COVID 19: An Enterprise Risk to Global Food Companies
By Melanie Neumann, J.D., M.S. EVP & General Counsel, Matrix Sciences International, Inc.
While COVID19 is causing a tidal wave of consequences to every company in the US and around the globe, there are unique factors that a food or beverage company should consider when evaluating both its proactive and its reactive response to this pandemic at the enterprise-level. Calling upon your existing enterprise risk management (ERM) program can significantly enhance the timing and quality of your approach to the dynamically changing risks associated with COVID19.
What is Enterprise Risk Management?
COSO– the Committee of Sponsoring Organizations of the Treadway Commission created a risk management system called enterprise risk management (ERM) that focuses on the identification and mitigation of risks that may cause a material financial—or balance sheet–risk to an enterprise. ERM was born out of the financial scandals in the early 2000’s as a way to elevate awareness and mitigation of material risk to a business.
COSO describes ERM as:
• An ongoing process
• Applied in strategy setting and across the enterprise
• Designed to identify potential risks that, if they occur, will affect the entity in a material way
• A process to manage risk within an organization’s risk appetite
• Provides reasonable assurance regarding the achievement of business objectives
ERM is the discipline, culture and control structure an organization has in place to continuously improve its risk management capabilities in a changing business and risk environment.
Why Should Food Companies Leverage Enterprise Risk Management in the Wake of COVID19?
You may be asking: What food safety risk could rise to the level of an enterprise risk that could present a material balance sheet risk to your organization and potential cripple or even bankrupt your company?
Admittedly food companies may be more familiar with other more predictable examples of specific enterprise risks such as 1) highly visible foodborne disease outbreaks linked to your company’s product, 2) food fraud events, and 3) large recalls that may include temporary or permanent facility shutdown. That said, epidemics and pandemics should be a part of your crisis management and business continuity plans, which are both a critical component of your ERM program.
The above illustrates an important point: the results of an ERM assessment are relative; each risk should be compared and ranked relative to all other identified enterprise risks. And risks change—just like the spread and impact of COVID19 is changing daily throughout the world. This means food companies must be nimble and responsive to the changing risk presented by this outbreak and may need to re-think its approach to managing a pandemic that at best used to represent a couple of lines of text in your crisis management plan.
What Are the Top Five Enterprise Risks to Food Companies Relating to COVID-19?
The following are ERM-related risks as we see them associated with COVID-19 ranging from supply chain disruption and consumer misunderstanding to legal and reputational risk. Having response strategies in place for these risks is a wise investment of time in the coming days in order to stay abreast of this situation:
(1) Your company is highlighted a having one or more employees diagnosed with COVID-19 and your customers stop buying your products out of fear and misunderstanding of how the virus is transmitted.
(2) One or more of your ingredients is sourced from a country severely affected by COVID-19 and you will run out of critical ingredients for your product
(3) One or more of your employees gets infected with SARS-CoV-2 virus (the virus that causes COVID-19) and allege that inappropriate workplace protection procedures are responsible for the illness(es).
(4) One or more of your ingredients is sourced from a country severely affected by COVID-19 and due to supply chain disruptions creating the opportunity for food fraud, these ingredients are less safe and/or are fraudulent (for example, diluted with compounds that are not the material you purchased)
(5) Your company experiences workforce absences that impact your ability to meet production demands, or worse, follow all required food safety procedures.
Note what is not on this list: Your product causes a CoVID-19 case. Why? Because it is highly unlikely. As you can see the overall non-food-safety associated enterprise risks (economic and societal consequences of CoVID-19 such as reduced sales, infrastructure shut-down, lack of human resources to produce food, etc.) are significant.
Various food and public health agencies are on record as having no confirmed cases of COVID-19 transmitted via food. For example, As detailed by the US Centers for Disease Control (CDC) there currently is no evidence to support transmission of COVID-19 associated with food. Also, in general, because of poor survivability of these coronaviruses on surfaces, there is likely very low risk of spread from food products or packaging that are shipped over a period of days or weeks at ambient, refrigerated, or frozen temperatures. See https://www.cdc.gov/coronavirus/2019-ncov/faq.html#spreads.
Further, the European Food Safety Agency states “experiences from previous outbreaks of related coronaviruses, such as severe acute respiratory syndrome coronavirus (SARS-CoV) and Middle East respiratory syndrome coronavirus (MERS-CoV), show that transmission through food consumption did not occur. At the moment, there is no evidence to suggest that coronavirus is any different in this respect.” See https://www.efsa.europa.eu/en/news/coronavirus-no-evidence-food-source-or-transmission-route
Focusing on CDC and WHO recommendations is advised including hand-washing, following good manufacturing and personnel hygiene practices, wearing PPE, covering mouth and nose when sneezing or coughing, and enforcing and incenting employees who feel ill to stay home. Consider creating training and information materials in all languages spoken in your facilities so everyone understands the severity of this issue.
Enterprise risk management is integral to strategy setting and the identification of risk and opportunities to manage risk in a way that creates efficiencies, ensure cross-functional participation and protects enterprise value. Leveraging ERM when dealing with COVID-19 considerations can be a useful approach.
Matrix Sciences Advisory Services is offering food and beverage companies assistance in dealing with COVID19, including internal and external communications, supply chain approval assistance when changing suppliers is necessary, and more. Please contact email@example.com for more information or assistance.
DISCLAIMER: THE INFORMATION CONTAINED IN THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR PROFESSIONAL ADVICE. MATRIX SCIENCES INTERNATIONAL, INC., NOR THE AUTHOR MAKE NO WARRANTIES, EXPRESS OR IMPLIED, IN CONNECTION WITH THE INFORMATION HEREIN NOR SHALL THE PARTIES BE RESPONSIBLE OR LIABLE FOR ANY COSTS OR DAMAGES RELATED TO THE USE OR INTERPRETATION OF THIS INFORMATION.