The New York Times
November 25, 2005 Friday
Late Edition - Final
SECTION: Section C; Column 3; Business/Financial Desk; Street Scene; Pg. 4
LENGTH: 784 words
HEADLINE: Risk Management, for the Highest Stakes
BYLINE: By JENNY ANDERSON
BODY:
Thomas A. Russo, the general counsel of Lehman Brothers, was working out one October
morning when he got a call from Marty Evans, chairwoman of the American Red Cross and a
member of Lehman's board. The two briefly discussed Lehman before shifting to New Orleans,
where Ms. Evans was on the ground dealing with the aftermath of Hurricane Katrina. She said the
situation was dire, but added that the effects of a bird flu pandemic would dwarf even the
devastation caused by a storm like Katrina.
Mr. Russo, who was preparing a speech on risk management for the Securities Industry
Association, took note. Since then, he has discussed the potential dangers of bird flu with
everyone from President Bush to Wall Street rivals.
The result? Lehman Brothers, a firm that was forced out of its building in lower Manhattan by the
Sept. 11 attacks, has a team of technology executives, doctors and members of management
studying the health, technology and industry implications in the event of a flu pandemic.
''Two or three pandemics a century are not uncommon,'' said Mr. Russo, noting that the same
preparations could be used for crises other than bird flu. ''People aren't going to want to go
where there are other people, so we need to be able to work without going to work.''
Wall Street prides itself on risk management. Mathematicians create models to predict how much
money could evaporate under a variety of scenarios. In the aftermath of Sept. 11, Wall Street
firms ramped up their disaster recovery planning. Disasters like the Asian tsunami prompted
firms to hone their ability to locate employees on holiday, and the rise of cyber threats have
inspired much investment and work to defend internal data systems.
But bird flu requires something that Wall Street can, at times, be short on: imagination. Avian flu
remains chiefly a bird disease. There have been about 130 human cases reported, more than half
of whom have died, all of them in Asia.
An epidemic in New York, however remote the chance, would have an enormous impact.
Employees who feared that they were sick would not be allowed to come to work -- a concept
that would be difficult to impart to Wall Street's notoriously Type A professionals. And the
business of Lehman -- executing trades, underwriting securities and managing money -- might
not get done.
Lehman is focusing on two issues: how to enable people to work from home -- which requires
looking at connectivity and technology issues -- and, as an industry, how to connect companies
to each other to prevent a financial panic.
''In the case of a pandemic, bringing people together could be the issue,'' said Bridget O'Conner,
Lehman's chief technology officer and one of the main executives working on the bird flu
scenario. ''We have a disaster recovery site, but if we have people who are afraid to go to work,
it won't help us.''
Enabling people to trade from home creates formidable challenges, both technological and
regulatory. Ms. O'Conner is considering options from the use of Internet telephony to the creation
of a common address book that would allow workers to find one another.
''The challenge is, how do I move the borders of the firm's network?'' Ms. O'Conner said. ''We all
have to be in the game because without each other, we don't have a market.''
Every Wall Street firm has committees examining bird flu issues from quarantines of employees
to the availability of antiviral drugs.
A strain of bird flu labeled H5N1 first appeared in humans in Hong Kong in 1997. More than 200
million birds have died from this strain, which has a fatality rate among birds of almost 100
percent and kills them within 24 to 48 hours.
A pandemic is characterized by a highly virulent strain of virus that infects humans, makes them
ill and spreads easily from human to human. There is no evidence that humans can pass bird flu
to one another, but H5N1 mutates rapidly.
Ms. Evans, the American Red Cross president and Lehman board member, applauds Lehman
management for going beyond just thinking about the issue.
''If it's a coffee shop, you close down and just shutter it and absorb the losses,'' she said. ''But
when you are talking about a worldwide financial network, the premium, the reward, will go to
the companies who figure out how to participate in that network even if a point is significantly
impacted.''
Hurricane Katrina offered evidence that the response to even the most anticipated of crises -- the
flooding of New Orleans -- could be abysmal. The challenge is shifting the mindset from ''if'' to
''when.''
''The possibility of an outbreak of bird flu could be as high as 5 percent, but it's certainly not zero
percent,'' Mr. Russo said.
URL: http://www.nytimes.com
GRAPHIC: Photos: Bridget O'Conner, Lehman's chief technology officer, is working on the
company's response to a pandemic. (Photo by Chester Higgins Jr./The New York Times)
Earlier this week, a worker disinfected ducks in China's Anhui province. (Photo by China
Newsphoto, via Reuters)
LOAD-DATE: November 25, 2005