Lessons from Hurricane Sandy: Business Continuity

As a business lawyer, I track not only the legal aspects of business but also how people live, breathe and think about their businesses. After Hurricane Sandy, business continuity is one issue that is, or should be, on the minds of all business owners.

[Note: This post was written while I was a practicing attorney running a diverse solo law practice, and it is one of a small number of “legacy posts” that I have retained on the site. When published, this was one of my most popular posts. Since April 2015, I have been working as an executive coach and writer, and I am not currently available for legal engagements.]

I spoke with a restaurant owner in my hometown of Stamford, Connecticut in the days before the hurricane and asked him what where his plans for the coming storm. His answer: “Pray that it misses me, because I will lose thousands of dollars of frozen food.” He didn’t even begin to mention the potential loss of revenue if his doors were shuttered for a week or more, either unable to imagine it or unwilling to foresee the risk.

Unfortunately, all too often business continuity planning – preparing to keep a business operating and mitigate losses during a hurricane or other disaster – is seen (if considered at all) simply as an expense rather than an opportunity. If you own a business, here are some thoughts about how to ramp up your business continuity efforts.

1. Evaluate the Risks. The first question is always what risks are greatest to your individual industry and business. In the restaurant example, maintaining current inventory and access to alternate suppliers (if a main supplier is unavailable) are two major and obvious factors, but there is much more to consider. Let’s start with the workforce. How will the restaurant’s manager communicate with employees in the case of a disaster or other emergency? Have any been cross-trained in the event that staff is limited and has there been a dry run of the management pyramid as the staff fulfills their new roles? How will mundane tasks be met, such as washing dishes and taking out the trash? Is alternate staff available? Then there’s technology. How much of the business relies on technology and what will happen if the power fails? Have you secured an alternate means of processing credit cards, for example, or planned a manual backup? There’s also the site to consider. If the site of the restaurant becomes unavailable or suffers a security risk for any reason, does the business need to close or can meals be delivered to customers in another manner (e.g., takeout)? What other risks may face your business?

2. Invest in a Backup Power Source. While we can all debate whether major storms and other disasters are becoming more common, after Hurricane Irene, Hurricane Sandy and other worldwide events, it is clear that businesses need access to power when the lights go out. Decide how much backup power generation is sufficient in different scenarios that could face your business and investigate how you can secure access to the resources needed to run it, such as natural gas or gasoline. If you cannot afford a generator, can you share one with another local business? If you choose to go that route, make sure to sign a contract outlining the rights and responsibilities of each business, including how much power the generator owner and second business can pull at any given time and how this will be monitored.

3. Review Insurance. Does the business have sufficient insurance in the specific areas that cause risk? Flood insurance is a prime example. If your business could experience flooding and is not insured against that risk, it is time to review and update your policy.

4. Review Contracts. If your business contracts require delivery of goods or services at a specific date and time, include “force majeure” clauses in your form contract and any other significant agreements. These clauses vary in their language, depending on the subject matter of the contract, but generally state that if a force outside of your control (i.e., a “higher force” or “force majeure”) causes a delay in or impossibility of performance, you are excused from the contract for the duration of the event.

5. Plan How to Communicate with Employees. Mentioned in the risk-analysis above, businesses need a tested means of communicating with employees in the event of a disaster. Which employees have access to landlines, cell phones and email, and does everyone use them on a regular basis? Is there a backup emergency phone number for each individual? Who maintains the employee list, and what is the plan if that person is incapacitated? Can you outsource this function and does it make sense to do so?

6. Have Built-In Redundancy. If you are reliant on data, plan to backup that data and your central server as needed. Keep copies of important records offsite or online. If you are heavily reliant on other service providers to run your business, such as an Internet provider, find out if their own backup plans are sufficient to allow customers to continue to do business with you if the service provider’s systems fail.

7. Test. A business continuity plan has little value on paper. Make sure it actually works. Have Plans A, B and C in place about how your business can be run, and test each one quarterly or annually.

8. Disseminate. Similarly, a plan has no value if the key players do not know about it. Make sure your significant employees are clued into the business continuity plan, know their roles and can implement it if needed.

None of the information posted on this site constitutes legal advice or forms an attorney-client relationship. This is a public forum. Please do not post confidential or fact-specific information regarding your legal questions on this site.

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