Hurricane season 2006 is approaching. Are you ready? June 1 marks the beginning of the next hurricane season, which some forecasts say may be severe. Three executives talk about their experiences in 2005--especially dealing with two key areas: business continuity and employees.

When multiple hurricanes stormed through the Gulf Coast and Southeastern U.S. last year, they left in their wake still-to-be accounted-for billions of dollars in destruction and death. Business, politics and the personal lives of those impacted were turned upside down and changed forever.

The 2005 season--the longest and most active Atlantic hurricane season since 1933--also sparked worries of a significant impact on the world economy, with Hurricanes Katrina and Rita disrupting oil production and refining in the Gulf of Mexico last August and September.

"Picture 1,000 football fields stacked 50 feet deep in debris," said George F. Mikes, a managing director of Marsh Inc. and chief operating officer, North America Risk Practices & Specialties, in describing the damage. However, reported risk and insurance-services firm Marsh in The Impact of Nature: The Aftermath of Hurricanes Katrina and Rita, published last November, "the damage to the Gulf Coast may have less of an impact on the economy than first feared," in that the Gulf Coast region is not a major contributor to national growth beyond its pivotal role in the oil and gas industry.

The report goes on to say that "Although of small comfort for those whose livelihoods have been destroyed in the Gulf area, the catastrophe will boost economic activity elsewhere," such as we've seen in other urban areas like Houston and Dallas, where many New Orleans-based businesses and residents have fled.

Relief and reconstruction efforts could reach $100 billion in fiscal year 2006 (October 2005 through September 2006), an amount, the report states, equal to less than 1 percent of gross domestic product (GDP), and one that will be spread out over the year. However, this does not mean that Hurricanes Katrina and Rita are not having an economic impact.

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"By causing a spike in oil prices, which quickly fed through to increases in gasoline prices at the pump, the storms have accelerated a decline in consumer confidence." The report noted that businesses can take steps to make themselves less vulnerable to future storms and other catastrophes, such as having a loss-management plan, performing a natural-hazards risk assessment and establishing plans for emergency response and business continuity.

Business Response

It's often said that the U.S. is a "crisis" society, responding to in lieu of preparing for untold events. Prior to the 9/11 attacks on the U.S., the Federal Emergency Management Agency listed the three most likely catastrophic events facing the U.S.: a terrorist attack on New York, a major earthquake in San Francisco and a hurricane strike in New Orleans. Unfortunately, the agency is now two for three! Thus, the levee situation in New Orleans was widely discussed, and even 9/11, some say, might have been averted--with better intelligence and action.

While businesses are not in the position to prevent large national disasters, they can take steps to plan and prepare their firm and employees for potential business interruptions. With the 2006 hurricane season approaching, are businesses any better prepared? What has Corporate America learned from last year?

It's obvious the business community is taking the threats seriously. After being hit by terrorist attacks, tsunamis, floods and hurricanes, more businesses than ever have developed continuity plans--and increased funding for their plans. Over 83 percent of companies have developed business continuity management (BCM) programs versus just 30 percent in 2000, and regular testing of those plans is up nearly one-third from 2004, reports a Deloitte & Touche LLP/CPM Group survey of 273 businesses.

Within the last year alone, 70 percent of respondents reported having BCM programs for most, if not all, of their critical business functions, up from 41 percent last year. The survey shows management's intolerance for operational downtime continues to be a leader driver behind establishing a BCM program.

"In a fiercely competitive global business environment, companies realize that a temporary disruption can significantly damage shareholder value and erode their customer base," says Steve Ross, a director and the business continuity leader of Deloitte's Security Services & Privacy practice.

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To back up the increased BCM, companies have increased spending. Almost 30 percent of the surveyed companies report at least $1 million in BCM budget allocation, a jump of 11 percent from 2004. For organizations with budgets above $500,000, findings suggest that approximately one full-time employee staff member is hired for each $750,000 to $1.5 million in BCM budget.

Expanding Backup and Planning

One firm that has increased its business-continuity budget is Hibernia National Bank, a wholly owned subsidiary of Capital One Financial Corp.

The New Orleans-based bank, with more than 300 locations in Louisiana and Texas, is now spending seven figures to expand and enhance backup facilities.

"We have built out facilities in other markets, should we need to relocate personnel from affected areas in the future," says David Frady, executive vice president and manager of Hibernia's Commercial Products and Services division. "If this happens again, they [staff] know where to go, and we know where they are going to work."

Since Katrina hit last summer, many of Hibernia's 3,100 employees in Southeast Louisiana (which includes New Orleans) are back in the area, but some, having no homes to return to, have stayed in Houston, Dallas or Shreveport. Jobs have simply been relocated to accommodate those who could not or chose not to return.

Frady says the firm's extensive preparations and disaster recovery plan resulted in its riding out the storm just fine. But, once the levees broke, the unexpected happened--the city's municipal water system stopped operating, causing Hibernia's cooling towers for its central processing unit (CPU) to shut down.

Arrangements were made to move backup data to Dallas; boats and helicopters got the remaining 35 people and the tapes out of the flooded building. Downed trees and cellphone towers caused power outages and loss of communication, and there was no electricity.

"The breaking of the levees was unprecedented. For the 135-year-old company, this had never happened before," Frady says. The bank also had not planned on the lack of water pressure to cause the computer system to shut down.

"In all, our CPU was only down for about two days (but ATMs and other systems kept working), and that mainframe computer system is now relocated to an area that is not hurricane-prone," explains Frady.

In assessing Hibernia's response, he says, 'We came through it with flying colors, because of the disaster preparedness that we had done living in a hurricane zone." What wasn't planned, says Frady, was relocating 3,000 employees--finding them places to live and work and a physical building facility. All the employees were provided with living assistance and guaranteed pay for a period of time.

Now, redundancy has been increased in some operating businesses, and some are operating in Dallas, Houston, New Orleans and other areas, so if one area is hit, operations can be kicked over to another area to continue operations.

However, Frady says, if something should hit Dallas, Houston, New Orleans and other areas--all at the same time......

Communicate, Communicate, Communicate

"You can't assume that you've given the right amount of communication without going way out of your way to over-communicate," says William D. Parmelee, CFO of Charlotte, N.C.-based National Gypsum Co. National Gypsum is a privately held supplier of gypsum wallboard, interior finishing products and cement board to the construction industry.

When Hurricane Katrina hit its wallboard-manufacturing plant in Westwego, La., in Jefferson Parish, the facility was not severely damaged from flooding, being situated just across the river from New Orleans (where the levees broke). It did, however, have extensive wind and water damage, and part of the roof was blown off, damaging equipment, both from water and roof debris and inventory (damage was estimated in the $300,000-range). The plant closed before the hurricane hit, and all of its 85 employees were sent home.

"We considered it tremendous that we were able to resume operations three weeks later," says Parmelee from his Charlotte office. He comments that "communication with the employees was critical." The firm established a toll-free number that was updated with current information. From this source, employees could learn about when the plant expected to open, when they were expected back, the status of their benefits during that period, etc.

Employees continued to be paid, despite the plant closure, says Parmelee, who believes that "the fact that they knew they still had jobs and were being paid made a big difference in their willingness, really their ability, to stay," he says.

Since the damaged plant primarily services the Gulf Coast region, there weren't customers waiting to receive products, so it lessened the problem of closure. For customers outside of the Gulf Coast, National Gypsum rearranged shipping patterns from others in its 20-plant network. From this, Parmelee says he learned a critical lesson for his company: "We suspected that we knew how, but this proved our ability to reroute customer orders from one plant to another."

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He says the actions show that the disaster recovery plans the firm has in place work. However, there were lessons learned. For instance, there were security issues. The Westwego plant is fenced in, but times were rough in the area. As soon as possible, engineers from Charlotte drove down to manage the process of getting the information technology and equipment systems up and running, bringing with them much-needed supplies--like bottled water and packaged food--for others who were returning to help the rebuilding efforts.

They arranged for on-site trailers to house workers and their families (12 trailers remain on the plant property), and plant employees willingly filled security roles.

In preparation for the 2006 season, National Gypsum is considering installing satellite phones in each of the plants to make sure there is a way to communicate other than by cellphones, which typically fail during disasters. Parmelee says he feels pretty well prepared, if it's another storm.

"We have always worked very closely with our insurance carriers to make sure that whether it's a storm, fire or flood, that we've taken precautions and mitigated the risk to the extent possible." He points to the fact that the roof largely stayed in place despite the storm's strength as a sign that they've "done the right things."

Now, should the next threat be, say, a bad flu season or a pandemic, he's not sure they're prepared, yet. "We are working on a plan for different sorts of threat levels--[including] what actions we would take, such as asking employees to stay home, dealing with personal hygiene issue to reduce the spread of germs, [and] things like that."

These Lawyers are Prepared

For Howard Shapiro, head attorney of the New Orleans office of international law firm Proskauer Rose, Hurricane Katrina changed his life, geographically speaking. Through it all, however, his and the firm's clients were unaffected, and the business was able to keep functioning.

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Indeed, due to the firm's business model, he says, "We didn't miss a beat. We were able to save all our data, not miss a filing; we didn't ask the other side for continuances." Although somewhat sadly, he adds, "we filed all the pleadings that we were responsible for filing, even while our city was being destroyed."

Although the entry was flooded to the building that houses Proskauer Rose's New Orleans office--a 35-story structure about two blocks from the Superdome--the firm's 11th-floor offices were unaffected. The 13 attorneys and 10 staff personnel had evacuated to Houston, Lafayette and Baton Rouge, La., New York and Boca Raton, Fla.; Shapiro and his family relocated to Boca Raton, and many others have returned to New Orleans. However, just three weeks after the move to Boca Raton, that area was ravaged by Hurricane Wilma, which also caused major power outages.

Shapiro says the firm is studying what it did well, and what can be done better. A few take-aways from the experience: First, he says, "communication is paramount." When facing such a situation, which he likens to New York City residents who faced 9/11, "you can still communicate by text messages on cellphones." Also, he says, a company needs to be flexible, in terms of computer operations, so that large amounts of data can be quickly moved from one office to another.

A third lesson involves planning ahead and designating responsibility. He says that in a crisis of this magnitude, "which is so overwhelming," the firm found it best to designate people outside the crisis area to take over as communications managers. Proskauer Rose had set up a toll-free 800 number that goes to the New York human resources division.

Another key, says Shapiro, is to focus on quickly getting temporary living space for employees. He applauds his firm's rapid response for colleagues "in the midst of a life-altering experience."

So, will he (as an ERISA specialist) and his firm's labor and employment practice get more business as a result of other firms that have not been as kind to employees? Perhaps, he says. However, he empathizes with businesses, particular small companies and other attorneys who are in dire circumstances, some faced with shutting down due to loss of income.

The courts were closed for a time, he says, and even now, commerce and economic activity are very much diminished, with fewer people living in the New Orleans area. That can impact a lawyer whose practice is locally based, he says. Not all small firms are as computer-driven as larger firms. It's a real problem for many. Indeed, adds Shapiro, personally, it's a problem: "I have none of my files and none of my pictures."

RELATED ARTICLE: takeaways

* Development of business continuity management (BCM) programs have increased from 30 percent of companies in 2000 to 83 percent in 2004, say Deloitte/CPM Group.

* Almost 30 percent of the companies reported at least $1 million in BCM budget allocation, an 11 percent rise from the 2004 spending.

* Two components of plans that require critical attention are business operations and employees.

* Communicating with employees is paramount. Being able to move large amounts of data and planning for business operations and temporary employee workspace and housing help to keep businesses running.