Can your Company Recover from a Disaster?

Legal technology guru Dennis Kennedy has published an excellent article on corporate disaster recovery and planning procedures.  Many companies reviewed their existing plans after 9/11 – but many others have not.  Disaster recovery planning is an essential element in corporate risk management, and as Dennis aptly points out, testing is the key.  What would happen if your company’s primary facility was knocked out due to a force majeure event?

Dennis also points out the importance of having solid agreements with disaster recovery providers:

"Firms are starting to look at outsourcing many aspects of disaster planning. What are you third party providers obligated to do under the contracts you have signed? Is it adequate or even helpful? Can you get out of agreements and move to other providers? What service levels must be provided? What happens if they are not provided? If you do not raise and negotiate issues, I guarantee you that the terms of any contract you sign will be more favorable to the provider than they are to you."

If you have ever reviewed an agreement proposed by a disaster recovery provider, you will find that they do not agree to provide much of anything.  There are typically no guarantees that services will be provided during a disaster, especially in connection with disasters that affect multiple companies.  These providers may be best for limited disasters (e.g., one facility getting partially flooded, etc.) rather than a more widespread disaster that affects hundreds or thousands of companies.  Many companies have addressed these issues by setting up redundant, and sometimes identical, facilities in different countries.

A final note on disaster recovery is insurance planning.  Insurance is a critical element in protecting shareholder value in the event of a disaster.  For example, business interruption insurance is carried by many companies, however, the coverage is subject to many limitations and may not provide sufficient coverage in the event a disaster occurs.  One area that is often not addressed by companies relates to coverage on the facilities of key suppliers.  While a company may require a supplier to maintain certain coverage through a supply agreement, a company may also want to purchase its own coverage to protect itself in the event that the supplier suffers a disaster.

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Tagged as: Corporate/Mergers and Acquisitions, IT/Software/Internet, Risk Management & Compliance