By Peter Cottrell CA(SA)
One of the major challenges presented by the Covid-19 crisis is the speed with which the health pandemic has spread. It is hard to believe that just three months ago there were less than 12,000 recorded infections and 259 deaths globally. In my own life I reflect on having been in a cold and snowing Belfast in February, a surreal experience from lockdown today. It is staggering to note that at the time of writing there are now over 3 million recorded cases and more than 200,000 deaths; and the curve keeps rising. In turn the response to the crisis has resulted in a radically changed business environment that was inconceivable even two short months ago. The result is that most businesses did not have the luxury of preparing a crisis response plan for something that could not even have been imagined.
The maritime industry is one that constantly has to address risk and be prepared for crisis. There are a number of areas in planning that will have equivalents in the world of business. A review through a maritime lens provides valuable insights, while encouraging businesses to take some time now to implement plans that are responsive to this new, changed environment.
Preparedness for a crisis at sea requires rigorous discipline and planning. In some instances, the crisis is so severe that it will overwhelm all of those systems and have totally unexpected outcomes. These events are often referred to as “Black Swans”. As with aviation, the maritime industry is at pains to learn from past incidents and to improve all the time. Even if those systems cannot fully respond to the Black Swan, they can often mitigate risk, particularly of the loss of life.
The sinking of the Titanic in 1912 caught the world’s attention. In the early hours of the morning of 15 April 1912, an “unsinkable” ship sank on its maiden voyage, resulting in a tragic loss of life. Since then massive progress has been made in the safety of ships, particularly in the area of watertight compartments. It is interesting to note that 100 years later, the 2012 sinking of the Costa Concordia again raised questions around the design of ships and safety systems. Although just 6 years old at the time of sinking, there is debate about whether compliance with the July 2010 International Maritime Organisation safety amendments would have resulted in a more favourable outcome. The incident brought a focus onto the design of the ship, safety systems and the role of people(A).
The design of a ship has a significant impact on its resilience to disaster. In particular, watertight compartments can assist with stability even when significant damage has occurred. Each compartment provides a defensive measure that can prevent total catastrophe. Important questions for business are how strong is our infrastructure and what are our defensive lines? These questions could be applied both to financial resilience as well as businesses that are reliant on physical plant.
Safety equipment provides another important second line of defence against loss of human life. In the case of ships, critical items are lifeboats and life jackets. This equipment needs to be maintained in a constant state of readiness and in good state of repair. It will be too late to make up for any deficiencies in the peak of the crisis. In our business context we could equate this to our second line systems that enable business survival. For example, in our information technology systems we will only be able to survive an equipment failure if we have a good backup in place that can restore our systems to operation.
A third line of defence will be offered by systems and processes. A seafarer will receive significant theoretical and practical training in fire safety, medical, evacuation and survival. The practical training is brutal. For example, in fire training trainees having to crawl their way out of dark smoke-filled spaces. Survival training will involve simulation in water with life jackets. Further systems will be in place for the safe loading of cargo vessels. The maritime industry is acutely aware that these systems cannot be developed or retro-fitted on the fly; the responses need to be instinctive to enable reaction to the far more serious issues being faced.
The problem for those of us who work on land is that we are not instinctively wired for this response to risk. I remember being woken in a London hotel room at 5am by a bright red strobe light and a voice repeatedly saying “evacuate – this is not a drill!”. My wife and I hastily grabbed jerseys and shoes, and ran down seven flights of stairs. We were amongst the first to arrive at the evacuation point, only to be told that it was a false alarm. What followed was deeply disturbing with many people arriving in the foyer by lift. Even worse, on our way back to our room about 10 minutes later, a businessman came out of his room immaculately dressed in his suit without a hair out of place. Had this been a real fire, the lack of awareness of safety systems could have had tragic consequences.
In our business context this raises questions around how robust are our systems, are they documented, and do we ensure rigorous compliance on an ongoing basis? At its most basic level, this will involve health and safety systems. The hygiene aspects of these systems will require rigorous attention in our emergence from Covid-19 lockdown. But it also can refer to our operating and financial systems. As the environment around us becomes less certain, it is these systems that will help prevent failures that could put the organisation at risk.
The fourth and most important factor is people and their role in responding to a crisis. Lack of leadership is sighted as a major contributing factor to the Costa Concordia disaster:
“What doomed the ship was the complete and utter lack of leadership at every point along the way,” says Capt. Harry Bolton, director of marine programs and leadership development at the California Maritime Academy.” (B)
The importance of the human factor in responding to crisis cannot be stated strongly enough. In the maritime environment, there is an increasing awareness of the importance of soft skills management and corporate culture. Training is identified as a key, together with awareness of issues such as mental health and wellbeing.(C)
The following three quotes from a maritime article “Learning Before Incidents” seem profoundly important to our present business context: (D)
“How often, in our professional and personal life, when things go wrong, have we heard the explanation “I wasn’t thinking clearly!”, or “I have never really thought about it in this way before”, or “It didn’t cross my mind” or even “I see now that I should have given it more thought”. Common to all these statements is that they imply a lack of thinking prior to an event and that the person should have spent more time considering the risks beforehand.
“Truly understanding a situation, our communication, behaviour, attitudes, influence on others, ability to spot developing events and perform operational debriefings, requires more than experience.
“It needs a ‘thinking’ mind, not a reactive one; situational awareness is good but situational understanding is better. Similarly, awareness is improved when critical group thinking is used. Proactive ‘thinking tools’ are available – let’s start using them. Learning before incidents skills can be developed like any other competence.”
A reactive response to a crisis becomes extremely stressful as we continually chase a never-ending series of new developments. The Covid-19 crisis has presented an unprecedented rate of change, and a reactive approach will ultimately result in the organisation and its leadership being overwhelmed. The above illustrates the importance of leadership and influence, encouraging a culture where information is gathered, analysed and subjected to critical group thinking. Ultimately the most robust response to a crisis is the development of a robust culture of proactive leadership.
The Costa Concordia incident sadly cost 32 people their lives. Although more than 4,200 people were rescued, this was largely due to the location of the incident very close to land, and an element of luck. The crisis identified a lack of leadership, confused and untrained crew members, and failure of lifeboats, rafts and equipment.(A) The incident highlighted that even systems that are seemingly robust can be quickly overtaken and are in constant need of review.
PRACTICAL RESPONSES IN THE CONTEXT OF COVID-19
Due to the speed at which the South African response to the Covid-19 pandemic was executed, most businesses did not have the luxury of a “preparation” stage. In reality, most solutions were put together with what was available. We are recommending that, if not already done, businesses press pause to review their planning of their response to the Covid-19 crisis. The reality is that the implications of this will be with us for some time to come and it is therefore important that our planning is robust, both to cover what is known now and the future unknowns.
Following the themes above, areas to review may include:
- Infrastructure level: Does the business have the resilience to deal with the severe adverse weather that we are facing? As the response to the health crisis has resulted in a financial crisis, a key area will be the capital structure of the business, and the lines of defence that are available. In a crisis such as this, a significant issue tends to be access to liquidity, which will largely be dependent on how defensive the capital structure of the business is. Questions may include:
- What is the capital funding model of the business?
- To what extent is it funded by equity (contributed capital or retained profits)?
- Does the business have a capital reserve?
- What percentage of this reserve is available in liquid cash?
- How quickly could the balance of the reserve be converted to cash in an adverse scenario?
- To what extent is the business funded by debt?
- What are the debt servicing commitments over the next year?
- What are the fixed monthly overheads that will remain, even if there is a significant reduction in activity?
- Assuming a very reduced level of income (say 75%), for how long is the business able to continue meeting its debt and overhead commitments?
- Does the business need to raise further capital?
- Are the owners of the business able to provide capital?
- What alternatives sources of funding or liquidity are available?
- Physical plant: For businesses that operate in asset-intensive environments, including production, construction and property ownership, further questions would need to be asked regarding the plans to protect the asset base of the business. This may include assessments of the physical security of the plant, its ability to return to a productive state and the implications of it standing idle.
- Systems and processes: Core systems and processes should be reviewed in order to ensure that they are robust enough to address adverse operating conditions. Systems should be documented and steps need to be taken to ensure that they are complied with. The present crisis will most likely require a fairly prolonged period of “remote” operation for management, sales and support staff which brings information technology systems into sharp focus. Areas for consideration may include:
- Does the business have an electronic meeting platform in place? We recommend the use of a paid platform for security and to ensure that meetings are not cut-off prematurely.
- Are reliable internet connections available for employees who are working from home, enabling them to participate in virtual meetings as well as to access the systems that are needed to perform their duties?
- Has the business made robust arrangements for the operation of a “virtual” office? Areas to address may include: (D)
- Is a firewall in place?
- Are users accessing the network over a secure Virtual Private Network (VPN)?
- How are users accessing the local server? Are appropriate remote desktop protocols in place? (Note – using work around solutions such as Teamviewer would be regarded as poor security.)
- Are cloud computing solutions available that would reduce the reliance on a physical server?
- Are robust data backup procedures in place?
- Is antivirus software installed on every computer that is accessing the network?
- Is the physical hardware that has been deployed reliable? Is backup hardware capacity available?
- People: Even with the best systems in the world, it is people who will ultimately carry a business through the crisis. Questions to consider may include:
- Are lines of leadership clearly defined in the business? (Chain of command)
- Is there a clear distinction between the board and those charged with execution of responsibilities?
- What arrangements are in place for the senior leadership team to meet during a crisis? What platform will be used? How frequently will the team meet? What will be discussed?
- Has the business made investment in leadership development? Is further investment required?
- Are key role players aware of the strengths and weaknesses of the other members of the team?
- How is the wellbeing of the team cared for? Are additional measures required during a time of crisis?
- Risk: Directly related to the issue of people is an assessment of how the business evaluates and responds to risk. In a rapidly changing environment it is critical that robust risk processes are in place that are adaptive and will respond proactively to emerging developments. Questions may include:
- Does the business have a risk register? How frequently is this reviewed? Are risk monitoring procedures in place?
- What risk identification and mitigation strategies are in place?
- How frequently is risk considered in management meetings?
- How does the business gather information about its environment?
- Does the culture of the business encourage a robust debate of emerging issues, with space for sharing of ideas?
- How does the business identify blind spots?
- What procedures does the business have in place for the solving of problems?
- Is the leadership team able to differentiate between urgent and important?
- What are the most significant risks that the business is facing in its present environment?
- What actions are required to mitigate this risk?
The above is not intended to be a definitive list, and proactive planning needs to be undertaken in the context of the present environment. The main point is that businesses should take time to assess the present context and to develop plans that will carry them through the weeks and months ahead.
(A) The Sinking of A Ship, Costa Concordia Revisited, Captain Michael Lloyd, RD**, MNM, CMMar, FNI.
(B) What Went Wrong on the Costa Concordia, Barbara S Peterson, Popular Mechanics, July 2014
(C) A Culture of Safety, Guy Platten, Safety at Sea, December 2019
(D) The Virtual Office, Grant Auld, April 2019 (https://bizsupport.help/2020/04/16/covid-19-the-virtual-office/)
Peter Cottrell CA(SA)
STRATEGIC BUSINESS SUPPORT
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