For as long as anyone can remember, a thick book has gathered dust on a shelf in a head office storage room. Senior executives keep a copy of the book at home, but many have forgotten where they put it. Once a year, the risk team runs a desktop exercise and files a report, but the book itself has not had a thorough revision for years.
Such is the fate of the Crisis Management Plan in some companies. With Covid-19 threatening to become bigger and more economically damaging than any crisis in living memory, some firms are regretting their complacency.
Many sectors are mandated and regulated to maintain and actively manage a crisis management plan. Where firms are systemically important, regulators closely monitor and regularly test their crisis plans.
Banks, for example, must maintain a disaster recovery site for their critical IT systems and operations in the event of a natural disaster or terrorist incident. As the Covid-19 pandemic causes more chaos, they are opening and testing these sites under the scrutiny of their regulators, ready to switch them on if needed.
Other businesses must prepare for crisis and disaster as part of their business model – airlines, the shipping sector and defence, for example. But in most sectors, disaster risk is not an everyday consideration, and we have to rely on companies to have a credible plan in place for the worst-case-scenario, to have contingencies and resources ready and able to handle crises.
Covid-19 has changed all that. Disaster is a real possibility for almost all business, whether from supply chain disruption, employee absences, revenue shortfalls or consumer panic. All organisations now face the very real prospect of their disaster recovery plans being severely tested, and many will be found wanting.
In the financial capitals of London and New York, large banks are sending hundreds of staff to their remote disaster recovery sites, installing big screens in traders’ homes and preparing for a majority of their staff to work remotely so they can keep their businesses running through a coronavirus outbreak. In the financial sector, disaster recovery plans are not allowed to gather dust. They are regularly tested and rehearsed, so it is unlikely that Coronavirus will lead to wholesale market shutdown.
A central element of any crisis plan is communication, and there is evidence that this may have been neglected by some market players. Data published by Standard and Poor’s, the ratings agency on Monday analysed 454 earnings calls from US companies between January 8th and February 28th and found that S&P 500 financial and utility stocks barely mentioned coronavirus in their earnings calls.
Only 11.5% of S&P 500 utilities addressed coronavirus in January and February earnings calls, the lowest of all sectors. Executives at financial companies mentioned "coronavirus," "virus" or "COVID-19" on only 14.5% of calls, the second-lowest mention rate.
By contrast, companies in the consumer discretionary sector were the most active in voicing concerns about coronavirus, with 66.7% of companies speaking to analysts about the virus during earnings season. The likes of Starbucks, Ford and MGM Resorts clearly felt that Coronavirus was a subject their investors deserved to hear about, so they addressed it head on in their earnings calls.
Perhaps the fact that banks and utilities have well-rehearsed and tested disaster recovery plans meant their executives felt there was no reason to raise the issue on their earnings calls. If that is the case, they were profoundly mistaken. Highlighting the investment made in disaster recovery planning at a time when it is being mobilised is precisely the type of information and “colour” that builds and supports corporate reputation in uncertain times. It seems that the consumer sector understands this, and the contrast in approach is vast.
As Coronavirus disruption rises, good communications will become ever more important. Any organisation needs to inform and explain its actions to stakeholders, including staff, customers, suppliers, the media, regulators, policymakers and market participants. And its communication must be executed in a timely, honest and open way. When the subject is a global pandemic that is impacting every aspect of human life, why would companies not want to disclose and discuss their plans?
The hard truth is that this crisis – like all others before it – will blow over. We will emerge from this pandemic better prepared for the next one. But companies that fail to communicate with their stakeholders will not be forgiven quickly and Coronavirus could have long term commercial consequences for them.
One thing is certain: it is most unlikely that disaster recovery plans will be left to gather dust in future. If there is one positive to take from Coronavirus it is that companies, governments and institutions will be better prepared the next time around.