What if Disaster Hits Your Company?
by Jane Hilburt-Davis
Tragedy can strike anyone at anytime. In fact, no company or family can escape some crisis at one time or another. First, let’s define crisis. It’s any unplanned event, occurrence or sequence of events that you have not had to deal with before. What we have learned about recovery and resilience during and after crises come from studying large and small population groups after disasters such as Katrina, 9/11, the Tsunami of 2004, and earthquakes.
It might be external to the business, an economic downturn, a hurricane, terrorism, and earthquakes or internal, the death or disability of the founder, workplace violence, product failure, management failure. Whatever the cause, the key to survival is planning and the ability to ‘take the long view’. Traditionally, family businesses have been more able to do this and, as a result, are often more resilient. For example, the Rubensteins, owners of a family-owned clothing store in the heart of New Orleans were the first to open their business just seven weeks after Katrina hit. They credit their recovery to “a lot of luck, meticulous planning, and a large dose of determination.” See their inspiring story in “Family Business Magazine”, Spring 2006.
Just imagine that you got a call in the middle of the night from the town’s fire department telling you that your building was in flames that were spreading quickly. Imagine that you began to suspect your CFO of manipulating the books to pad her own pockets. What are you doing to prepare for any of these?
Too farfetched? Just imagine that on your way to work tomorrow you have a pain in your chest and down your left arm. You ignore it until lunch when your assistant, worried about how you look, insists on calling the doctor. You are rushed to the hospital and, soon after, die in the operating room in a futile attempt to save your life. What does your family and business do to survive your sudden death? What have you done to plan for this?
Let look at some of the things you can do to plan and prepare.
- Planning Obviously, prevention is best. The irony is that the very definition of a crisis is that it is an event that can’t be fully planned for. However, there are things you can do. For example, you can evaluate the ways in which your family or company are most vulnerable to a catastrophe. Try to identify possible risks and what can cause them, evaluating the probability of such an event. Any company should have an internal ‘alarm system’. In the best companies, bad news travels up fast. Pay attention to the warnings about product problems, about fire hazards, about bizarre employee behavior, and employees’ concerns about a succession plan for the founder.
- Preparation: Put a crisis plan in place before one is needed. In fact, the Marsh Crisis Academy cited two studies. www.marshcrisisacademy.com One found that the cost of preparing for a natural disaster was 1/7 the cost incurred without preparation. The second compare the costs of providing humanitarian services before and after the crisis. “Every dollar spent ahead saved $6 after the crisis.” So, it pays to plan. Here are recommendations for the two types of crises, internal and external:
- A disaster, natural or man-made, affecting the entire community as well as your company. Here are practical suggestions, some offered by the Rubenstein family members, mentioned earlier, who have survived Katrina:
Death of the founder/owner/CEO As the song says, “Everybody wants to get to heaven but no one wants to die”. Death is not a subject that any of us want to dwell on, especially if it’s our own. However, founders of companies that don’t plan can create financial as well as emotional chaos in the company they have nurtured and spent their lives on. The risks are high and the problem is real. In fact, according to a Mass Mutual/Raymond Foundation survey, of the CEOs 61 years or older, who plan to retire in 5 years, 55% have not chosen any successor. In two companies we are working with now the employees are very concerned that there is no succession plan as yet for the founder/president. In fact, two excellent prospective candidates for executive positions turned down job offers because there was no succession plan. They were concerned that each of the companies would be potential ‘fire sales’ if that were to happen.
- Create a crisis management team and identify the spokesperson who is prepared beforehand to be the ideal company spokesperson. To the stakeholders, public, clients, suppliers, etc.
- Develop a crisis manual describing what is done and who does what in the event of a crisis.
- Always keep an up-to-date employee contact list, and make sure key executives have copies of that list on their cell phones, in their wallets. Rubenstein laminates a wallet-sized card for each manager with contact information for several employees.
- Consider establishing a company phone number outside of the immediate area code for employees to contact for updates.
- Evaluated your company data and where you back it up. If possible, store important information related to customer records, inventory, accounts payable, sales, insurance and auditing off-site.
- If you are forced to evacuate, take as many forms of communication as possible with you. Laptops, PDAs, and cell phones are all valuable tools in getting in touch with employees. They stress, “The more avenues of communication, the better.”
- If possible, pay your employees to help retain them. Establish direct-deposit payroll accounts for all employees, ideally managed by an off-site payroll.
- Make sure you review your insurance policies annually and know what your coverage includes, especially in the event of a catastrophe. “Read those policies carefully”, cautions second generation chairman Andre Rubenstein. (Family Business Magazine, Spring 2006)
- Be accountable to and for all you employees. Plan for methods to reassure employees and to account for missing employees, if necessary. Identify alternative places to work. Counseling may be needed, immediately and longer term.
- Keep your crisis plans current.
In their article “Just in case something happens to me….”, the Hoovers note: “Good steward ship is the hallmark of responsible family business ownership. It requires us to protect and care for what has been entrusted to us in our businesses. Others come to rely on owners for many things, not the least of which is our leadership during a crisis. This expectation creates an immense responsibility: to anticipate the needs of our businesses in our future, especially in the event of the ultimate crisis—our unexpected death.” Family Business Magazine, Summer 2002
Planning for the sudden death of the leader/owner of the company.
- Create a short-term leadership team who will meet with advisors and stockholders. Decide who will be the spokesperson for the Leadership Team.
- Develop a written document describing who does what and what is done. The Hoovers (cited above) recommend an EMT, or emergency management letter that includes the following:
- Guiding Philosophy: What overriding principles of your business are important for you successors to continue?
- Interim Structures: How should the company be managed, the family organized around it and ownership handled in the interim and in the future?
- Direction and outside support: Who should be involved in determining key issues related to direction of the company, and how should that input be organized?
- Benchmark: What metrics, or key success factors, need to be monitored—and what should those benchmarks be?
- Location of Documents: Where do you keep the important personal and business documents that will be needed in handling that transition?
- Appoint a spokesperson or persons to communicate with your customers, banks, and other stakeholders giving reassurance that company and family that it’s business as usual. Tell the truth and tell it fast with openness and consistency, realistically upbeat and reassuring. Be as specific as you can.
- Involve the stockholders, board, executive management team and family to put into operation the plans that you have made before your death for going forward. (Note: Those plans include your succession and estate plans.)
- Keep your plans current and review them regularly.
Practice, practice, and practice. Have disaster drills. Meet with your family and board. Begin the meeting with: “You have just had a phone call that I have been hit by a beer truck. I don’t survive. Now, what it the plan? Who’s going to do what, when?”
Recovery: During this phase of recovery both the emotional and the financial impact is addressed. It includes review of insurance claims, estate plans, and possibly crisis and grief counseling. How quickly both the company and the people rebound is directly related to the planning and preparation beforehand. Knowing what to do and how to do it, while in the midst of the crisis, gives everyone a sense of control and security that helps the recovery phase. As the saying goes, “failing to plan is planning to fail.”
(Another good reference for planning is Bonnie Brown Hartley’s “Fire Drill” series. http://cambiopress.mycart.net/catalogs/index.asp?catid=30563&fileID=187650)