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Michael Cohen and the FCPA

Corporate Compliance Insights -

How the Investigation Defines and Highlights the Limitations of the FCPA This article will dig deep into the issue of whether President Trump’s lawyer, Michael Cohen, should be concerned about potential FCPA violations on the heels of revelations about payments received from multinational corporations. It’s a complicated issue, since the FCPA is very specific about The post Michael Cohen and the FCPA appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

The Pernicious Effect of Conflicts of Interest

Corruption, Crime & Compliance Blog -

Lawyers know about conflicts of interest.  They face significant risks when handling clients and have to scrupulously follow principles surrounding conflict of interest.  The two categories of conflicts of interest are defined as “appearance of a conflict,” and an “actual conflict.”  Both can undermine the independence of an attorney who must zealously advocate on behalf of each individual client.

Beyond lawyers, in the corporate business world, board members, senior executives, managers and employees all are subject to potential conflicts of interest.

Board members have fiduciary duties to promote the company’s interests, and specifically for financial and legal matters.  They have a duty of loyalty to the company.

Many board members have outside interests that could create an appearance or an actual conflict.  Also, board members and senior executives have to ensure that they are not making business decisions to advance or benefit any personal or outside business interest.  Board members have to scrupulously adhere to conflict-free decision making.

The Xerox Case

A recent example of a clear conflict of interest occurred in the case of US-based Xerox Corporation’s plan to sell itself to Japanese rival Fujifilm Holdings Corporation.  A New York State Judge blocked the proposed transaction because Xerox’s Chief Executive Officer acted to preserve his position as CEO of the new company when reaching a deal with Fujifilm.

A significant investor challenged the transaction, accusing Xerox’s CEO of striking a deal that preserved his job at the expense of shareholder value.  Judge Ostrager noted that Xerox’s CEO learned that the board was actively seeking a new CEO to replace him.  Once the CEO learned this, Judge Ostrager found that the CEO was “hopelessly conflicted during his negotiations of a strategic acquisition transaction that would result in a combined entity of which he would be CEO.”  Indeed, Judge Ostrager noted, “There is ample evidence that [the CEO] collaborated with Fuji to make himself indispensable to the transaction.”

Conflicts Policy

Companies have to adopt and implement a conflict of interest policy.  Every board member, senior executive and employee should review and sign the conflicts policy.  Each year all of these persons should execute a fresh conflicts policy acknowledgement and attestation.

Such a policy should require board members, senior executives and employee to disclose outside interests that may conflict with the interest of the company.  Such outside influences and interests can relate to personal, financial, family and other interests.

A conflict of interest policy should include appropriate definitions for terms such as an “interested person,” “financial interest, family interest, and any other relevant terms.  In addition, the policy should explain that every board member, senior executive and employee has a duty to disclose and seek guidance on the existence of a conflict of interest.

To resolve a potential conflict, the company’s policy should establish procedures to review and resolve potential conflicts of interest.  If the company determines that the board member, senior executive or employee has a potential conflict of interest, the policy should outline potential solutions to eliminate the conflict of interest.

A robust conflict of interest policy should be a centerpiece of a company’s corporate governance framework.  A Chief Compliance Officer has to prioritize training, education and enforcement of the company’s conflicts policy.  It is an important underpinning of a company’s ethical culture and, if violated or unenforced, apparent and actual conflicts can quickly eviscerate any trust and integrity in an organization.

The post The Pernicious Effect of Conflicts of Interest appeared first on Corruption, Crime & Compliance.

Sherlock Holmes Week – Part III: The Priory School and Criminality

FCPA Compliance & Ethics -

This week I have returned to one my favorite themes for every Chief Compliance Officer (CCO), compliance professional and compliance program: Sherlock Holmes. I am using themes from the short stories to illustrate broader application to components of a best practices compliance program. I have used three primary resources in putting together this series: Maria [...]

The post Sherlock Holmes Week – Part III: The Priory School and Criminality appeared first on Compliance Report.

A Structural Response To Pandemic Threats

BRINK News -

This is the second piece in a four-part series about pandemics. You can find the first piece here.

As public health officials this year mark the 100-year anniversary of the 1918 influenza pandemic, trends in urbanization and globalization that have made the world increasingly crowded and connected have brought into focus the need for a strategic approach to addressing the risks and costs of epidemics in a modern context.

Ebola outbreaks in the Democratic Republic of Congo this year, Ebola outbreaks in Guinea, Liberia, and Sierra Leone in 2014-2016, and Zika outbreaks in Latin America and the Caribbean in 2015 and 2016 have brought the issue to the forefront. The U.S. Congress this month held hearings about the state of U.S. public health biopreparedness, identifying ways for anticipating, responding to, and mitigating many of these biological threats.

Pandemic Deaths, 1918-2016

Source: “Financing of international collective action for epidemic and pandemic preparedness,” The Lancet, Vol. 5, August 2017

While there has been a dramatic drop in deaths associated with global pandemics—none have approached the estimated 20 million to 50 million deaths of the 1918 pandemic—the economic costs have remained consistently high. Ebola outbreaks in Guinea, Liberia, and Sierra Leone led to a $2.8 billion GDP loss in those countries. The Zika outbreak cost Latin America and the Caribbean region $3.5 billion. SARS, which reached more than two dozen countries around the world and infected an estimated 8,098 people, cost an estimated $52.2 billion in global economic loss.

As health officials, governments and global business leaders study and prepare for the ever-present threats of global outbreaks, many are examining the ways that financial structures, supply chains and information sharing can work together to prevent calamitous outcomes.

The Hidden Cost of Pandemics

Many estimates of the costs of pandemics fail to account for a concept known as intrinsic value, which accounts for intangible factors, such as elevated mortality. As pandemics worsen, the cost of a heightened mortality rate increases, almost eclipsing the tangible economic cost of lost income.

One paper, co-written by researchers in Hawaii and California and former U.S. Treasury Secretary and Harvard President Lawrence Summers, takes this intrinsic value into account in its analysis. In the event of a modern day pandemic that matches the severity of the 1918 outbreak, the paper predicts roughly 720,000 deaths per year—though the researchers acknowledge that this number is likely to fluctuate—and a cost of $570 billion.

The Problem with Existing Infrastructure

Preparedness is essential for pandemic response. However, evidence abounds that the appropriate funds and resources have not been allocated to properly handle an unexpected outbreak.

The World Health Organization runs the Contingency Fund for Emergencies (CFE), which holds money to disburse in response to sudden crises. “The ability to respond quickly—in as little as 24 hours—before other funding is mobilized can stop a health emergency from spiraling out of control, saving lives and resources,” specifies the CFE.

Contingency Fund for Emergencies (CFE) Contributions, 2015-2018

Source: CFE

The goal of the CFE is to have $100 million on hand and to replenish that fund with $25 million to $50 million annually. However, between 2015 and 2018, only $69 million has been contributed, and almost all of that—precisely $53,696,054—has been disbursed in that same time period. Financial structures have, thus far, been depleted by relatively small outbreaks; they would likely not have sufficient funds to allocate in response to a more severe outbreak.

Contingency Fund for Emergencies (CFE) Allocations, 2015-2018

Source: CFE

Moreover, the existence of a protocol or infrastructure to respond to public health crises is no guarantee of an adequate response to a sudden outbreak. A June 2016 report written as a retrospective on the U.S. Department of Health and Human Services Ebola response found that many existing protocols and response frameworks were either ignored or poorly suited for a rapid response.

For example, the independent panel compiling the report found that “the U.S. government was not well prepared to respond to emergent crises that require a rapid, integrated domestic and international response,” that the “HHS did not apply existing pandemic plans and coordination mechanisms during the Ebola response,” and that “the U.S. government was not prepared to deploy response personnel at the scale or rate required for the Ebola epidemic.”

Beyond governmental protocols, global supply chains also pose a risk to pandemic prevention. “The most common lifesaving drugs all depend on long supply chains that include India and China—chains that would likely break in a severe pandemic,” writes science writer Ed Yong in The Atlantic.

“Each year, the system gets leaner and leaner,” Michael Osterholm, a professor of public health at the University of Minnesota and the director of the University’s Center for Infectious Disease Research and Policy, told Mr. Yong. “It doesn’t take much of a hiccup anymore to challenge it.”

Dramatic Predictions

According to some estimates, a pandemic on the scale of the 1918 influenza outbreak could have catastrophic effects on the world at large.

One widely cited research paper from 2006 by Warwick J. McKibbin and Alexandra A. Sidorenko outlines four models of what a contemporary influenza pandemic might look like: a mild, moderate, severe, and ultra senario. While the authors caution that modeling pandemics is difficult given the dearth of historical data, their conclusions are dire. Even a mild influenza outbreak would result in 1.4 million deaths and cost approximately $330 billion dollars in lost economic output.

Mortality Rates in Four Pandemic Scenarios

Source: Lowy Institute for International Policy

The costs are even higher as the severity of the outbreak increases: “A massive global economic slowdown occurs in the ‘ultra’ scenario, with over 142.2 million people killed and some economies, particularly in the developing world shrinking by over 50 percent,” they write. The loss to global GDP would be $4.4 trillion.

On the 100th anniversary of the 1918 influenza outbreak, marked improvements can be noted. However, preparedness is still not in its best possible state—which puts the world at risk. “For now, we will have to live with a world where a relatively minor flu outbreak in Mexico City can send markets reeling in Tokyo,” conclude Mr. McKibbin and Ms. Sidorenko.

Moving From Reports to Analytics

Corporate Compliance Insights -

SilkRoad’s Talent Talk Podcast, Episode 14 In this episode of Talent Talk, host John Westby discusses with SilkRoad’s Mimi Jerkan and Nirmala Pol the seven advantages of analytics vs. vintage reporting: Faster reporting and analysis Accuracy Better business decision-making (*educated decision-making) Operational efficiency Save headcounts Reduce costs Increase in ROI The post Moving From Reports to Analytics appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

New RIMS Report Delivers a ‘Wakeup Call’ To Risk Managers

Risk Management Monitor -

According to the new RIMS report, Enterprise Risk Management’s Wakeup Call: 10 Years After, an increasing number of organizations are at least partially integrating ERM into their frameworks as they prepare for the possibility of another financial crisis or a new threat.

“The evidence shows that risk management has evolved from a promising but somewhat perfunctory exercise into a strategic management competency,” said RIMS Vice President of Strategic Initiatives Carol Fox, who authored the report. “Even so, given increasingly uncertain times, risk management professionals would be unwise to declare victory or become complacent.”

The 10 Years After report highlights a range of perspectives from executives, officers and risk professionals who represent banking, higher education, technology, health care, transportation, and a federal agency. These professionals offer their perspectives on where ERM stands today. In fact, one shared observation is that the factors which contributed to the crisis are resurfacing, but that ERM can help protect against them. As one technology officer noted: “…as soon as people are introduced into the equation, things change and risks are introduced into the process. While financial models and robot investing are agnostic, once you introduce people, their biases come back into play and disrupt the integrity of those models.”

The integration of ERM programs—even partially—has seen a slow-but-steady climb in the past decade. The report cites statistics from recent RIMS surveys, showing that 92% of financial institutions have fully or partially integrated ERM programs since the housing market crisis. Full integration, however, may be the key to protection and value—and this is accordingly the most daunting, long-term task. “At any point in time, changes in an organization itself, given myriad complexities and disruptions, may take focus away from full integration,” Fox said.

The report discusses what the experts and their industries learned from the financial crisis in the way of risk appetite and regulatory systems. By examining recent literature and studies to better understand the risks facing organizations, the report challenges risk professionals to deliver programs that generate value.

It also offers insight as to what organizations should consider as they further integrate programs. Changes in legislation, interest rates and the volatility of cryptocurrencies are on the collective radar as risk professionals look to the future.

“[bitcoin’s] future is unknown, especially given its recent run-up and sudden devaluation,” the technology officer said. “Cryptocurrency could become problematic because of scale—particularly if someone figures out a way to short-sell it much like what occurred with CDOs.”

Enterprise Risk Management’s Wakeup Call: 10 Years After is available to RIMS members only for the first 60 days. After the introductory period, it will become available to the broader risk management community. You can download the report via Risk Knowledge.

Complementary to the report, Risk Management Monitor recently published Compliance in 2018: Q&A with James Reese of the SEC, highlighting how the SEC views organizational risk management.

Long Term Thinking Means Ending Short-Term Reports

Ethical Systems Blog -

The chorus to end quarterly corporate reporting recently gained two prominent voices from the financial world. In a recent article in Bloomberg, Jamie Dimon, CEO of JP Morgan Chase, and Warren Buffett, the Chairman of Berkshire-Hathaway, advised companies to do away with their emphasis on quarterly earnings reports, arguing that it motivates misconduct and shifts the focus from sustained growth and stability to immediate profits and performance.

From the piece:

“Quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability,” they said. 

They have said the practice of telling Wall Street what to expect from earnings can distort management’s priorities. In the latest appeal, they said companies often hesitate to spend on technology, hiring, and research and development to meet quarterly earnings forecasts that can be affected by seasonal factors beyond their control.

Earnings forecasts “can often put a company in a position where management, from the CEO down, feels obligated to deliver earnings and therefore may do things that they wouldn’t otherwise have done,” Dimon said Thursday in an interview with CNBC. “We’re hoping a bunch of companies drop it right away.”

Their advice gels with the advice contained in a letter to fellow corporate leaders by Blackrock CEO Larry Fink in 2016. More so, their counsel is echoed by research and organizations like The Aspen Institute who are looking to make this pivot in thinking more widespread.

For businesses to truly succeed and build sustainable value, they have to look towards the horizon. Since a company is only as strong as its culture and employees, a new mindset that focuses on long term thinking is the best way to obviate issues that can hobble even the most nimble- and profitable- organization.

Further Reading:


Tags: long term thinkingshort term thinkingLarry FinkBloombergJamie DimonWarren Buffett

Observations on Culture at Financial Institutions and the SEC

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Jay Clayton, U.S. Securities & Exchange Commission, on Tuesday, June 19, 2018 Editor's Note: Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent remarks, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Thank you Bill [Dudley] for that kind introduction and for inviting me to speak today [June 18,2018]. [1] I’m planning to speak for fifteen or so minutes and to open the floor to questions.

I want to extend my congratulations to Bill Dudley on a very successful term. You are now a member of the long line of former leaders and perpetual culture carriers at the New York Fed. The respect for the New York Fed, among national and international regulators and, importantly, market participants of all stripes, is remarkable, but clearly well deserved. Congratulations are also in order for John Williams, who begins his term today. John, my colleagues and I at the SEC are looking forward to working with you in your new role.


Audit Tenure and the Timeliness of Misstatement Discovery

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Zvi Singer (HEC Montreal) and Jing Zhang (University of Alabama), on Tuesday, June 19, 2018 Editor's Note: Zvi Singer is associate professor of accounting at HEC Montreal, and Jing Zhang is assistant professor of accounting at the University of Alabama in Huntsville. This post is based on their recent article, published in The Accounting Review.

Is long auditor tenure beneficial or detrimental for audit quality? This is the question we are trying to address in this article. The impact of audit firm tenure and auditor rotation on audit quality have long been debated both within academia and by regulators in the US and globally. The debate has centered on two main opposing views. The positive view argues that longer auditor tenure leads to a higher quality audit via a learning effect, due to the accumulation of client-specific knowledge over time. An auditor that is more knowledgeable of the client is more likely to promptly identify financial reporting problems. Accordingly, regulatory intervention that limits the length of the auditor-client engagement is undesirable. The negative view argues that long auditor tenure may have a detrimental effect on audit quality for two reasons. First, long auditor tenure may lead to the development of economic and social bonds between the auditor and the client company due to continuous involvement. This, in turn, has the potential to impair the auditor’s objectivity and increase the likelihood of audit failure. Second, because the audit is performed year in and year out, the auditor may become complacent, due to the repetitive nature of the task. A complacent auditor, in turn, may fail to promptly detect misreporting, leading to audit failure. In contrast, a new auditor would bring a fresh viewpoint, which will benefit the audit engagement. Consequently, under the negative view, it is desirable to limit the length of the auditor-client engagement.


Understanding the Dutch Poison Pill

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Seve Jan van der Graaf, Glass, Lewis & Co., on Tuesday, June 19, 2018 Editor's Note: Seve Jan van der Graaf is an analyst at Glass, Lewis & Co. This post is based on a Glass Lewis publication by Mr. van der Graaf. Related research from the Program on Corporate Governance includes Toward a Constitutional Review of the Poison Pill by Lucian Bebchuk and Robert J. Jackson, Jr. (discussed on the Forum here), and The Case Against Board Veto in Corporate Takeovers by Lucian Bebchuk.

Ahold Delhaize, the biggest food retail group in the Benelux region with a rough market cap of €25 billion, is facing pushback from shareholders over a unique Dutch practice. The company recently announced that it had extended its call option agreement with a foundation called “Stichting Continuïteit Ahold Delhaize” or “SCAD” (roughly translated as the foundation for continuity of Ahold Delhaize), without giving investors the opportunity to vote on the deal.

To be clear, SCAD is not a charitable foundation—instead, the entity effectively functions as a poison pill for Ahold Delhaize. In Dutch corporate law, foundations need to have a purpose, but that purpose does not need to include the public good. As a result, these legal structures are the go-to anti-takeover mechanisms for Dutch companies, from family-owned entities to public issuers, taking several different forms. Here, SCAD was established for the purpose of protecting the continuity, independence and identity of Ahold Delhaize. It fulfils this purpose through the call option agreement, which gives SCAD the right to buy all 2,250 million of Ahold Delhaize’s authorised but unissued cumulative preference shares—which, not coincidentally, amount to 50% of the company’s authorised share capital, effectively blocking any attempt to take control.


Innovation in Compliance Episode 18: Shared Risk Requires Shared Solutions with Greg Radner

FCPA Compliance & Ethics -

Building and operating an effective compliance program is a tall order if you don’t have the information or the tools – and people – to make it happen. Today, Tom’s talks with Greg Radner, the chief marketing officer of RANE (Risk Assistance Network + Exchange), about his company’s innovative compliance assistance solutions in the management [...]

The post Innovation in Compliance Episode 18: Shared Risk Requires Shared Solutions with Greg Radner appeared first on Compliance Report.

Governing Cybersecurity

Corporate Compliance Insights -

Cybersecurity Committees on the Rise We’re seeing a growing trend: organizations across diverse industries are beginning to establish committees dedicated specifically to cybersecurity. Some are assigning audit committees to the task, but there’s good reason in many cases to create a new committee. Whatever governance model is adopted, independent oversight is imperative. “Cybersecurity risks pose The post Governing Cybersecurity appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)

5 Essential Elements of Corporate Compliance (2018 edition)

Global Compliance News -

We are pleased to announce that the newly revised and updated edition of 5 Essential Elements of Corporate Compliance and A Short Guide to 5 Essential Elements of Corporate Compliance are now available.

Although enforcement guidelines around the world vary in length, tone, language, and specificity, virtually all touch upon a set of core themes, which Baker McKenzie has distilled into five essential elements: leadership, risk assessment, standards and controls, training and communication, and oversight. These five elements serve as foundational, best-practice principles for the way we counsel our clients in the area of corporate compliance with respect to the design, development, implementation, and enhancement of compliance programs. Importantly, they also represent a tested framework for the effective defense of corporate programs before authorities around the world.

Our 2018 edition of the publication provides fresh expert insight on effectively managing corporate compliance efforts in today’s evolving regulatory and enforcement environments. The pages are filled with practical insight, intuitively divided by the five elements, for all companies with extended enterprises–both domestic and multinational–seeking to deter, detect, prevent, and, when necessary, remediate illegal practices or other misconduct. The publication also addresses a wide array of related risk management considerations, from effective culture and governance to active program awareness and adherence.

While the 5 Essential Elements of Corporate Compliance spotlights the area of anti-corruption compliance and surveys key jurisdictions with notably active or burgeoning legal and enforcement systems, its content cuts across compliance subject areas and national boundaries by integrating best practice guidance from a variety of influential global regulators and international organizations.

The post 5 Essential Elements of Corporate Compliance (2018 edition) appeared first on Global Compliance News.

Sherlock Holmes Week – Part II: The Abbey Grange and Institutional Justice

FCPA Compliance & Ethics -

This week returns to one my favorite themes for every Chief Compliance Officer (CCO), compliance professional and compliance program: Sherlock Holmes. Over the next few days, I will be blogging on themes from the short stories to illustrate broader application to components of a best practices compliance program. I have used three primary resources in [...]

The post Sherlock Holmes Week – Part II: The Abbey Grange and Institutional Justice appeared first on Compliance Report.

Using Modern Data and Analytics To Confront the Challenge of Epidemic Risk

BRINK News -

This is the first in a four-part series about pandemics.

One hundred years ago, in the spring of 1918, the world was in the early phase of a global disaster that came to be known as the Spanish flu. By the time it ended a year later, the pandemic had killed tens of millions of people. If the 1918 influenza pandemic happened today, the spread of the disease would be much different, impacted by the tripling of the human population, changes in land use, and the massive increase in global connectivity through air travel. But some elements would be the same: Millions would die, millions more would become ill, and the economic devastation to countries, companies, and individuals would be staggering.

It has become common to view such events as rare “black swans.” This is far from the case. Over the past five years, the world has been hit with hundreds of notable outbreaks: The West African Ebola outbreak, MERS, Zika, and H7N9 captured global attention. Recognizing that outbreaks that would have once remained localized are now of global concern, countries and international agencies have highlighted the importance of a swift response. This is illustrated in the current Ebola outbreak in the Democratic Republic of Congo, where there have been 64 cases and 28 deaths reported in three health zones in Equateur Province.

Source: Metabiota

Within the first month of the outbreak declaration, the World Bank Group’s Pandemic Emergency Financing Facility made its first-ever financial commitment, with a $12 million grant toward response, and health officials began to administer an experimental vaccine to people who had come in contact with Ebola cases. These actions are drastically different than in 2014, when the international response came months after the outbreak’s beginning. While the international public health community has recognized the risk of this outbreak, other international agencies and companies should follow suit and reassess preparedness and response plans. Any outbreak, especially deadly outbreaks such as Ebola, require a timely and coordinated response.

Recent comments from Bill Gates underscore his and others’ sense that an epidemic is on the horizon and could kill 30 million people within six months. Coupled with the recent Centers for Disease Control and Prevention announcement that illnesses from mosquito, tick, and flea bites more than tripled in the U.S. from 2004 to 2016, the global health community continues to review processes, interventions, and solutions to manage and mitigate epidemic risk.

Financial Costs of Epidemics

Epidemics also have massive financial costs—devastating businesses and harming livelihoods and communities long after infections cease. The World Bank estimates that a severe flu pandemic would cost the world $4 trillion. Even events that happen every few years can be costly: The introduction of a handful of MERS cases into South Korea in 2015 resulted in an approximately $2 billion loss from tourism, and the cost to Latin America from the ongoing Zika epidemic will be closer to $18 billion. Zika has also directly impacted the U.S. economy. In the summer of 2016, 91 percent of businesses in a Miami district reported experiencing loss of revenue by as much as 40 percent.

Notable Epidemics, Pandemics and the Impact on Human and Economic Health

Source: Excerpted table from Pandemics: Risks, Impacts, and Mitigation: Disease Control Priorities, Third Edition, Volume 9, Chapter 17. Authors: Nita Madhav, Ben Oppenheim, Mark Gallivan, Prime Mulembakani, Edward Rubin, and Nathan Wolfe

Public sentiment toward infectious disease outbreaks can cripple businesses and economies, sometimes in an even more extreme way than the outbreak itself. When an outbreak occurs, especially in a region that has not previously seen the disease, people’s responses can compound an already destructive sequence of events. From media attention to a sometimes reactionary and fearful public, many people will disrupt work, cancel trips, and stop trading. During the 2014 Ebola outbreak, airline stocks fell as investors bet on a decrease in travel due to the cases of Ebola at Texas Presbyterian Hospital. Furthermore, several hundred airline workers did not report for work at LaGuardia Airport in New York due to their concerns over on-the-job protection. 

Some outbreaks warrant travel advisories. While these are undoubtedly needed to reduce disease spread, they often lead to direct, negative impacts on a region’s tourism and business for months to come. One notable example is the CDC travel advisory issued in August 2016, which urged pregnant women not to visit a Miami neighborhood after 14 people were infected with Zika. This was the first time that CDC officials had warned against travel to part of the continental U.S. due to an outbreak, and the consequences were felt immediately: Businesses closed their doors, trips were cancelled, and airlines offered refunds on flights to Miami.

Using Data To Model Epidemic Risk

Epidemics will continue to have global impacts. The risk of disease outbreaks will increase as the world becomes more connected through trade and travel, as climate change alters disease ranges, and as the population grows and interfaces with diseases from animal populations. Constant media coverage means the fear associated with outbreaks spreads widely and rapidly.

While epidemics pose a global risk, they are notoriously challenging to forecast and monitor. The team at Metabiota produces epidemic risk models for the insurance, commercial, and government sectors to help address the challenge of quantifying this seemingly unquantifiable risk. Such models provide the probability of experiencing a certain level of human or financial loss due to infectious disease epidemics.

Computer simulation models assess the likelihood of loss by projecting plausible disease transmission events globally. For example, simulators can depict the potential spread of pandemic flu or outbreaks akin to the 2003 SARS and 2014 West Africa Ebola events. Probabilistic models show disease emergence, rate of spread, number of people infected, and the resulting rates of health care utilization and mortality. Organizations are often interested in costs, so disease spread models can be coupled with financial models that quantify the economic impact and insurance claims related to outbreaks. Altogether, an extremely large set of simulated events allows for the estimation of potential financial and human losses.

Such models can also show the probability of individuals moving across travel networks as well as the probability of their transmitting disease within each network node. Millions of calculations occur in a single epidemic simulation.

Metabiota has developed a tool for estimating public fear and behavioral change that helps define the kind of risk that corporations face. It integrates scientific expertise with analytics into historical infectious disease outbreaks with consumer sentiment scoring for each pathogen, thus enabling insurers to offer a trigger-based business interruption policy to travel and tourism clients.

A hundred years ago, governments gripped for the onslaught of Spanish flu. But government officials weren’t the only ones concerned. Corporate boards recognized that the spreading epidemic could kill or harm their employees, damage supply chains, and impact customers. Although not a typical daily concern for boards, they are responsible for managing epidemic risks—a risk that is increasing and far from unusual. New tools are radically changing how corporations can engineer their response to these potentially catastrophic events and better protect themselves, shareholders, employees, and customers while playing a significant role in making the world safer.


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