, cleanup costs, product liability claims 31
  32. 32. 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 11/12/20 009 11/26/20 009 12/10/20 009 12/24/20 009 1/7/20 010 1/21/20 010 2/4/20 010 2/18/20 010 3/4/20 010 3/18/20 010 BP Share Price 4/1/20 010 4/15/20 010 4/29/20 010 5/13/20 010 5/27/20 010 6/10/20 010 LSE:BP. - Share Pricing LSE:BP. - Share Pricing 6/24/20 010 7/8/20 010 7/22/20 010 8/5/20 010 8/19/20 010 9/2/20 010 9/16/20 010 9/30/20 010 10/14/20 010 10/28/20 010 11/11/20 01032
  33. 33. BP – D&O Litigation $100B in market capitalization lost shareholder derivative claims: breach of fiduciary duty Claim: $6MM/day cleanup, exposure to lawsuits, damage to reputation g Implications: – foreign company being sued in US – Derivative action – may be restrictions on indemnity – Governance – history of safety problems not addressed 33
  34. 34. D&O Insurance Implications Side A and Side A Difference in Conditions Pollution Choice of insurer Limits adequacy Allocation Ch i of B k Choice f Broker 34
  35. 35. Conclusions Have a plan Test the plan Anticipate disruption, impacts and volume Know which outside service providers you can rely on for help 35
  36. 36. Thank you 36
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