MIAMI-Because the threat of a pandemic occurring is real and the question is when it will happen, not if, "companies are legally required to have a business continuity plan in place," said Jim Coppedge, general counsel at AIM Investment Services, during a panel last week at The National Investment Company Service Association's 25th Anniversary Annual Conference & Expo here.

During company examinations, the Securities and Exchange Commission will ask questions and want to see a prepared plan in place, he said.

A company can only receive emergency relief from operations when the SEC declares a state of emergency, he noted.

Some exceptions are noted in Section 22(e) of the Investment Company Act, with regard to suspending the right of trading. One instance is when companies cannot fairly determine the value of their net assets.

The most recent instance when the SEC suspended trading was in January 2002, when a mail strike occurred, which is also what happened in 1970. The SEC provided guidance regarding the pricing of purchase and redemption orders held up in the mail, stating companies should price orders the day they were received in the mail.

Another occasion when the SEC suspended trading was in 1963, when President John F. Kennedy was assassinated. The SEC prohibited investment companies from redeeming or repurchasing shares until it gave them the green light, Coppedge said. Also, in 1978, during a Boston snowstorm, the SEC allowed funds located in areas that had been declared a state of emergency to suspend share redemptions and purchases.

Preparing for a pandemic is different than basic disaster planning. Traditional business resumption planning is thought of as preparing for a fire or some type of physical damage to a work site, whereas in the case of a pandemic, many workers could become sick and be unable to service customers, said Eric Zimmer, vice president for global risk and control at Franklin Templeton Investments.

If the entire country were to become affected, not just a 100-mile radius, people would be unable to travel, and schools and businesses would be shut down, said Steve Anderson, senior managing consultant for financial markets at IBM Global Business Services. Also, pandemics come in waves, so it's more than likely a second wave of employees will be getting sick, as the first wave starts to get better.

Zimmer outlined Franklin's pandemic plan, noting the firm established a crisis management team comprised of senior level executives able to address different dynamics of the business and keep it running.

"There needs to be a fallback team, as well, in case the primary players do not show up," said Atanas Goranov, vice president of risk management at GE Asset Management.

It is important to have three or four backup people for every person on the management team, as senior people usually travel a lot and oftentimes together, Zimmer commented.

Preparing specifically for the occurrence of the avian flu, GE Asset Management established a crisis team of three people and an extended backup team of 13. When various scenarios are played out, everyone is involved in the exercise, not just the main crisis team, he said.

The World Health Organization has stated that the risk of an avian flu outbreak is serious, and once the disease naturalizes in humans, it will be spread very quickly, Goranov said.

"It is critical to be prepared ahead of time," he said.

Once the crisis team is in place, it is important to perform various scenario exercises to review and test the plan, Zimmer said. For instance, many people rely heavily on technology, so increased remote work capabilities need to be assessed.

When a pandemic occurs, most likely the government will limit people's mobility, Coppedge said. If mass transportation is shut down and people are quarantined to their homes, everyone will be working from home, which will slow down technology systems. Companies need to think of how they could reduce the bandwidth they are using, as the Internet will be overloaded, Anderson noted.

Firms also need to think of the most critical functions. Employees who are able to work from home need to have all the necessary passwords and phone numbers to be able to communicate as effectively as possible.

Additionally, other lines of communication may be shut down, such as the post office, panelists noted.

Franklin's pandemic plan takes many situations into account, since management realizes that many sites are likely to be impacted at the same time for several months, Zimmer noted. Therefore, Franklin has a business continuity plan in place that offers guidance to all of its business units on how to review their emergency strategies.

Other issues need to be thought of, as well. Human relations procedures need to be established, such as how to deal with absenteeism or employees who are not sick, but who are not working due to taking care of their families.

Regarding hygienic supplies, companies might want to consider having masks in their office or vaccinating employees, panelists agreed. However, none of the panel members said they have stocked up and bought vaccines.

"Companies have to plan for and try to make the best decisions when a situation arises," Zimmer said.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.