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Nearly Half of U.S. Multinationals Struck by Crisis in Past 3 Years

A new PricewaterhouseCoopers survey finds that while top executives praised their companies' quick responses, they feared their company is unprepared for a future crisis.

PricewaterhouseCoopers' Management Barometer is a survey of top executives of large, U.S.-based multinational businesses. Interviews with 104 CFOs and managing directors were completed in July 2006. Nearly half (49 percent) of U.S.-based multinationals surveyed for the survey have been struck by a major "showstopper" - a significant event with catastrophic impact to one or more of their major business units or enterprise processes - over the past 3 years.

Still, the majority claim recovery was swift with minimal financial consequences. Only half as many expect a crisis 3 years out, and concern is low. But those impacted by a recent crisis view their company as less well-prepared for the future.

Almost three-quarters of those experiencing a high-level crisis (71 percent) claim it only had a limited impact on their company's bottom-line profitability. Only 20 percent reported a moderate impact, and 6 percent reported a major one.

Coping with Crisis

Overall, 71 percent of the executives surveyed were pleased with their company's resilience and performance in dealing with the crisis, including 26 percent describing the response as "outstanding" and 45 percent as "good/gets high marks." Only one-in-four executives - 26 percent - gave his or her company's performance a mixed rating of "some good, some not."

"Today's business complexity increases the likelihood of an adverse risk event triggering failure," said Miles Everson, partner, PricewaterhouseCoopers' Advisory practice. "Moreover, because large multinational operations are interconnected and can be concentrated in terms of geography or supply chain, the potential impact of a failure is multiplied, as compared to the situations businesses dealt with only ten years ago."

Significantly, over the past 3 years, half of the surveyed companies experienced a major catastrophe," Everson noted, adding, "It is good news that nearly three in four of the respondents praised their company's response under fire and claimed only limited impact on bottom-line profitability. These recent crises have made management much more attuned to increased uncertainty in today's environment."

Types of Events

High-level crises experienced by large, U.S. multinational companies over past 3 years included:

  • Natural disasters (flooding, hurricane, etc.) - 53 percent
  • A complete shutdown of a major business unit - 31 percent
  • Major SEC/Sarbanes-Oxley problems - 20 percent
  • Management upheaval/major changes - 20 percent
  • Fire, explosions or toxic leakage - 16 percent
  • Loss/theft of intellectual property - 10 percent
  • Challanges to corporate reputation - 10 percent
  • Major product recalls or problems - 8 percent
  • Financial systems breakdown/redo of financials - 8 percent
  • Fraud, corruption or ethics issues - 6 percent
  • Sharp decrease in market value/sudden losses - 6 percent
  • Terrorism, civilian unrest or armed conflict - 2 percent

Preparedness Is in the Eye of the Beholder

Looking ahead, only 27 percent of surveyed executives expect his or her company's major business units or processes will encounter at least one major crisis within the next 3 years, 39 percent don't expect one and 31 percent are uncertain.

But 66 percent are at least moderately concerned about preparedness for such a crisis; only 33 percent are not. Among those who have already experienced a high-level crisis, 73 percent are at least moderately concerned and only 28 percent are not.

"It appears that crisis preparedness is a topic most executives would prefer not to discuss," said Everson. "There's almost a sense of denial that a crisis might occur. About half of those surveyed experienced a major crisis over the past 3 years, but only one-quarter expect that one may occur over the next three. And most are only moderately concerned about their company's preparedness.

"But executives who have experienced a high-level crisis over the past 3 years may be tougher and have clearer vision than the rest. When it comes to preparedness, they simply do not see as high a level of readiness for many of their company's key business processes," he said.

More than 60 percent describe three of their company's business processes as "well prepared" to deal with a future high-level crisis, including legal and insurance services (cited by 65 percent), financial management (63 percent) and accounting and reporting (63 percent). In addition, a majority believes they are well prepared in facilities management, IT systems and technology and risk management.

Comparing those who have experienced a high-level crisis over the past 3 years and those who have not, there is a considerable gap between the perceptions of preparedness in five important areas: financial management (19 points lower than those without recent experience); accounting and reporting (15 points lower); human resources (12 points lower); investor and public relations (10 points lower); and facilities management (9 points lower).

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