5.5 Emergency planning as an organisational management function
If emergency services' EPOs plan to respond to other people's emergencies, people managing a business activity with major incident potential have a different perspective. They have to respond to emergencies within their own organisation. In effect, if an incident occurs, the organisation is itself in a crisis, with functionality impaired. All of this comes into the corporate governance area and the implications of internal control. This requires companies to ensure that they have a sound system of internal control and effective risk management processes which are regularly reviewed by the board. The entire system, including risk management processes, must be specifically reviewed for effectiveness by the board at least on an annual basis. Some organisations have their own versions – as with clinical governance in the health sector.
Consider this scenario. You are having a normal day at work, when suddenly there is a huge explosion. People around you start running. Has your site been the target of a bombing, was it a gas explosion, was it a tanker collision nearby or was it from a process on your site? Whatever the cause, responding as best you can to the panic all around, you direct employees outside to what seems a safe area. Then you hear a second explosion causing more casualties. As a manager, your immediate concerns may be taking care of the injured, putting out the fires, securing the site and responding to calls from family members and the media. In the aftermath of this incident, two important questions will be asked of management and directors. Employees, the media and the public will want to know:
‘Did you take reasonable precautions to prevent an incident such as this from occurring, with the inevitable consequences?’
‘Were you prepared for such an emergency?’
The answers could have major consequences for your company, its financial position and its future.
While emergency preparedness may not be a legal obligation, nevertheless changing views of liability may regard it as negligence if you fail to plan for emergencies.
We have seen through this unit that employers are obliged to take reasonable steps to eliminate or diminish known or reasonably foreseeable risks that could cause harm. So will they be considered negligent if they do not plan for emergencies? Think of it as the common law of simple negligence but applied in a different way. The importance of risk and business continuity management was elevated following the terrorist attacks on 11 September 2001 in the USA. Organisations worldwide are now revising their assessment of terrorist risks and struggling to understand how they could survive such attacks and other disasters. The range of known hazards is widely perceived to have broadened, and organisations can now reasonably be expected to prepare for these newly foreseeable risks. Think back to Activity 9, which we presented you with at the beginning of this Section. The emergencies may not be as dramatic as an explosion, but they may have an equally devastating impact on your organisation. It could be an incident due to tampering with a product, inadequate testing of a product, a rumour that relates to your business activity or simply extreme weather conditions. So be prepared for surprises.
Emergency planning and management arrangements are elements of a number of environmental management systems standards. These were covered in Section 4.2, but Table 8 outlines the main requirements. Organisations going for certification would need to prepare emergency plans as part of the application and approval process.
| ISO 14001 (1996) | Eco-Management and Audit Scheme | OHSAS 18001 (1999) |
|---|---|---|
| Define and maintain procedures for responding to emergency situations | Examine and assess the effects arising from potential emergency situations | Carry out a comprehensive analysis in order to identify hazards and assess risks |
| Prepare procedures for preventing/mitigating environmental effects | Take measures necessary to prevent accidental emissions of material or energy | Outline controls to address the hazards and risks identified |
| Review applicable procedures after the event | Ensure co-operation with public authorities to minimise impacts of accidents | Establish plans and procedures for emergency situations |
Even if the law does not specifically require it, emergency planning is still a core function of all managers but it is probably fair to say that many hold it in very low esteem.
Activity 10
Why do some organisations fail to prepare for foreseeable crises? Make a list now before continuing.
Common excuses and reasons could include the following:
‘It can't happen here.’ It is human nature to push negative images out of our minds. In the short term, we gain comfort from this view.
‘Emergency preparedness isn't a priority.’ Few managers would disagree that it is best to be adequately prepared for critical incidents in the workplace, but it is not their main role, and inevitably siphons resources away from the core business. Competing priorities can be allowed to ensure that emergency planning never gets under way.
Some individuals continue to turn a distinctly Nelsonian eye to potential emergency scenarios (during the Napoleonic wars, Admiral Horatio Nelson intentionally put his telescope to his blind eye and declared he could not see the signal ordering him to withdraw from battle). If you aren't looking for something, you generally won't find it. Unless an analysis of foreseeable risks is conducted, you probably won't be aware of the full range of risks you face, both inside your organisation and from external threats.
Ignoring emerging warning signs. Internal history may not be critically analysed, so that near misses and obvious weaknesses are overlooked. Similarly, the risks and disaster experiences of others in the same sector of activity or locality are not recognised as useful hints for emergency preparedness.
Relying on weak and untested plans. Often, plans are drawn up hastily, but having them gives a false sense of security. Unless a crisis plan has been carefully constructed and thoroughly tested through simulations and emergency exercises, it will not protect your organisation effectively if a crisis happens.
Time and effort spent on emergency planning may not make an immediate contribution to profits, even though in the long term it may be essential to allow the organisation to survive a crisis.
Planning also includes measures to prevent emergencies arising or escalating. These will certainly limit the ability of managers to take short cuts or override procedures to overcome temporary difficulties in order to maintain production. Such restrictions are often seen as unnecessary nuisances – until something goes wrong! The difficulty is that people responsible for some particular task or function often end up with a degree of tunnel vision in that all they can see is the task they must complete at all costs. They can lose sight of the possible wider consequences of their actions. Emergency planning is not on their personal agenda. In jargon terms, the organisation lacks a ‘safety culture’.
If you feel that this claim needs to be justified, remind yourself of the Flixborough disaster of June 1974. The process being undertaken at the site involved the oxygenation of cyclohexane (a substance described as having similar properties to petrol) by heating it to 155 °C at 0.86 MPa pressure, and pumping air through it. On 27 March 1974, a 1.8 m crack appeared in one of the reactor vessels. In order to maintain production, a temporary bypass pipe was installed. This bypass pipe did not comply with the relevant British Standard, and incorporated a flexible bellows system in a way that contravened the manufacturer's design guide. Plant operation continued and 34 days later (1 June) this temporary bypass failed. A major leak was followed by an explosion, estimated to be the equivalent of between 15 and 45 tons of TNT. Twenty-eight workers were killed and 36 injured. Falling debris started fires up to 3 miles (4.8 km) away, and one piece of debris was found over 12 miles (19.3 km) from the site.
According to the inquiry report, no one appeared to consider that anything was amiss. Only one person expressed any concern at restarting the plant before finding out why the reactor cracked, and checking other reactors for similar problems. In the words of the report, no one ‘appears to have considered that (it) was anything other than a routine plumbing job’ (Parker, 1975). This disaster came at a time when current health and safety legislation was just being formulated. Lord Robens, whose committee provided the basis for the Health and Safety at Work etc. Act stated that: ‘… the main conclusion of the Robens Committee was that there was one single cause, above all else, for accidents and ill health at work. This was apathy’ (Selwyn, 2002, p. 5).
It might be argued that the experience of Flixborough would guarantee that something similar could not happen again. Unfortunately, as statistics show, that is not the case. Incidents such as the Flixborough disaster are, fortunately, rare. One drawback to using such extreme examples is that people managing smaller-scale risks tend to use the excuse like that we gave earlier: ‘It couldn't happen to us – we aren't large enough!’ Emergencies can have several harmful effects and pollution is only one of them, but the number of pollution incidents may serve to give an idea of the size of the problem. The Environment Agency (2003a) reports that in 2002 there were over 29 000 substantiated pollution incidents. There were 119 ‘major’ incidents, and 784 water pollution incidents, 458 land pollution incidents and 219 air pollution incidents where the impact was considered ‘significant’. Some 1387 events led to prosecutions resulting in fines totalling £3.65 million, the average fine being £8744. Companies would, of course also be liable for any clean-up costs, on top of the fines. Surprisingly, just over 10 per cent of the incidents involved ‘catering and hotel services, healthcare premises, schools and recreational sites’ – not normally perceived as ‘high-risk’ locations.
Table 9 summarises some disasters that befell businesses.
| Date | Company | Incident | The costs |
|---|---|---|---|
| 1982 | Johnson & Johnson | Product tamper and recall of 31 million bottles of Tylenol capsules (known in the UK as paracetamol) after an employee injected cyanide into some capsules, resulting in the deaths of seven people. In fact, fewer than 75 capsules were found to be poisoned. Advertising and product distribution were halted. A tamper-resistant pack was designed and the product was relaunched a few months later | In 1991 the families of the seven victims reached an out-of-court settlement with the company. The cost of the recall was estimated at $100 million and $50 million for business interruption losses. The company sued its insurers for $67.4 million in 1986, but lost the case |
| 1984 | Union Carbide | Liability from the Bhopal incident | Over $527 million |
| 1986 | Johnson & Johnson | The sale of Tylenol capsules was again suspended after a woman died of cyanide poisoning. Capsules were recalled from 14 countries | $150 million |
| 1986 | Sandoz | Fire and pollution, Rhine | $85 million |
| 1987 | P&O | Liability, Zeebrugge | Over $70 million |
| 1988 | Occidental | Fire and explosions, Piper Alpha | $1400 million |
| 1989 | Exxon | On 24 March the Exxon Valdez oil tanker ran aground, spilling 250 000 barrels, an amount equal to more than 10 million gallons, of oil into Alaska's Prince William Sound. Efforts to contain the spill were slow as was Exxon's response. The Exxon name tends to this day to be synonymous with an environmental disaster. The incident illustrates how not to respond during a crisis | The clean-up cost the company $2500 million with $1100 million in various settlements. A 1994 court case also fined Exxon a further $5 billion for its recklessness, which Exxon later appealed against. In addition to the direct costs of the disaster, Exxon's image was tarnished, perhaps permanently |
| 1990 | Perrier | Product recall. Benzene carbon filters intended to remove benzene, a carcinogen, became clogged, and this went undetected for six months. No one suffered as a result of drinking the benzene-contaminated water, but Perrier was forced to recall 160 million bottles from 120 countries. There were contradictory statements from management on the extent and cause of the contamination | Eighteen months after the incident, Perrier's share of the sparkling water market declined from 13% to 9% in the US, and from 49% to less than 30% in the UK. The cost of the recall was $263 million. The company had no product recall and guarantee insurance. The stock price fell (see Figure 9) and the company became a takeover target. In July 1992 it was taken over by Nestlé and 750 people in the mineral water division were made redundant |
| 1992 | Commercial Union | Terrorism, Baltic Exchange | $2170 million |
| 1993 | Heineken | Defective glass, manufactured by Vereenigde Glas, was found to splinter when export beer bottles were opened or transported. The company recalled, destroyed and replaced 15.4 million bottles, warning the public of the dangers through the media. No one was injured | The estimated loss from the incident was $50 million. In 1994, the glass manufacturer agreed to compensate Heineken for an undisclosed sum. The proactive handling of the incident by the company resulted in little initial loss of shareholder value, followed by an increase in value |
| 1999 | Coca-Cola | When more than 100 Belgian children suffered nausea and headaches after drinking Coca-Cola products, the Belgian Health Ministry ordered the withdrawal of a range of suspect soft drinks produced by the company in Belgium. A similar ban was also made in France and Holland where exports from the Belgian plants are widely sold. It was claimed that the Antwerp factory used the wrong type of carbon dioxide that imparts ‘fizz’, making the drink taste bad, and a fungicide had caused some contamination at its factory in northern France | Coca-Cola recalled 15 million cases of its soft drinks across Belgium, France and Luxembourg, and the company temporarily closed three factories in Europe before revealing that its sales had fallen by as much as 2%. Share prices also declined |
| 2001 | Bridgestone/Firestone Inc./Ford | The recall of 16 million Firestone Wilderness AT tyres in August 2000 was followed in 2001 by the US Government requesting another 3.5 million Firestone tyres to be recalled for safety checks by Ford, which used them on sports utility vehicles. It was found that the treads on several models were separating from the tyres. The tyres were believed to be the cause of rollover crashes that resulted in 203 deaths and more than 700 injuries. Both companies were forced to take action | Firestone spent more than $350 million for the recall with potentially far more in legal cases. There was also the loss in public confidence of the product. In the 2000 recall, the chief executive refused to become involved and ignored the role of public relations, following Ford's PR policy at the time. Ford then tried to force responsibility onto the tyre manufacturer. The Bridgestone share price dropped by over 50% |
As you may expect, initially such incidents often have a significant negative impact on shareholder value as Figure 9 illustrates. Studies have found that this fall often amounts to almost 8 per cent of shareholder value, but recovery tends to occur in 50 trading days or so. While this may suggest negligible net impact on shareholder value, the ability to recover varies considerably between organisations. Some argue that if the price falls below a threshold, recovery is impossible. The impact of such incidents on companies’ share prices comes from two sources. The first is the direct financial cost of the incident in terms of cash flow, with the market adjusting the stock price accordingly. Then the market adjusts the share price in accordance with its assessment of management's handling of the incident.
There are several lessons to be learned from the incidents outlined in Table 9. Johnson & Johnson's decision set a standard for incidents involving product tampering. Tylenol (paracetamol in the UK) was the first acetaminophen-based analgesic to be sold as an over-the-counter drug, and following aggressive promotion become a market leader.
Acetaminophen
Acetaminophen belongs to the class of drugs called analgesics (pain relievers) and antipyretics (fever reducers). It relieves pain by elevating the pain threshold and reduces fever through its action on the heat-regulating centre of the brain.
Side effects of acetaminophen include yellow skin or eyes, hives, itching, bleeding (bloody urine, black stool, bruising, or pinpoint red spots), fever, sore throat, and decreased urine output.
An overdose of acetaminophen can result in liver toxicity, liver failure, and even death. The signs and symptoms of liver toxicity may not become apparent for two to three days after a toxic overdose. Early treatment with acetylcysteine (Mucomyst) can prevent liver damage or death.
Following the product tampering, the company ordered a recall of more than 31 million bottles at a cost of more than $100 million. It also temporarily ceased all production of capsules and replaced them with more tamper-resistant products. This drastic style of response had never before been attempted and prompted scepticism. However, the company stood by its decision. It was able to use the crisis to demonstrate to its customers its commitment to customer safety and to the quality of the product. In addition, the willingness to be open with the public and communicate with the media helped the company maintain a high level of credibility and customer trust throughout the incident.
Directly following the incident, Johnson & Johnson's shares fell 7 per cent, and the company dropped from having 35 per cent to 8 per cent of the non-prescription pain-relief market. However, advertising to regain the public's trust, and an aggressive campaign to rebuild the brand emphasised a new triple-tamper-resistant package never used before. By the following spring, Johnson & Johnson had regained its previous market share. When the second incident occurred four years later, the company knew how to handle it. While this was soon identified as an isolated incident, Johnson & Johnson decided to discontinue capsule products – seeking to demonstrate its commitment to putting safety first. However, more recent debate about the product's side-effects caused more bad publicity and more costs of legal settlements, but the company was less willing to have more explicit warnings on labels.
Box 1: Some lessons in communication
Reputation can be harmed in an instant, but it can be protected by planning for an emergency and dealing with communication issues well. In the Tylenol case the steps for doing this were as follows.
The first priority was designing a tamper-resistant container.
Johnson & Johnson strongly endorsed legislation making tampering a crime. They also urged legislators to require tamper-proof packaging for many over-the-counter drugs.
The company held a 30-city video teleconference from New York just six weeks after the cyanide deaths. The event was set up in only three weeks. This was remarkable for such a sensitive press conference. The chief executive spoke during the teleconference as well as other company representatives who showed the new packaging and gave every reporter a sample of the new product – a good use of visual aids for the media.
To overcome the public's fear of the product, the company invited former users (although they did not have to prove that they were) to call a freephone number to request a free bottle in the new packaging. The aim was to get back former customers and gain new ones irrespective of the cost.
A massive advertising campaign included a discount voucher for purchasing Tylenol.
About 50 million capsules were sent to doctors for free distribution. Patients receiving the samples would feel reassured that Tylenol was safe because doctors were demonstrating sufficient faith in the product to issue it to their own patients.
The company thanked the media for fair coverage and thanked them for reporting the news of the cyanide deaths to make the public aware of the problem. In contrast, treating the media as the enemy encourages probing by reporters who believe there is something to hide.
By using television and newspapers to warn people about the recalled Tylenol, the company was treated fairly by the media for being open and honest about the problem.
Timeliness is a major factor in any emergency situation, and Exxon failed to recognise this. Since the Johnson & Johnson incident in 1982, a company was expected to deal with the actual problem well – in this case, cleaning up millions of gallons of spilled oil. In addition, a company must create a positive image of how the problem is handled.
So there are several lessons to learn. Communication with stakeholders is essential, and should take account of the cardinal rules of risk communication. Prompt action is also essential, and if this involves disclosing information, it is preferable to disclose early rather than to do so after pressure, which may suggest you have something to hide.
Also important is the liaison between people involved with emergency preparedness in the organisation and those in the emergency services.