High cost to doing nothing with H1N1

Business case for pandemic preparation similar to that for wellness programs
By Amin Mawani
|Canadian HR Reporter|Last Updated: 01/05/2010

In the midst of the H1N1 pandemic, human resources departments have been struggling with how much evidence to demand before allowing employees, who report flu symptoms, to stay away from work.

The Public Health Agency of Canada recommends employees who think they have the H1N1 virus to stay home — without seeking a doctor’s confirmation. Most businesses have sided with such prevention measures to avoid the worst-case scenario of a sick employee infecting many more employees.

Recognizing employees are the key profit drivers in most businesses, the H1N1 outbreak will likely see many businesses taking steps to ensure they have a strong and stable workforce during future pandemics.

Influenza pandemics are recurring events that have historically spread around the globe in two or three waves, says Margaret Chan, director-general of the World Health Organization. The probability of another pandemic occurring and disrupting the workforce within the next few years remains reasonably high.

Yet many employers remain unprepared. While 88 per cent of companies seemed ready to deal with a power disruption and 70 per cent with a technological failure, only 13 per cent were prepared for the kind of labour force disruption that comes with a pandemic, according to a 2007 survey reported at a Harvard Business School conference on pandemic planning.

Employee absenteeism

Much of the cost associated with an influenza pandemic stems from absenteeism. While the full impact of this H1N1 outbreak is not yet known, estimates suggest anywhere from 15 to 30 per cent of employees may stay home for a brief period during a pandemic because of illness, family-care responsibilities or fear of being infected in the workplace.

Canada’s experience with severe acute respiratory syndrome (SARS) in 2003 illustrated the disconnect between the health and economic impacts of communicable illnesses. SARS resulted in a modest 44 deaths across Canada but inflicted a significant $2-billion cost to the economy as employees and customers stayed away from workplaces and shops — in part out of fear of being infected.

Absenteeism from infection or fear of infection can cripple operations and disrupt global supply chains. The fallout from the H1N1 outbreak spread rapidly around the globe because of the interconnectedness of the world’s economies and supply chains.

Pandemic preparedness

The good news is employee absenteeism — and its financial toll on employers’ profits — can be mitigated.

The business case for investing in pandemic preparedness is similar to investing in wellness programs: Safeguarding employee health is consistent with safeguarding corporate profit and assets.

During the current outbreak of H1N1, many businesses limited pandemic preparedness to offering employees hand sanitizers and information from public health agencies. Further steps have included social distancing, vaccines and the stockpiling of antiviral medication — a stop gap before a vaccine is readily available to all employees. All this can be effective not just in preventing employees from being infected, but also reducing their fear of infection.

Making the business case

To gain the all-important buy-in from senior management, HR needs to show pandemic preparedness programs align with corporate strategy and contribute value that is in excess of costs.

HR can make its case using cost-benefit analysis and metrics such as net present value and internal rate of return — performance measures used to justify other more traditional business investments. The benefit of pandemic preparedness is simply the profits preserved because employees are not absent.

To calculate this, managers must establish the contribution employees make to the bottom line. While some of these calculations can be complex — because costs and benefits may occur in different years — they are relatively manageable and should be evaluated by HR management.

Competitive advantage

Businesses capable of preventing absenteeism during a pandemic will be well-positioned to take away customers and market share from those that cannot — a situation that could be hard to reverse once the outbreak subsides. Companies could also enjoy higher stock prices and cheaper credit because financial markets tend to reward firms that report steady profits and cash flows.

Even if another pandemic does not occur in the short term, suppliers that have a reputation for being prepared could have a distinct competitive advantage over those that do not. Customers care about reliability and will value a supplier that has a plan for weathering an economic shock in much the same way they value suppliers that have achieved International Organization for Standardization (ISO) certification for meeting certain production standards.

Being unprepared carries additional risks, even legal ones. The Sarbanes-Oxley Act, for example, requires managers and directors to manage identified risks as part of adequate corporate governance of public corporations. To the extent that identifying and assessing pandemic risk becomes a generally accepted practice within the corporate community, the unprepared could be found negligent and, therefore, liable to stakeholders in the event a pandemic occurs.

Why businesses may not be prepared

If the probability of a pandemic is considered significant and the adverse impact can be alleviated, why haven’t more companies raced to prepare?

To some, pandemic preparedness may seem like an overwhelming exercise with legal, regulatory, ethical, logistical and economic issues in ordering, storing and dispensing prescription medication. Other companies could be experiencing a liquidity crunch because of the recession, while others may have a shortage of employees who are capable of coming up with a plan for weathering a health crisis.

Some companies may think the entire industry will suffer equally in the event of a pandemic and, therefore, no competitor will gain an advantage over another. That’s a risky assumption, considering some businesses are known to already have contingency plans in place.

For these and other reasons, senior managers can’t afford to remain ignorant of what the competition is doing to prepare for another potential pandemic. They need to take leadership on issues related to disruptions of labour supply, keeping in mind employees are the key profit drivers in most organizations.

Amin Mawani is director of the health industry management program at the Schulich School of Business at York University in Toronto. He can be reached at amawani@schulich.yorku.ca or (416) 650-8072.

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