Thought Leadership

Resilience in the face of catastrophe: Hurricane Sandy’s lesson for organizations

November 20, 2012
Posted on November 13, 2012 by Scott Stricoffof BST, a Dekra Company

When Hurricane Sandy devastated the Northeast the New York Stock Exchange was closed for two days.

This was surprising, since more than 25 years ago the NYSE had decided that it needed contingency plans so that there would never be an interruption of trading longer than 24 hours. The NYSE conducted a risk analysis to assess the potential sources of business interruption, and also created an alternative trading floor outside of Manhattan, to which NYSE activity could be shifted.hurricane

As is true with most contingency plans, this was never called upon.

In 2006 the NYSE acquired an electronic trading system, and decided that the contingency alternative could be shifting to 100% electronic trading, so that the alternative physical trading floor was no longer needed and was eliminated.

When Sandy impacted New York the NYSE attempted to invoke its contingency plan, but was unable to do so as other trading platforms, which use the NYSE to make trades and set prices, reportedly didn’t trust the plan and balked at going live (Investment News, October 31, 2012.) Despite having more than 25 years of planning for emergencies that could interfere with NYSE operations, when it came time to put the plan into practice it failed to meet expectations.

In any man-made system things can go wrong and there is a generally recognized need to have contingency plans. However, having plans is insufficient if the organization is not strong in the characteristic we call Resilience.

Resilience refers to the ability of the organization to intervene in the incipient or early stages of adverse events, taking appropriate action to prevent these situations from escalating and becoming major events. Resilience depends on having people who can recognize the need to intervene, who understand the implications of alternative actions so they can make the appropriate choice of action, and who are willing to take action. Achieving resilience requires the right combination of knowledge and training with leadership actions to create a culture supporting resilience.

We often see breakdowns of resilience that lead to safety problems, and this often results from individuals not really believing that the organization wants them to take action.

For example operators may be reluctant to initiate emergency shutdown of a process even when they have been trained to do so. We have seen this occur when the culture that has inadvertently been created tells people that production supersedes safety. This can happen when workers perceive that interfering with production will lead to adverse consequences (e.g., hours and hours of second-guessing in “fact finding” interviews), or when they perceive that people who ignore safety procedures and take “heroic” actions to maintain production are celebrated.

It is important for leaders to understand the importance of resilience to preventing serious and catastrophic incidents, and that these leaders reinforce the culture that supports resilience. By doing so, leaders best leverage their people and create an important extra layer of protection against the occurrence of serious incidents.

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