Doing Business in an Unstable World

Doing Business in an Unstable World

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The past few months have seen a slew of disasters hit the international economy. Earthquakes in New Zealand and Japan. Floods in Australia. Political unrest in North and West Africa. Have you taken a close look at your business and scrutinised whether you would be able to weather a similar storm?

Three local experts weigh-in on what businesses should be aware of, and how to put an action plan in place — after all, you can’t plan for a disaster when you are in the middle of it.

1. Put a plan in place before a disaster.

Called scenario planning, it involves thinking about everything you and your business do. Janine Hills says questions to ask yourself include: Who are your internal and external stakeholders? What communities and businesses does your business impact? How are your revenue streams generated? What are the potential risks to your business? How can these be mitigated?

2. Communication.

There are three important things to consider when planning a communication strategy. “First, are you able to contact all of your employees immediately?” says Hills.

“Second, how quickly can you release information to your staff, clients and the public? Who would spearhead this? Finally, what will you say? People tend to trust and respect transparency. If a disaster has occurred, be honest with your stakeholders. This will reassure them that you are aware of how the situation affects them, and are working to curb the damage.”

Always keep this golden mantra in mind: when the crisis passes, will you still have staff and customers? The answer to this question rests on how you deal with the situation, and communication is key.

3. Install systems.

Are there systems in place that ensure the business can continue without you? Your employees and customers should not be left in the lurch because something has happened to you or your management team. Who else has signing power or access to all the business’s passwords? Do you have insurance for yourself and your management team?

2010 saw Italtile experience a tragedy when its entire management team died in an airplane accident. Six Australian mining executives met a similar fate in the Congo. Put policies in place that ensure your entire management team does not travel together, and have succession plans in place in case the unthinkable happens.

4. Crisis management team.

“The human element is not a machine. It has variables,” says Hills. “Who is on your crisis management team and are they equipped to handle a disaster situation? Do they have adequate authority to make and implement decisions quickly and effectively?”

5. Multiple revenue streams.

“How many revenue streams does your company have?” asks Hills. “What dangers do they each face?” For example, companies reliant on chocolate are suddenly facing much higher prices because of unrest in the Ivory Coast. Do they have additional revenue streams to see them through the crisis? Evaluate all eventualities at each stage of your business to ensure that you can mitigate the risk.

Ask yourself this question: what is the one thing that could affect you? It could be a change in exchange rate, or the fact that you are completely reliant on container ships from China. Ensure you have a plan B in place if something affects your supply chain in any way.

6. Bricks and mortar.

How reliant are you on the physical structure of your business. If you run a factory, do you have one premises or two? What happens if that factory experiences severe damage? Will you be able to survive while you rebuild? Do you have adequate insurance? Can you quickly take your business online or operate from different premises?

7. Insurance policies.

What happens if you, as the owner of the business, die or become disabled as a result of a natural disaster? Will the relevant insurance policies pay out? According to Johan Olivier, it is common for insurance companies to contain specific exclusions on liability in their policies. These could include all liability for benefits should the client’s death arise directly or indirectly from a natural disaster or terrorism. Such exclusions are generally enforceable against the insured parties. How is your insurance policy structured?

8. Commercial contracts.

Do your contracts include a force majeur clause? Olivier advises these typically provide that the parties to the contract need not discharge any one or more of its obligations towards the other if it becomes impossible to do so owing to any cause beyond its reasonable control (including, without limitation, war, riot or natural disaster) taking effect after the date of the contract.

In such an event, no party has any responsibility or liability for any loss or expense suffered or incurred by any other party as a result of it not acting for as long as it is impossible to do so as a result of a natural disaster. Should the agreements not contain such a clause, the legal situation becomes complicated as one of the parties may still wish to hold the other party to their obligation.

9. Personal liability.

According to the New Companies Act, if the business cannot function or there is a loss of profit as a result of directors not adequately addressing potential risk, the directors can be held personally liable. This includes IT risk, says Ian Melamed. “If a natural disaster occurs and sensitive or essential data leaks or is lost as a result of negligence on behalf of the company’s management, shareholders can hold them personally responsible for damages,” he says.

10. Data back-ups.

According to Melamed, key questions to ask include: Where is your data stored? Is it off-site? How often do you check your back-ups? “Back-ups should be done — at a minimum — once a week, but how often do you check them?” he asks.

“A corrupted back-up file means you have no back-up file, even if it is carefully stored off-site. In addition, once you lose your original, your back-up instantly becomes the original, and you then effectively have no back-up. Back-up the back-up before you do anything with it — and check that it works.”

Nadine Todd
Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.