Post-9/11: How Business Is Buckling Up

Security concerns pose big, expensive challenges. Here are a few glimpses of how Corporate America is responding

Immediately after the attacks on the World Trade Center and the Pentagon, FedEx (FDX ) CEO Fred Smith wasn't sure whether to lock down his fleet of planes or move them around the globe. Alas, there was no place for him and many other anxious execs to get answers to their urgent queries for information.

To avoid such communications glitches in future emergencies, the CEOs of the Business Roundtable (BRT) have created a secure phone system so that the nation's top executives can communicate with each other and with government officials in the event of another national calamity. The goal: to ensure business continuity, to speed the recovery effort, and to immediately relay information back and forth between the public and private sector.

This Critical Emergency Operations Communications Link (or CEO Com Link) was designed and financed by AT&T (T ), whose CEO, C. Michael Armstrong, chairs a new BRT security committee (see BW Online, 6/4/02, "Uncle Sam's Ally: Corporate America"). The Roundtable will pay for the operational costs of the new system.

CEO Com Link is just one example of how individual businesses and industry trade groups are acting to protect their workplaces from terrorist attack -- or to prepare to respond in case another tragedy occurs. The new security measures are mostly voluntary: Only the airline industry thus far has been subjected to new government mandates. Here are some of the other ways Corporate America has responded to the events of September 11:

A Bridge for the 21st Century. Detroit's Ambassador Bridge, gateway to Canadian commerce, is the most heavily traveled U.S. border crossing. The increased security following September 11 snarled traffic for up to 17 hours and forced the government and the private sector to seek a safe, efficient way to deal with the new measures affecting cross-border commerce.

The answer: a pilot project to allow pre-cleared trucks to use special lanes that allow them to avoid long inspection lines. Trucks with loads that have been electronically credentialed by their companies and use a system of transponders can pass through customs in just 17 seconds. Without the new electronic system, the wait averages an hour and a half.

General Motors (GM ) is among the companies experimenting with the new system. The auto giant is pushing the federal government to work with companies to set standards to ensure the safety and security of cargo. While the public-private partnership, dubbed the Customs Trade Partnership against Terrorism, has had some success to date, it hasn't completely eliminated delays. The nagging problem: bottlenecks before the border inspection stations that slow down transponder-equipped trucks. "They've made some progress," says Kevin Smith, GM's director of customs administration. "But this is a monumental task."

Keep on Truckin'. One of the top fears of anti-terrorism experts is a homicidal truck driver blowing up poisonous or radioactive cargo in a tunnel, on a bridge, or in a crowded public place. That's one reason Yellow Corp. (YELL ), the nation's biggest trucking company, has stepped up its screening of drivers since September 11. It has added three former law-enforcement people to its security staff and has intensified background checks on new hires.

One of the new policy's side effects was that an escaped felon who came into its Fontana (Calif.) facility to apply for a job ended up getting arrested. "We're doing more referrals to law enforcement than ever before," says Yellow CEO William Zollars.

Yellow also does background checks on unknown shippers. It calls any new customers to get background information, then runs the names through police and state motor-vehicle department records. It's similar to the routine the Oakland Park (Kan.) trucker uses to combat drug traffickers. Still, says Zollars, "since September 11, we've put a lot more emphasis on security."

The trucking industry has another incentive: fear of more government regulation. With about 85% of U.S. commerce dependent upon trucking for at least a portion of its transportation needs, costly new regs could hurt both corporations and consumers. "If we get too ham-fisted on this, we could do what the terrorists were trying to do: disrupt the fundamental workings of our economy," Zollars says. "The wheels of commerce could really come to a screeching halt."

Telecom Gears Up. The nation's telecommunications giants and their corporate customers learned some painful lessons in the days following the al Qaeda attacks. Among them: It's important to have excess capacity in case of emergency. That's one of the reasons Verizon (VZ ) is putting more of its $9 billion to $10 billion of annual capital spending into redundant capacity. On September 11, Verizon was able to use a backup facility to process "911" calls that would normally have gone through a disabled building near the World Trade Center.

Telecoms also want to be ready to respond immediately if disaster strikes. AT&T has 200 semi-trailers of backup equipment available to move on a moment's notice. CEO Armstrong says AT&T has improved its risk-assessment development and beefed up crisis-response planning. For its business customers, AT&T also has focused on data-recovery and business-continuity efforts.

Airport Adjustments. Air travelers are well aware of the new security procedures and the tax hikes approved by Congress to pay for the changes. But there's more to come. And the price tag is going to be hefty.

Jeff Fegan, the CEO of Dallas-Fort Worth International Airport, says it would cost about $40 million to use hand-held devices to screen the 55,000 pieces of luggage that come through DFW every day. The big question: Will the federal government, which mandated new security measures, fork over the money to pay for such added security expenses? If not, who will bear the cost?

It doesn't stop with new equipment. Bill Hoyt, risk manager for Minneapolis/St. Paul's Metropolitan Airports Commission, notes that his insurer now offers a maximum payout of $1 million for terror-related events, down from $700 million prior to September 11. "Our hope and aspiration is that the federal government will step in to support us should something happen," says Hoyt. "It makes me uncomfortable. I don't have anything that states the federal government will step in. But we assume they will have to do something."

Risk Avoidance. Some economists say many corporations are holding back on major investments in security, in part because they don't want to hurt the bottom line and also because they believe the government will come to their rescue in a pinch. "Left to their own devices, companies simply will not make the needed [security] investments," says Peter Navarro, economist at the University of California at Irvine. "That's the grim reality."

Navarro doesn't think a series of strict government mandates for the business community would be the right answer, though. "The government needs to develop security standards for each threatened sector -- sort of like building codes," he says. "That will give business the flexibility to comply."

Who pays? By and large, business will have to shoulder the responsibility. The result is a hit on corporate earnings of between 5% and 6%, according to David Hale, chief economist at Zurich Financial Services Group. Some of the costs will be passed along to customers, as well. But what about the possibility of government subsidies to pay for the new standards? "Some subsidies may be appropriate," says Navarro, "but there's a very large risk that you will be creating just one more trough in Washington."

Electrical Drop-Outs. While most of Corporate America has been working closely with Homeland Security Director Tom Ridge, there's one sector that remains wary: electricity generators. The Edison Electric Institute (EEI), a top industry trade group, told Ridge it won't release information about the nation's power grid or generators without a promise that the information would be kept secret.

In April, the Energy Dept. excised a list of 144 vulnerable electricity facilities from its draft report to the Office of Homeland Security after electricity execs refused to confirm or deny even the existence of the facilities on the list. "I want the police to protect me, but that doesn't mean I give them a key to my front door," says Lawrence Brown, EEI's legal-affairs director. "Unfortunately, you're just going to have to trust us."

EEI won't even offer a ballpark figure of what the sector is spending on new security measures. Still, some industry estimates are available. The Electric Power Research Institute projects that it will cost $70 million over the next 18 months to ease key vulnerabilities. Over the next five years, the price tag could run to $420 million.

Electricity execs say they want the freedom to decide on their own the best security for the buck. "The Energy Dept. and the Office of Homeland Security recognize that they do not know how our systems operate and we do. It would be therefore unproductive for them to tell us how to make our systems secure," Brown says. "We want to be given the freedom to do what is economically justifiable. We could put every single power line underground and bury it in lots of cement. That would make it all secure. But the country wouldn't be able to pay for the electricity if we did that."

For more homeland-security coverage, see:

• BW Online, 6/5/02, "Global Shipping in the Security Age"

• BW Online, 6/4/02, "Uncle Sam's Ally: Corporate America"

• BW Online, 5/31/02, "America's Biggest Job"

• BW Online, 5/31/02, "Tom Ridge on Safety's Fearful Price"

• The McGraw-Hill Companies' Homeland Security & Defense special report

By Richard S. Dunham, with Michael Arndt, Diane Brady, Pete Engardio, Paul Magnusson, Lee Walczak, David Welch, Lorraine Woellert, and Wendy Zellner.

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