Just about every business leader has heard the proverbial story of Chicken Little. A young bird gets bonged on the head by an acorn while walking in the forest, and mistakenly assumes “the sky is falling.” After convincing Henny Penny and other intellectually challenged feathered friends that the end is nigh, a sly and hungry Foxy Loxy offers the apocalyptic birds his foxhole for protection. The story typically ends either one of two ways: Foxy Loxy gobbles up the doomsayers or a noble king scares away the fox and provides Chicken Little with some basic insurance — an umbrella.
The threat of avian influenza now poses a Chicken Little-like challenge to our global economy. Most medical experts agree that the pandemic clock is ticking away as avian flu eats up tens of millions of factory chickens around the world. But given the fickleness of viruses, no one really knows whether the bird flu will actually explode into the human population as a severe 1918-like killer (50 million dead worldwide) or as a mild 1957-style visitor. Do companies assume the sky is falling or adopt the business equivalent of an umbrella — what economists call a continuity plan?
The growing answer is that modern economics favours the prepared CEO. Just last month, Canadian Manufacturers & Exporters (CME), the nation's largest industry and trade association, published an 87-page planning guide for an influenza pandemic, complete with checklists, contact information and even illustrated handwashing instructions (the cheapest way to break the chain of infection). In just four weeks, managers downloaded about 40,000 copies. “I was blown away by the response. It was stunning and unprecedented,” says CME president Perrin Beatty. “There is an awareness among business about the need for planning, but a great lack of information about what questions to ask and where to start.”
The CME guide poses an essential yet stunning question: “How will you maintain your business operation when 15% to 35% of the workforce falls ill and up to 50% of your workforce may be absent at one time?” It's not an idle query. According to conservative Health Canada estimates, a flu pandemic could bury between 11,000 and 58,000 Canadians, infect up to a third of the population, come in three successive waves, and last for a year. As a consequence, says the CME guide, “it will not be business as usual.”
A 2005 report by the U.S. Congressional Budget Office (CBO) came to similar conclusions. It considered two possible pandemic scenarios: a mild one and a severe killer with a 2.5% mortality rate. (The 1918 flu pandemic reached mortalities as high as 11% in some countries.) A viral Katrina, the CBO said, could sicken 90 million Americans, kill two million, cut U.S. GDP by 5% and potentially launch a “typical business-cycle recession.” In contrast, a mild scenario produced 75 million sick, 100,000 dead, and modest economic upheaval: a 1.5% hiccup in the economy.
When Sherry Cooper, executive vice-president of BMO Financial Group, tweaked the CBO model with more rigorous estimates on supply disruption, she came up with sobering numbers, too. A mild pandemic, Cooper predicted in a March report (The Avian Flu Crisis: An Economic Update), could shave $20 billion off Canada's GDP, but a major killer could deliver a $60-billion hit with considerable long-term effects. “The most productive sector of the population would be the most devastated with sustained labour shortages, reduced demand for housing, cars, electronics and other durable goods,” she wrote. “Consumption growth, in general, would be slower, and government and private pension plans would risk a fairly rapid insolvency. The same would be true of health-care systems.” Cooper's bottom-line advice: stockpile vital equipment and plan now.
Cooper also exposed the global economy's weak underbelly: a just-in-time supply chain. Although Wal-Mart, she notes, has led the charge in “minimizing inventories of inputs, goods, machine parts, labour, virtually everything,” the strategy only works with open borders and smoothly tuned global transportation networks. And such a system, which has no surge capacity, would be sorely tested by a pandemic, Cooper argues. In other words, if China were to come down with a bad case of avian flu, Wal-Mart's shelves would become bare rather quickly.
No group has considered the vulnerability of the supply chain more than the Canadian Council of Grocery Distributors. “We've been working on a contingency plan for nine months,” says its chief executive, Nick Jennery. The grocery industry employs more than half a million Canadians at 24,000 stores, with a combined retail market of $72 billion a year. The system depends daily on 15,000 truckers, already a scarce commodity in Canada. “We have lived through Hurricane Juan and the ice storm and have ensured continuous supply of food,” says Jennery. But he admits a flu pandemic would be a challenge: “It would be a prolonged period of crisis.”
As a consequence, the entire industry, Canada's second largest, has begun continuity planning to ensure critical services and products are delivered. The industry is also sharing its plans with government pandemic planners. “It's a little bit like building a bridge from both sides of the river,” says Jennery. The Quebec government's response to the 1998 ice storm highlighted the importance of open communication. “They came into our stores and took out the generators,” says Jennery. “That was a real surprise.”
The council isn't the only organization studying plague scenarios. Most major companies, among them Air Canada, Inco and Manulife Financial, are all planning. The Conference Board of Canada will set up a “pandemic preparedness working group” in June for executives to study the implications on sales, operations and human resources. According to media reports, HSBC, with 245,000 employees in 79 countries, assumes that up to 60% of its staff could be off. So it's looking at beefing up call centres to help more people do their banking by phone. Maura Drew-Lytle, a spokesperson for the Canadian Bankers Association, says every financial institution has a plan, but adds that due to proprietary issues, “I don't think anyone would get into too many specifics.”
A 2005 U.S. grocery study acknowledged that surge or panic buying might well empty stores. But it predicted consumers would eventually shift to “fewer visits with increased basket size” or Internet shopping. Demand for chicken would tank, while demand for prepackaged goods would soar. “Many part-time and lower-pay employees will abandon their jobs as they perceive the risk being greater than the compensation,” the report added.
William Leiss, a risk analyst at the University of Ottawa, thinks business planning for a pandemic is vital, but he perceives a stunning weakness in most public efforts to date. “The government has done all the planning for health service professionals, but the public is not mentioned in the plan,” he says. Leiss sees the same critical omission in business plans that ignore the fears and concerns of rank-and-file workers. If you want your employees to work during a pandemic (either from home or at the office) you'd better talk to them up front about basic issues such as paycheques, vaccines and job security, Leiss stresses. In the absence of public and employee engagement, he says, “people will make bad decisions and not know what to do.”
The poultry industry learned the importance of preplanning in 2004, when a weak strain of avian flu ruffled B.C.'s factory farms, resulting in the slaughter of millions of birds and losses of $381 million. According to Marvin Friesen, a chicken breeder from Abbotsford whose flock was affected, the Canadian Food Inspection Agency (CFIA) had no real strategy. “Where was the plan?” Friesen asked in a post-outbreak presentation to federal and provincial officials. “Industry didn't have one, and we never saw one from CFIA.”
That earlier outbreak, caused by poor biosecurity and the high population density of poultry farms, won't happen again, Friesen predicts. He says the industry has spent millions developing an emergency response plan. He also thinks the potential for a human pandemic has been overblown. “Public health authorities have seized upon avian flu as a mechanism for increasing government funding for public health,” he argues. When avian flu does come to Canada, Friesen doesn't expect more than “a little splash.”
Still, the business community, burned by the 2003 SARS outbreak (a $50-billion headache) and mad cow disease (a $7-billion-and-growing scandal), continues to pay more attention to pandemic possibilities. “I'm really struck by the attention it is getting,” says Crawford Kilian, a Vancouver science-fiction writer, teacher and noted flu blogger, whose site has received up to 5,000 hits a day. He's also struck by the “lack of communication between the planners and the planned for.” A pandemic, however, does not mean the sky is falling, Kilian insists. “Most of us won't catch it, and most of us will come through it.”
Still, the blogger agrees that being prepared makes more sense than jumping into the nearest foxhole. Concludes Kilian: “It's much better to have planned and not need it than it is to need it and not have planned.”