There, but for the grace of God…, g

Di t P dDisaster Preparedness:If it happens to you, Are you ready?

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Presentation Overview The importance of planning

Planning for WHAT?

Impact of a crisis on company value

Crisis Management vs. Disaster RecoveryHow do some companies successfully handle a crisis?How do some companies successfully handle a crisis?

– Case study: The BP Macondo well

– Case study: Maple Leaf Foods (listeriosis)

– How do I prepare? What do I need to think about? • Communications

• Volume/Duration

• Impacts: Financial, Operational, Reputational, Staff, Investors

– Impact on shareholders – and implications for D&O insurance

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The old axiom

If you fail to plan, y p ,you plan to fail

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The Mike Tyson axiom

Everybody has a plan til th t hit… until they get hit

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Presentation Overview The importance of planning

Planning for WHAT?

Impact of a crisis on company value

Crisis Management vs. Disaster RecoveryHow do some companies successfully handle a crisis?How do some companies successfully handle a crisis?

– Case study: The BP Macondo well

– Case study: Maple Leaf Foods (listeriosis)

– How do I prepare? What do I need to think about? • Communications

• Volume/Duration

• Impacts: Financial, Operational, Reputational, Staff, Investors

– Impact on shareholders – and implications for D&O insurance

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What could happen? Oil/product spill Blowout Explosion

Product contamination Product recall Product tamperingp

Fire Pipeline rupture Flood

p g Government interference Unauthorized trading Fraud/Crime

Hurricane Tornado Earthquake/Tsunami

Loss (Death? Kidnap?) of multiple senior managers

Senior management illness Senior management misconduct

Sinkhole Strikes, riots Terrorist attack Power outage

Senior management misconduct Pandemic (SARS, H1N1, ?) “Y2K”/Cyber Risk/Cyber Attack Copyright infringement

Power outage Financial Restatement

py g g Information theft Hungarian aluminum sludge

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What could happen?

What’s “the next Valdez?”What’s “the next Valdez?”

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What could happen?The possibilities are many.

How can you begin to think about this?

One way:

F l Ri k A t ibl t ti i t iFormal Risk Assessment, possibly as a starting point in Enterprise Risk Management …

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Presentation Overview The importance of planning

Planning for WHAT?

Impact of a crisis on company value

Crisis Management vs. Disaster RecoveryHow do some companies successfully handle a crisis?How do some companies successfully handle a crisis?

– Case study: The BP Macondo well

– Case study: Maple Leaf Foods (listeriosis)

– How do I prepare? What do I need to think about? • Communications

• Volume/Duration

• Impacts: Financial, Operational, Reputational, Staff, Investors

– Impact on shareholders – and implications for D&O insurance

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Impact of Crisis on Company Value

“The Impact of Catastrophes on Shareholder Values” Rory F. Knight & Deborah J. Pretty

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Recovers v. Non-Recovers“The Impact of Catastrophes on Shareholder

Values”, Rory F. Knight & Deborah J. Pretty, y g y

Impact of catastrophe on share value is not strongly influenced by the existence of “cat” insurance

In aftermath: “recoverers” and “non-recoverers”

After a sharp (8%) initial negative impact:p ( ) g p– average “apparent full recovery” in 50 trading days

– High [4x] volume in first few days,

– settling to average volume w/in 30 days

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Recoverers and Non-recoverers Initial share value reduction:

– 5% for recoverers5% for recoverers

– 11% for non-recoverers

After 50 trading days:

– +5% for recoverers5% for recoverers

– Little change (from 11% decline) for non-recoverers … but 15% cumulative net decline after one year

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What Makes a Non-Recover?Massive share price drop – over 10%

Potential cash flow impact significantPotential cash flow impact significant

High fatalities

Management judged to be a least partially responsibleManagement judged to be a least partially responsible for crisis

Management judged to have failed to respondManagement judged to have failed to respond appropriately to the crisis

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What makes a “Recoverer”? Opportunity for management to demonstrate their talentManagements strong ability to deal with aftermath:g g y

– Skills– Risk management plang p– Claims handling– PR

Insurance coverage not that influential

Insurance is not a substitute for good risk management!

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Other Considerations:Legal Requirements for Duty of Care

Canadian Business Corporations Act:– Every director and officer has the duty to:y y

(a) act honestly and in good faith with a view to the best interests of the corporation; and

(b) exercise the care diligence and skill that a reasonably prudent(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Criminal Code s 217 1 (Bill C-45): Criminal Code s. 217.1 (Bill C 45):– Every one who directs how another person does work

– Duty to take reasonable steps to prevent bodily harm to that person

– Breach of Duty or wanton disregard for life or safety:• Criminally negligent causing injury or death: 10 years or life in prison

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Presentation Overview The importance of planning

Planning for WHAT?

Impact of a crisis on company value

Crisis Management vs. Disaster Recovery:How do some companies successfully handle a crisis?How do some companies successfully handle a crisis?

– Case study: The BP Macondo well

– Case study: Maple Leaf Foods (listeriosis)

– How do I prepare? What do I need to think about? • Communications

• Volume/Duration

• Impacts: Financial, Operational, Reputational, Staff, Investors

– Impact on shareholders – and implications for D&O insurance

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Crisis Management vs. BCP/Disaster Recovery

Planning is key to both

Crisis Management (or Crisis Response) deals with theCrisis Management (or Crisis Response) deals with the immediate aftermath, and considers all aspects of the potential fallout from the crisis

Disaster Recovery (in essence, the implementation of a Business Continuity Plan) begins a little later, and deals principally (but not exclusively) with ongoingprincipally (but not exclusively) with ongoing operations

Both are important

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How do I prepare? A disaster is a disaster (A rose is a rose…)

Think about it in advanceThink about it in advance

Separate the forest from the trees

Create a plan Test the plan Publicize the plan Create a plan. Test the plan. Publicize the plan.

Crisis Response vs. BCP

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What do I need to think about? Different scenarios

CommunicationsCommunications

Volume/Duration

Impacts: Impacts:– Financial

– Operationalp

– Reputational

– Staff

– Investors

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(What if it wasn’t our fault?)

It ll d ’t ttIt really doesn’t matter…

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Communications Issues Internal AND External

Who will be our spokesperson(s)?Who will be our spokesperson(s)?– Audience?

– Experience? Competence?

– Availability?

– The Tony Hayward syndrome

P bli R l ti C i i C i ti Public Relations vs. Crisis Communications

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Maple Leaf Foods Three Year Share Price

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How do I handle the sheer volume? Exxon Valdez – bar codes

BP/Macondo – 7 to 1700BP/Macondo 7 to 1700

Union Carbide Bhopal

Mayfair ApartmentsMayfair Apartments

Maple Leaf Foods

H b Oil Hub Oil

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Longevity – When will it end?

The financial pain?S th thi kSooner than you think

The logistics?

Not in your lifetime…

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IMPACT: Financial Issues Cash flow

– Interruption of ongoing operationsp g g p

– Unexpected expenses

Access to capital markets

Insurance

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Insurance Claims 101 Claim reporting

Dealing with insurers and adjusters – do theyDealing with insurers and adjusters do they understand your business?

Dealing with specialists and technical expertsg

Dealing with coverage disputes

Progress paymentsProgress payments

Quantifying the loss

Claim settlement Claim settlement

The role of the broker

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IMPACT: What about ongoing Operations?

What if our facility is inaccessible?

Where are our people? Are they safe?Where are our people? Are they safe?

How do we communicate?

Will we lose Customers? Suppliers?Will we lose Customers? Suppliers?

Many hands make light work: “Put our best and brightest on this …”brightest on this …

Availability of– People (including vendors)People (including vendors)

– Equipment

– Capital

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IMPACT: What happened to our Reputation?

What do our customers think?

What do our suppliers think?What do our suppliers think?

What do our competitors think?

What do our regulators think?What do our regulators think?

What does the public think?

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IMPACT: What about my people? Distracted

OverwhelmedOverwhelmed

Embarrassed

Demoralized Demoralized

Worried

d hit i th ll t… and hit in the wallet

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Impact – What about my shareholders? Litigation

D&O insuranceD&O insurance

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Case Study: British Petroleum

“Deepwater Horizon” Macondo well blowout (April 20 2010)blowout (April 20, 2010)

Over 300 lawsuits for property damage, i t l d i lenvironmental damage, economic loss,

cleanup costs, product liability claims

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BP – D&O Litigation $100B in market capitalization lost

shareholder derivative claims: breach of fiduciary dutyshareholder derivative claims: breach of fiduciary duty

Claim: $6MM/day cleanup, exposure to lawsuits, damage to reputation g

Implications: – foreign company being sued in US

– Derivative action – may be restrictions on indemnity

Governance history of safety problems not addressed– Governance – history of safety problems not addressed

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D&O Insurance Implications Side A and Side A Difference in Conditions

PollutionPollution

Choice of insurer

Limits adequacy Limits adequacy

Allocation

Ch i f B k Choice of Broker

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Conclusions Have a plan

Test the planTest the plan

Anticipate disruption, impacts and volume

Know which outside service providers you can rely on Know which outside service providers you can rely on for help

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Thank you

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