Business Continuity and Homeland Security, Volume 1

Business Continuity and Homeland Security, Volume 1

The Challenge of the New Age

Edited by David H. McIntyre and William I. Hancock

A practical and timely study on how businesses need to prepare for natural and man-made disasters. What should businesses consider in preparing for terrorist attacks, natural disasters, pandemic illnesses and other emergencies? What steps can a business take to ensure continuity during and after a crisis? What can we learn from past success?

Chapter 3: Business Continuity and Enterprise Value

Peter Leitner

Subjects: business and management, international business, law - academic, terrorism and security law, politics and public policy, terrorism and security

Extract

Peter Leitner Chance favors the prepared mind. (Louis Pasteur, 1854) INTRODUCTION Most discussions on enterprise value focus on how to create it, while questions of business continuity usually pertain to bankruptcy and business failure. These discussions usually involve normal business conditions driven by competition, product innovation and management quality, which are heavily influenced by macroeconomic factors like growth, inflation and credit availability. They are, therefore, a normal part of a market economy and are generally well understood. In this chapter, however, I focus on preserving enterprise value during abnormal conditions following an extreme event. An extreme event may be improbable in the short run, but more likely in the long run, and its effects are potentially catastrophic to the firm. By potentially catastrophic, I mean the firm might not continue as a going concern, and its surviving assets – if any – may be worthless. Examples of such extreme events include a global influenza pandemic, a Category 5 hurricane in an important commercial area and a major terrorist incident. It is important to emphasize the double-barreled effects of an extreme event. Damage to personnel ranks, factories and office buildings, as well as communication and transportation infrastructure, can hamper a firm’s ability to supply the market. But impaired business and consumer confidence can wreak havoc with demand from the market. In the extreme, panic can cause shortages of some products and services, while fears of inflation or deflation can be self-fulfilling prophesies that distort the economy far beyond the loss of production, distribution...

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