WHEN DISASTER STRIKES
Maintaining Business Continuity in the Face of Uncertainty
This article was written by Mark Sherry and was first published in the Business Franchise Australia and New Zealand magazine.
In recent times both New Zealand and Australia have suffered from numerous significant natural disasters. There have been two major earthquakes in Canterbury, extreme flooding in Brisbane and a category five storm in northern Queensland. Having had an office situated in central Christchurch, I have experienced first-hand the devastation and disruption that the two earthquakes have caused.
In September 2010, the first earthquake struck in the early hours of a Saturday morning. We had a week of uncertainty before being allowed back to our premises. However, by the middle of that week, we did have power on in our building. This enabled us to get remote access to our servers and largely get back to business as usual.
The earthquake on February 22, 2011 had a much more catastrophic affect on businesses in Christchurch. For my company, even three weeks after the initial earthquake, we were severely affected and hampered by the aftermath of the disaster. Based on first-hand experience, this article will discuss important crisis management issues that all businesses should address. It will also look at some of the natural advantages that franchise systems may have to help franchisees re-establish themselves in a time of crisis.
After the first earthquake, we discovered the importance of keeping in touch with our employees, key suppliers and clients. Crisis creates uncertainty. That uncertainty can compound when people you depend on to keep your business going don’t know what is happening, or when you can’t contact the people that you need. It is vital to have contact details for all your team, along with your key suppliers and clients. This will allow you to find out how they are faring and what you can do to assist. It is also essential to have these contact details when you need assistance. Sometimes timing is crucial and you must be able to immediately contact the right people. It is also important to keep a constant flow of information going to the right people. This ensures that as progress is made and things stabilize that news is then communicated to those that matter. Use of websites, email and even social networking groups have been valuable tools of late in keeping lines of communication open.
Franchise systems can provide a natural advantage in unfortunate circumstances, particularly in dealing with key suppliers. The relationship is often fostered by franchisors and they can take the lead in getting assistance for franchisees. Further, part of a franchisor’s role is to provide assistance to franchisees when the need arises. So at a time of sudden and unexpected crisis, the franchisor should be able to provide other forms of invaluable assistance too. Given that franchisees operate in different geographical areas, and provided the franchisor does not operate in the area that has been affected by a disaster, they should be immediately available to assist affected franchisees.
Like it or not, most businesses rely on technology these days. Having access to that technology is crucial and often, to quote the song, “You don’t know what you’ve got till it’s gone.” For my company, being without our data for two to three days after the first earthquake made us feel vulnerable. For many other companies, the second earthquake destroyed much of central Christchurch and caused people to be locked out of their premises for what could turn out to be months, if indeed their premises even survived at all. There are tales of woe where businesses have had no offsite backup available to them to help when setting up elsewhere. Others were in the rather unfortunate position of having backups that were locked in safety deposit boxes inside the cordon. Therefore they were inaccessible.
A critical question that every business needs to be able to answer in a satisfactory way is, “If we had to walk out of our premises right now with no notice and not come back - do we have systems in place to be able to start up again elsewhere with minimal disruption?”
In many cases this is where franchise systems can have a competitive advantage. Many franchisors have central computer systems that upload data from individual franchisees to the franchisor. Such systems can capture sales data, client lists, invoicing and all other forms of information normally stored on hard drives and servers. Provided such information is hosted securely by the franchisor, it would be easy for a franchisee to gain access to it in the event of a disaster. It is incumbent on franchisors that run systems in this way to ensure that data is secure and perhaps kept at a mirror site too, in case the primary site is affected by some form of disaster itself.
If a franchise system does not have this type of data recovery system, it will be necessary for the franchisee to look at what they need to protect their own information. This may range from the creation of regular backup tapes stored off-site through to the franchisee arranging the secure hosting of its own data elsewhere.
Most franchise systems do require franchisees to keep minimum levels of insurance for various purposes. There is often a requirement for a franchisee to keep certain types of business interruption insurance in the event that something happens to prevent a franchisee from trading. This insurance will keep income streams flowing to both the franchisor and franchisee. Even if a franchise system does not provide for this, it is imperative that a franchisee considers taking such insurance voluntarily. This protection provides considerable peace of mind if disaster strikes.
It should be noted that not all policies are created equal. Therefore it is important to have a knowledgeable insurance broker to assist in deciding what policies are best in each circumstance and what levels of cover should be held. Some policies only provide cover for the costs of relocating premises. Others can provide a subsidy for the income you would have earned had the business interruption not occurred. Deciding what policy is best will depend on the type of business you have, the ease that it can be set up elsewhere (mobile type franchises have an advantage here) and how strategic your site is to your business. If the premises are crucial and they are destroyed, having a higher level of cover is more important than if the business can be relocated with relative ease.
If a franchise operates from premises and those premises are destroyed or become inaccessible, the franchisee’s business may be prejudiced in circumstances where the franchise has been granted for that site only. The franchisor may have a right to cancel that franchise. In addition, if the premises are leased and are no longer able to be used for trading purposes, a business owner will normally want to act in haste to find an alternative site. This can raise issues and questions that are difficult to answer. Such questions include:
- What is the status of my existing lease?
- How can I sign a lease for new premises if my old lease is not necessarily at an end?
- What do I do when the premises I operate from are fine but there is a cordon in place stopping me from accessing them?
If anyone faces such issues, they should seek legal advice as to whether they have a right to cancel their lease or not. In some circumstances there may be an argument that a lease has been frustrated and this may allow the owner to bring the terms of the lease to an end. Such issues were at the forefront of business owners’ minds in Christchurch in light of the damage to buildings caused by the earthquake and the cordons which remained in place in parts of the city for weeks after the actual quake.
In conclusion, the alternative to having a robust and comprehensive disaster plan to deal with issues that may arise in a time of crisis, is to risk total business failure. At the very least, not having such a plan will provide a real advantage to competitors in the market place who have taken steps to prepare themselves for unexpected eventualities that may arise. Business owners need a plan that will enable them to reconstitute as soon as possible. It is also essential to ensure that your business can and does communicate with customers as soon as the doors are again open for business. Surrounding yourself with the right types of support mechanisms will help, and franchise systems that are properly run will no doubt provide great assistance in these scenarios.
Mark Sherry, LLB (Hons), BCom, is a partner with Harmans Lawyers New Zealand. He leads the commercial and property team, specialising in franchising, hospitatility, rural law, property matters and asset protection.
For more information contact:Mark Sherry, PartnerHarmans LawyersPhone: (03) 352 2293Mobile: 021 524 890Email: firstname.lastname@example.orgWeb: www.harmans.co.nz