costly avian flu: would your company be ready?

Because of themajor impactthat disasters and

catastrophes can haveon business opera-tions, most organiza-tions have contingencyplans for these typesof events. Althoughmajor disasters areunlikely to happen, theterrorist attacks on September11, 2001, and Hurricanes Katri-na and Rita in 2005 show theycan occur, and when they do,they impact society and businessin many ways. Now, businessesare being urged to prepare for apossible pandemic flu. If onewere to occur, it would likely bea very costly event for mostbusinesses, and their currentbusiness contingency plans maynot be effective in dealing withthe unique problems created by apandemic.

Although the U.S. healthofficials and the World HealthOrganization (WHO) have urgedbusinesses and individuals toplan for a possible pandemic,surveys show that many busi-nesses are not prepared for one.For example, one survey foundthat although 90 percent ofrespondents expect that a pan-

demic would have a moderate tohigh impact on their organiza-tion, only 47 percent have start-ed a business continuity planand just 17 percent have a pan-demic preparedness plan.1 Simi-larly, another survey noted:

Despite publicity on thetopic, American busi-nesses are still ill-pre-pared for the potentiallydevastating effects of aglobal avian flu pandem-ic, according to a newsurvey by ThompsonPublishing Group.

According to the sur-vey, 76 percent of the468 respondents haveno contingency plan foran avian flu outbreak,even though 46 percentsaid senior managementconsiders the issueimportant.2

The same studynotes that up to 25 per-cent of the workforcecould be lost in a pan-demic. If this occurs, itwould have major con-sequences for the over-all economy and forspecific businesses.The purpose of thisarticle is to consider

how a pandemic may affectorganizations and to discuss theissues they should considerwhen planning for a pandemic.

To accomplish this purpose,the first part of the article is abrief description of a pandemicand how a pandemic differs fromseasonal flu. Then, the costsassociated with a pandemic arediscussed. The third part of thearticle identifies the issues thatorganizations need to considerwhen making plans for a pan-demic. The article concludes byidentifying sources of informa-tion that can be used to plan fora pandemic and to stay currenton developments if one occurs.

PANDEMIC FLU VS. SEASONALFLU

In the Northern Hemisphere,seasonal flu occurs regularly in

Many firms have contingency plans to deal with“common” disasters—such as hurricanes orearthquakes. But would your company be readyfor a costly avian flu pandemic? It can occur in anyseason. The author explains how to plan for suchan emergency. © 2007 Wiley Periodicals, Inc.

Harold P. Roth

Costly Avian Flu: Would Your CompanyBe Ready?

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© 2007 Wiley Periodicals, Inc.Published online in Wiley InterScience (www.interscience.wiley.com).DOI 10.1002/jcaf.20286

the winter months and typicallyaffects a small percentage of thepopulation. A pandemic differsfrom seasonal flu and will affectsociety differently. Some differ-ences between a pandemic fluand seasonal flu are listed inExhibit 1.

As shown in Exhibit 1,experts expect a pandemic fluwill occur three or four timesduring a century. In the twentiethcentury, there were three pan-

demics. The worst was the Span-ish flu of 1918–1919, where esti-mates of worldwide deaths rangefrom 20 to 100 million people.Other pandemics that were lesssevere occurred in 1957–1958,when an estimated two milliondeaths occurred, and in1968–1969, when about one mil-lion deaths occurred. Expertspredict that a pandemic nowwould cause between 7.5 and300 million deaths worldwide.3

Since the last pandemicoccurred in 1968–1969, manyhealth officials are concerned thatit is time for another one. Theirconcerns have become more pro-nounced with the emergence ofthe H5N1 strain of avian flu thatis spreading through bird popula-tions of Asia, Africa, and Europe.Although the WHO has only con-firmed a total of 151 deaths fromthe strain,4 medical and healthofficials fear that it will mutate

4 The Journal of Corporate Accounting & Finance / March/April 2007

DOI 10.1002/jcaf © 2007 Wiley Periodicals, Inc.

Differences Between Seasonal Flu and Pandemic Flu

Seasonal Flu Pandemic FluOccurs every year during the winter months. Occurs three or four times a century and can take place

in any season.

Caused by influenza viruses that are similar to those Caused by a new influenza virus that people have not already affecting people. been exposed to before.

Symptoms include fever, cough, runny nose, and Symptoms similar to the common flu may be more muscle pain. Death can be caused by complications severe and complications more serious.such as pneumonia.

Affects 5 to 20 percent of the U.S. population. Likely to infect 25 to 50 percent of the populationdepending on the severity of the strain.

Healthy adults usually not at risk for serious Healthy adults may be at increased risk for serious complications. complications.

Causes 0.5 to 1.0 million deaths annually, with Estimates are that the 1918–1919 Spanish Flu caused 36,000 to 40,000 in the United States. 500,000 deaths in the United States.

Vaccination is effective because the virus strain in A vaccine is unlikely to be available at the start of circulation each winter can be fairly reliably a pandemic because the new strain of virus must be predicted. identified, and producing a vaccine could take six

months.

Generally causes modest impact on society. A severe pandemic could change the patterns of daily lifefor some time.

Source: Adapted from Trust for America’s Health. (2006). It’s Not Flu as Usual, and U.S. Department of Health and Human Services. (2006, January). PandemicInfluenza Planning: A Guide for Individuals and Families, p. 2.

Exhibit 1

into a form that can be easilytransmitted from human tohuman, and it will cause the nextpandemic. Even if this strain doesnot develop into a pandemic,most health officials believe apandemic flu will occur some-time in the future.

COSTS ASSOCIATED WITH APANDEMIC

If a pandemic occurs, itwill have a major economicimpact on society in generaland on almost all businesses.For society, the costs willinclude the costs of medicalcare and the cost of lost eco-nomic activity. Althoughestimates of the cost of apandemic on society varywidely, one study suggeststhat the cost of medicalcare could reach $100 to$200 billion in the UnitedStates. When the cost oflost productivity is consid-ered, the estimated cost tothe U.S. economy could be asmuch as $670 billion.5

For individual businesses,the economic consequences of apandemic will vary greatlydepending on the type of busi-ness. For some, such as healthcare providers, the results will bemixed, because the demand fortheir goods and services willincrease but the ability to meetthe demand will be reducedbecause of shortages of employ-ees and supplies. For other busi-nesses—for example, those intourism, travel, and hospitalityindustries—the demand is likelyto decrease significantly as trav-el is restricted and people refuseto be in close contact with oth-ers. Regardless of the expectedimpact, however, all businessesneed to plan for a pandemic andevaluate how their costs will beaffected if a pandemic occurs.

PLANNING COSTS

When organizations start todevelop plans, they are likely tofind that they will need to incurcosts to prepare for the impact ofa pandemic on their operations.Two specific areas whereincreased costs are likely to beincurred are for training and forinfrastructure.

The need for additional train-ing of employees will occurbecause many businesses willfind that they need to cross-trainemployees to work in differentareas. One of the major impactsof a pandemic will be a highabsenteeism rate among personnel

that could last for long periods oftime. One option for dealing witha large number of absences is tocross-train employees so thosewho are able to work can performthe functions needed to keep theorganization operating. Thiscross-training may be especiallycritical for administrative func-tions such as human resources,payroll, accounting, and finance.

Another cost that organiza-tions are likely to incur whenplanning is the cost of increasingthe telecommuting capacity toallow employees to work remote-ly from home. During a pandem-ic, some employees may refuseto be in a location where theywill have contact with other peo-ple for fear that they will contactthe flu. Other employees mayneed to stay at home to be withsick family members or to carefor schoolchildren if schools

close. Under these circum-stances, the employee may behappy to continue working fromhome. If working remotely is apossibility for a large number ofemployees, the organizationneeds to ensure that the technolo-gy is available to support theactivity. If it is not, costs shouldbe incurred to upgrade the infra-structure to provide the level ofcomputing capacity needed.

PANDEMIC COSTS

In an actual pandemic envi-ronment, many businesses thatare not in the health care indus-try will incur additional costs

while having decreasedrevenues. The decrease inrevenues will occurbecause there will be lessdemand for goods andservices, and because therewill be shortages of mer-chandise from producers.In addition, transportationsystems may be interrupt-

ed, and even if goods are manu-factured, they may not be deliv-ered to locations wherecustomers can obtain them.

Although each organizationwill need to evaluate how itsoperations and costs may beaffected by a pandemic, specificareas where many businesses arelikely to incur higher costsinclude the following:

• providing medical servicesto employees;

• purchasing infection controlsupplies, such as hygieneproducts, tissues, masks,gloves, and receptacles fortheir disposal;

• paying employees who haveexhausted vacation and sickleave days;

• hiring temporary or retiredpersons to replace those whoare ill;

The Journal of Corporate Accounting & Finance / March/April 2007 5

© 2007 Wiley Periodicals, Inc. DOI 10.1002/jcaf

One option for dealing with a largenumber of absences is to cross-trainemployees so those who are able towork can perform the functions need-ed to keep the organization operating.

• increasing cleaning servicesto reduce the opportunity forthe flu to spread; and

• increasing security at officesor retail outlets that areclosed because of a shortageof employees.

In addition to these types ofcosts, other costs that are specif-ic to an organization will be

identified as planning occurs. Tominimize these pandemic costs,organizations need to developcontingency plans that can beimplemented quickly if a pan-demic occurs.

PLANNING FOR A PANDEMIC

To begin the planningprocess, an organization should

examine its current policies andcontinuity plans to determine ifthey will be appropriate underpandemic conditions. Many cur-rent business continuity plansfocus on localized disasters andemergencies, such as fires,earthquakes, and other eventsthat occur quickly, and then therecovery phase begins. In a pan-demic, the event is likely to be



Planning Checklist

I. General Policy Issues1. Identify a pandemic coordinator and/or team with defined roles and responsibilities for preparedness and

response planning.2. Establish an emergency communication plan. This plan includes identification of key contacts, chain of com-

munications (including suppliers and customers), and process for tracking and communicating business andemployee status.

3. Enhance communications infrastructure to support telecommuting.4. Disseminate information to employees about organization’s policies and plans.5. Set up triggers and procedures for activating and terminating the company’s response plan, altering business oper-

ations (e.g., shutting down operations in affected areas), and transferring business knowledge to key employees.II. Employee Issues

1. Identify essential employees required to maintain business operations.2. Train and prepare an ancillary workforce (e.g., contractors and retirees).3. Establish policies for employee compensation and sick-leave absences unique to a pandemic.4. Establish policies for employees who have been exposed to pandemic influenza, are suspected to be ill, or

become ill at the worksite.5. Forecast and allow for employee absences during a pandemic due to factors such as personal illness, family

member illness, quarantines, school closures, and so on.6. Implement guidelines to modify the frequency and type of face-to-face contacts.7. Evaluate employee access and availability of health care services during a pandemic and improve services as

needed.III.Customer Issues

1. Develop and plan for scenarios likely to result in an increase or decrease in demand for products and or ser-vices during a pandemic.

2. Develop guidelines for modifying frequency and type of face-to-face contact with customers.3. Identify key customers with special needs and incorporate the requirements into the preparedness plan.4. Provide infrastructure to enhance remote customer access.

IV.Supplier Issues1. Identify critical suppliers required to maintain business operations by location and function.2. Determine the potential impact of a pandemic on travel and transportation.

Source: Adapted from U.S. Department of Health and Human Services and the Center for Disease Control and Prevention, “Business Pandemic Influenza PlanningChecklist,” available at http://pandemicflu.gov/.

Exhibit 2

spread over many months andover a wide geographic area.Under these circumstances, cur-rent plans may not be effective.

One approach to planning forthe unique aspects of a pandemicevent is to evaluate the possibleimpact it would have on manage-ment, employees, customers, andsuppliers. Some policies willaffect all groups, while othersmay be specific to one group.

GENERAL POLICY ANDPLANNING ISSUES

Management has the responsi-bility to identify the activities thatare needed to ensure that organiza-tions are prepared for a pandemic.To help companies with planning,the U.S. Department of Health andHuman Services has prepared aplanning checklist that is availableon their Web site at http://pandem-ic.flu.gov. Exhibit 2 shows a par-tial list of the activities listed onthe checklist, and Exhibit 3 isanother list of specific operationalactions that an organization shouldconsider.

An examination of the itemsin Exhibit 2 and Exhibit 3 showsthat one of the most criticalplanning issues deals with com-munications. All organizationsneed an emergency communica-tion plan during a pandemic justas they need one for other disas-ters. During a pandemic, regularcommunication channels maynot be functioning at normal lev-els because they may be over-loaded or not working becauseof a shortage of personnel. Theemergency communication planshould identify who in theorganization is responsible formaintaining communications andwhat channels will be used. Aprimary spokesperson and back-up persons need to be identified.To provide a consistent messageto all parties, one person shouldbe designated as the “official”spokesperson. Backup personsshould be named in case the pri-mary person becomes ill and isunable to function.

Backup communicationchannels should also be identi-fied before a pandemic occurs. If

the company’s Web site is desig-nated as the primary communica-tion channel, a backup systemshould be identified in case thecompany’s server goes down. Forcommunicating with employees,a backup system might be a listof cell phone numbers. For cus-tomers, a toll-free telephonenumber that connects to ananswering service might be usedto provide information about thecompany’s operations.

Another critical communica-tion issue relates to communicat-ing and educating employeesabout the organization’s plansand policies. In a pandemic envi-ronment, many policies relatingto employees may need to berelaxed. For example, vacationand sick leave policies may needto be reconsidered. If employeesuse all of their vacation days andsick leave and still need to misswork to care for family memberswho are ill, will they continue tobe paid? If company operationsare shut down (perhaps by gov-ernment orders) in an effort tocontrol the spread of the flu, will



Examples of Operational Actions

1. Adjust corporate governance policies for certain pro tem actions (where, for example, board or executive teamquorums aren’t available).

2. Cross-train certain people to cover key jobs that must be staffed no matter what.3. Create a crisis health and sanitation plan that heightens cleaning protocols in the workplace and addresses other

issues such as dealing with infected employees at work, stockpiling protective and cleaning material, andassigning ad hoc teams to certain special hygiene tasks.

4. Train employees in advance about the implications of a pandemic; condition their expectations for what they mayface as well as what the organization’s challenges will be; and provide them with health and safety tips for homeand work.

5. Create a Web site that could be put online immediately as a primary communication channel to customers,employees, and other stakeholders. A comparable phone system is also desirable.

Source: Kieffer, D. (2006, Spring). Global pandemic. Washington, DC: Mercer Human Resource Consulting, pp. 7–8.

Exhibit 3

employees continue to be paid?These are the types of issues thatneed to be resolved and commu-nicated to employees before theactual emergency occurs.

OTHER EMPLOYEE ISSUES

Although communicatingwith employees will be essentialto keeping a company operatingduring a pandemic, there areother employee issues that needto be considered during the plan-ning process. During a pandem-ic, a company may have a largepercentage of its employeesabsent at any one time. To dealwith the large number ofabsences, a company may needto determine what functions areessential to operate in an emer-gency mode for a period of time.Nonessential functions may needto be postponed until staffing

levels are back to normal. Whilemany essential functions will berelated to sales and operations,others include security, humanrelations, and treasury functions.

If a large percentage ofemployees are absent, it will becritical to get healthy people towork and to keep them healthy.This may require various hygienepractices, such as disinfectingdoor handles and wearing masks.Limiting face-to-face contactamong employees may also helpreduce the spread of the flu. Tolimit contact, communicatingbetween employees may berestricted to phone calls, e-mails,text messaging, and other elec-tronic forms of communications.

CUSTOMER ISSUES

In a pandemic, the cus-tomers’ demand for some prod-

ucts will increase while thedemand for others will decrease.For example, health careproviders will experience increas-es in the number of customers sotheir challenge will be to deter-mine how they can serve morecustomers with fewer availableemployees. Other companies,such as those in the entertainmentand leisure industries, will proba-bly have less demand for theirproducts. Even if these business-es continue to operate, customerswill probably avoid them to mini-mize their exposure to other peo-ple who may have the flu.

The major customer policyissue that organizations need toconsider in a pandemic is howcan goods and services be pro-vided when retail outlets may beclosed or when there are notenough employees to operate thefacilities. In some industries, the



Sources of General Information About Avian Flu

http://healthyamericans.org/This is a Web site maintained by the Trust for America’s Health, a nonprofit, nonpartisan organization dedicated tosaving lives by protecting the health of America.

http://pandemicflu.gov/This is the U.S. Department of Health and Human Services’s Web site providing access to U.S. government informa-tion on avian and pandemic flu.

http://www.cdc.gov/flu/avian/This is the Web site of the Centers for Disease Control and Prevention of the Department of Health and Human Services.

http://www.fluwikie.com/FluWiki is a collaborative Web site whose purpose is to help local communities prepare for and cope with a possibleflu pandemic.

http://www.jhsph.edu/flu/This is the Web site of the Public Health News Center of the Bloomberg School of Public Health at Johns HopkinsUniversity.

http://www.who.int/en/This is the Web site of the World Health Organization, which is the United Nations specialized agency for health.

Exhibit 4

policy may include temporarilyclosing some facilities and con-solidating employees at specificlocations. This approach mightbe appropriate for a restaurantchain that has operations in sev-eral locations or for a bank thathas branches across an area.

Another alternative for pro-viding goods may be to instituteor expand telephone and Internetsales. If this is an option, then aplan for delivering products tocustomers must be developed. Ifbusinesses such as restaurants,supermarkets, and pharmaciescould provide some type ofhome delivery service, cus-tomers would be more likely tobuy from those businesses.

SUPPLIER ISSUES

In order to provide merchan-dise to customers, the businessmust have the goods availablefor sale. Thus, supplier issuesalso must be addressed when

planning for a pandemic. Themain issue with suppliers is toevaluate how interruptions in thesupply chain and transportationsystem will affect their ability tosupply materials and products.Suppliers are likely to also haveshortages of employees that willaffect their ability to fill orders.Transportation systems also willbe interrupted because of short-ages of employees, and theiroperations may be restricted inan attempt to quarantine heavilyinfected regions of the country.The plans should considerwhether alternative supplysources and delivery methodsare needed.

SOURCES OF INFORMATION

In the event of an actualpandemic, an organization willneed accurate, up-to-date infor-mation about infected regions ofthe country, governmentalrestrictions, and the steps that

are being taken to control thepandemic. Exhibit 4 is a list ofWeb sites of governmental agen-cies and other organizations thatprovide general informationabout avian flu. Businesses andindividuals who want to stay cur-rent on the developments shouldrefer to these sites.

While Exhibit 4 identifiesseveral sources of informationabout the flu, there seem to befewer sites providing specificinformation for businesses aboutplanning for a pandemic. Threesources that are accessible forfree are the U.S. governmentpandemicflu.gov Web site, aNew Zealand government Website, and a Web site maintainedby the Canadian Manufacturersand Exporters organization. TheURLs for these sources are listedin Exhibit 5. In addition, Exhibit5 lists the URL for a humanresources consulting firm thatprovides several free reportsrelating to pandemic prepara-



Sources of Business Planning Information for Pandemic Flu

http://pandemicflu.gov/This Web site of the U.S. Department of Health and Human Services and the Centers for Disease Control and Pre-vention provides several planning checklists for individuals and businesses. One pdf file is a Business PandemicInfluenza Planning Checklist.

http://www.cme-mec.ca/pdf/CME_Pandemic_Guide.pdfThis Canadian Manufacturers and Exporters Web site provides access to a pdf book, Influenza Pandemic: ContinuityPlanning Guide for Canadian Business,” issued in March 2006.

http://www.moh.govt.nz/moh.nsf/indexmh/pandemicinfluenza-guidelines-forbusinessesThis Web site provides access to a pdf document titled “Minimising the Risk and Impact of an Influenza Pandemicon Your Business: A Practical Guide for Employers.”

http://www.mercerhr.com/avianfluThis Web site for the Mercer Human Resources Consulting firm provides access to the results of a survey on busi-ness preparedness. The report is titled “Avian Flu Pandemic Preparedness Survey.”

Exhibit 5

tions by businesses. Thesereports can be accessed from thefirm’s Web site.

YOU MUST PREPARE

Although health officials areconcerned about the possibilityof a pandemic, there is no assur-ance that one will occur from theH5N1 strain of avian flu. How-ever, most experts believe a pan-demic will occur sometime inthe future. Because pandemicsdiffer from many other disastersthat occur quickly and affect aspecific geographic region,organizations need to reviewtheir current continuity plans tosee if they are relevant for a pan-demic. One approach to plan-ning is to consider general poli-cy issues, employee issues,customer issues, and supplierissues. Perhaps the most critical

issue is to evaluate communica-tions policies and practices. Thepolicies and practices that willenable organizations to functionin a pandemic are similar tothose needed in other situationssuch as a SARS epidemic. Onewriter has summarized the bene-fits of being prepared for a pan-demic as follows:

If avian flu does notemerge, the time spenton planning and prepara-tion will not have beenwasted. After all, avianflu is a good proxy forother potential pan-demics; pandemics are agood proxy for potentialbioterrorism; bioterror-ism is a good proxy forother forms of terrorism.Corporate preparednessis a transferable skill—

even if the risk emergesfrom a totally differentdirection or source thananticipated.6

NOTES

1. Mercer Health and Benefits. (2006,June). Preparing for a pandemic: Eas-ing the avian flu’s impact on employeewelfare and productivity. Available athttp://mercerhr.com/avianflu.

2. Employers not prepared for avian flu.(2006, August). TD, p. 14.

3. Walsh, T. (2006, January). Avian flu:Preparing for a pandemic. Risk Alert,p. 2.

4. World Health Organization. (2006,October 16). Cumulative number ofconfirmed human cases of avianinfluenza A/(H5N1) reported to WHO.Available at http://www.who.int/csr/disease/avian_influenza/country/cases_table_2006_10_16.

5. Absenteeism in the wake of outbreak.(2006, September–October). TheFuturist, p. 56.

6. See note 3, p. 9.



Harold P. Roth is a professor of accounting in the Department of Accounting and Information Managementof the College of Business Administration at the University of Tennessee (Knoxville).

costly avian flu: would your company be ready?

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