Bankruptcy does not require a deliberate criminal act. Complacency can cause the same result. One is a conscious act and the second is caused by managerial apathy and governmental incompetence. Bankruptcy can also be caused by an act not directly related to the businesses or individuals affected—they may be part of a domino effect.
The best way to demonstrate the above concepts is a situation which has occurred in the past and will no doubt occur again in the future. For example: it is the spring season with the usual excessive rain and floods along major rivers. Levees along the river have been built by the U.S. Army Corps of Engineers to control the direction of the river and mitigate flood potential. As the flood waters increase, a levee is breached and millions of gallons of water flood nearby towns and agricultural areas. Your facility will require three months for cleanup and repair. Many businesses are inundated, including an electric generating plant that provides power to many hundred square miles. When the flood waters start to recede, it is determined that the power plant will be out of service for at least three months as the result of millions of dollars of damage to equipment.
What are the ramifications of this situation? With the electric plant out of service, staff will be reduced and public confidence in the utility will be reduced considerably. The electric plant customers will be impacted by the loss of power to run their businesses or serve their household needs. Again staff will be reduced in the affected businesses and profits will decline. Also affected will be the suppliers of the affected business who will have a reduced requirement for providing supplies and equipment, either from the damage to business facilities or disrupted governmental infrastructure, such as destroyed highways and bridges. Intercontinental rail freight service will be affected and collateral damages will include reduced supplies and transport of product over a wide area far beyond the immediate vicinity of the flooded river. The ripple down affect will result in astronomical financial losses and loss of industry-specific skilled labor.
One of the primary reactions will be finger-pointing to place blame for the disaster on a particular person or agency. Let’s assume that the levee was breached because of inadequate construction and design. Now the finger is pointed at the Corp of Engineers who were responsible for construction of the levees. Somewhere along the line, there will be allegations of incompetence and managerial apathy for failure to provide an appropriate design for the levees and failure to require compliance with design specifications and accepted construction practices.
Was the Corps of Engineers totally responsible for the loss? The answer is that while they may have primary responsibility, there is a secondary responsibility that can be attributed to other entities. Could the electric utility have been built in a better location to mitigate the possibility of flooding? Could the local business have developed a disaster plan to protect their facility and ensure continuity of production? Could the local government agencies develop an alternative highway transportation system? Many individuals and agencies, private and governmental, contributed to this disaster by failure to develop coordinated and comprehensive disaster management strategies. Preparing for disaster mitigation requires coordinated effort by the civilian and governmental agencies. Without coordination, some plans will contradict others and there will be the problem of appropriate financing and identification of recovery priorities.
Each level of government has a unique responsibility for disaster management. The Federal government must act as a coordinating agency and provide human resources and material, along with financial funding. They must also react quickly and organize the recovery effort. Any delay will drastically increase loss and recovery time. When business cannot produce products, there is a required increase in unemployment benefits and reduced taxes. There is always a financial loss to government entities as well as the private sector.
State government has a similar responsibility. Each State has National Guard forces that can provide manpower and equipment support to the affected area. Again there is the necessity for a timely response by the State forces in accordance with a well-planned and tested recovery program. Each State must provide funding for those costs beyond the capability of local governments.
Local governments have a lesser responsibility because of their lack of resources. However, it is the local government’s responsibility to coordinate activities with the State and Federal governments and provide input to develop a recovery program. The local government must also develop prevention and mitigation plans with local businesses based on the risks affecting each business and the immediate locality.
Businesses have a fiduciary responsibility to stockholders and owners which includes developing comprehensive plans for mitigation of risks from natural hazards and other potential loss elements. In an area disaster, businesses cannot depend solely on governmental agencies and resources to ensure their business continuity. It is a business responsibility to identify alternative sources of supplies, equipment and personnel, as well as means and methods of alternate transportation of product and supplies., both into and out of the facility.
Each aspect of disaster management and recovery must include coordination with governmental agencies, businesses and facilities affected by the disruption of normal services and supplies. Advanced planning is essential and plans must be continuously tested and revised as situations and circumstances change.
If you fail to plan, you voluntarily and consciously accept the price that will be paid for your failure. Any business that is unable to produce a product and get it to the end user in a timely manner will be forced out of business within a short period of time when its customers go to alternate sources who can supply their needs. Failure to plan may also cause significant financial loss and possible bankruptcy for businesses and individuals