The case for pandemic preparedness

The Corporate Risk Manager’s Roundtable on Pandemic Preparedness report, by Shulich School of Business professor Amin Mawani, outlines the threats faced by Canadian employers in the face of pandemics and advises that companies that plan for the worst will be best positioned to survive—and possibly profit from—an escalation of A/H1N1.

Protecting employees
The report explains that there is an 8% probability of an influenza pandemic occurring, with the global economic impact of such an event at around US$500 billion. These figures were quoted by the World Economic Forum prior to the H1N1 virus, so the probability of a second—and possibly more lethal—wave of virus outbreak during our flu season in November may be even higher.

“In the case of an influenza pandemic, there could be absentee rates of 15% to 30% or even higher,” says Mawani. “For most companies, employees are the backbones and profit drivers, so if you don’t have employees you don’t have profits to report.”

The good news, according to the report, is that employee absenteeism may be controlled to a large extent with adequate planning, effective corporate communications, implementation of good hygiene practices, and stockpiling of personal protective equipment (such as masks and gowns) and antiviral medication.

The bad news is that some companies have yet to get the message.

A 2007 survey found that while 88% of companies seemed prepared to deal with a power disruption and 70% seemed prepared for technological failure, only 13% were prepared for the kind of labour force disruption that would come with a pandemic.

“The World Bank estimates that a moderate to severe influenza pandemic could be four times as disastrous as the current economic recession,” explains Mawani. “You can imagine what four times the current pain would feel like to corporate bottom lines. This just highlights the fact that companies need to safeguard their employees in order to safeguard their bottom lines.”

To make the case more clear, the Schulich report explains that human needs are ordered in a hierarchy, with health and safety ranking as the strongest need ahead of belongingness, esteem and self-actualization, and second only to psychological and survival. These needs could be jeopardized in the event of a pandemic, preventing employees from performing at their best.

Providing sanitizers, protective equipment and antivirals to staff would send employees a strong message that their employer cares about them—making it a wise investment for those in industries where skilled labour is in short supply. Such measures have the potential for positive, long-lasting affects on both employees and customers, particularly if competitors fail to do the same.

The payoff
The benefits of pandemic preparedness, according to the report, arise from one or more of the following:
• higher revenues due to lower employee absenteeism;
• lower costs due to stable suppliers and logistics;
• accelerated cash inflows due to lower employee absenteeism;
• reduced cash flow volatility, resulting in lower risk, and
• greater options or flexibility to expand into new markets or produce new products.

The report concludes that large companies seem to have robust pandemic plans, while small- and medium-sized enterprises are lagging behind, despite the fact that there’s a larger cost associated to large companies. Mawani’s message to employers is to think in historical terms.

“Employers should remind themselves of what they went through during SARS,” he says. “There were 44 deaths throughout the country, but the economic disruption reduced our national GDP by 3% for that quarter. We already have 12 deaths due to this mild version of A/H1N1, and there could be significantly more [in] the fall.”

Mawani also points out that far more organizations have fire insurance than pandemic plans, something that is statistically backward.

“Fire has a much lower probability than a pandemic, even in good times,” he explains. “The probability of a fire is just over 1% while the probability of a pandemic is more like 8%. And remember, you can’t buy fire insurance after a fire.”