Will the coronavirus hurt your business? Minimizing and managing risk to your business operations from a global health epidemic
As cases of coronavirus spread worldwide, the World Health Organization has declared the coronavirus an international public health emergency. While to date there have been few cases in the United States, reports are that the virus is already impacting both operations and revenues of businesses with significant business connection to China. As reported in the Wall Street Journal and Business Insider:
- Decreased flights to and from China is impeding face to face contract negotiations;
- Shuttering Chinese operations is disrupting Google’s advertising operation. Other American businesses with offices in China have also closed the offices to avoid contagion;
- Decreased sales to Chinese consumers due to closed retail outlets is decreasing revenues at Starbucks, McDonalds and H&M; and
- Disruptions in supply chains due to Chinese manufacturers closing factories is delaying delivery of Tesla and Electrolux’s products to global markets.
Additionally, the U.S. Government announced that American nationals who have travelled to Hubei Province in the last two weeks are now subject to quarantine, and admission of foreign nationals who might have been exposed to the virus is restricted until the epidemic is contained. While most business impacts will be minimized if the spread of the virus is checked, business losses could become material if the epidemic lasts for an extended period. For example, global business losses associated with the nine month SARS epidemic exceeded $40 billion dollars. (See ncbi.nlm.nih.gov/books/NBK92473/?report=reader.)
In the world of globalized business, resiliency and continuity planning requires analysis of the legal and business risk caused by disruptions such as natural disaster, civil unrest, economic instability, climate change, disease pandemics, cyberterrorism and infrastructure loss. A strong continuity plan begins with comprehensive identification of your business’ vulnerabilities. These vulnerabilities can arise as a result of legal obligations to vendors, suppliers or employees, ineffective security of electronic data or at business facilities, having single source supply chains or lean business operations, using attenuated transportation routes to deliver product, having operations in geographic locations subject to flood, windstorm or fire, and due to regulatory requirements that increase costs and slow down production. Developing a resiliency and continuity plan is part of a strategy to minimize financial losses associated with disruption.
Here is a list of issues to consider when evaluating the potential of the coronavirus to affect your business:
- Do you conduct operations in China or in other locations where the virus has spread?
- Do you have current contracts with purchasers at risk for default if your company’s receipt of components manufactured in China is delayed?
- Have your employees travelled to China in the last two weeks, or interacted with other people who might have been exposed to the virus?
- How much of your revenue is dependent on imports or exports from China?
- Do you have insurance coverage for losses or liability associated with public health emergencies?
- If your company provides healthcare services, could you be held liable for failing to adequately plan or prepare for coronavirus patient caseloads?
- Based on your operations, do you have an obligation to provide training or protective gear to employees to minimize risk of exposure to the virus?
- If your business is involved in the production or manufacture of products that could be considered countermeasures (i.e. surgical masks, vaccines etc.), has the U.S. Secretary of Health and Human Services issued a Public Readiness and Emergency Preparedness Act declaration to limit product liability claims? (Spoiler Alert for coronavirus: Not Yet)
- Do you self-insure for employee health care? If multiple employees are infected, do you have sufficient reserves to fund claims?
- Will you have any employees who are foreign nationals from areas of high risk of exposure who are affected by federally imposed restrictions on travel to the US?
This list of questions is not all inclusive; each business must evaluate risk based on its unique operations. However, the coronavirus, like many other business disruptors, is something to take seriously. A good resiliency and continuity plan can assist you in minimizing the risk to your business.