UK businesses need to act on serious security gaps

The terrorist attacks in London on 7 July and the attempted attacks of 21 July confirm the deadly threat that Al-Qaeda and its sympathisers have posed to the UK since the attacks on the US nearly four years ago. The terrorists' main targets are people, but they also threaten businesses. Terrorists bombed the headquarters of the British bank HSBC in Istanbul in November 2003 and Osama bin Laden has promised to attack what he describes as "economic interests". Potential targets could include energy facilities, transport services, business headquarters, and shopping, leisure and entertainment centres. Businesses represent potential targets to terrorists because of their economic value and their iconic standing: they symbolise capitalism and the West. Despite the obvious nature of the terrorist threat, there are serious security gaps in many businesses.

George Washington argued that "there is nothing so likely to produce peace as to be well prepared to meet the enemy". Business owners and managers might be able to buy some peace of mind if they spent adequate resources on protecting their company. Many do not. A survey of 500 members of the Institute of Directors (IoD) in 2004 revealed that almost a quarter spent nothing on security. Of the three-quarters who did allocate money for this purpose, the majority spent between one and five per cent of their turnover. Only 20 per cent had increased their business's expenditure on security since 11 September 2001. It appears that unless they are actually in the security business, most owners and managers are disinclined to spend money on safeguarding their businesses. As Milton Friedman famously said, the purpose of business is to make a profit. Expenditure on security consumes scarce resources without obviously enhancing profitability, hence the reluctance to invest in protecting the business. This is a false economy. It is debatable whether we live in a Hobbesian state of nature where the condition of man is "nasty, brutish and short"; it is indubitable that we live in a society where crime is prevalent. The latest police statistics show that there were more than one million incidents of violent crime in the UK in 2004-05. Businesses need to spend proportionately and effectively on security. To spend nothing borders on the reckless.

Through the front door

The French Maginot Line proved an ineffective defence against Germany in 1940 when Hitler's forces outflanked it by invading Belgium and The Netherlands. However, at least the French had some defences. In the case of many UK businesses, criminals and terrorists would not have to circumvent the organisation's perimeter defences - they could simply walk through the front door and ask for a job. Some 31 per cent of businesses in the same survey of IoD members did not regularly check the references and documentation of staff and contractors when recruiting and hiring. If physical security measures such as the hiring of security guards, installing security gates, CCTV, barriers and fences are to be effective then clearly they must go hand in hand with tight personnel security.

The world is an inherently unpredictable place. Nevertheless, it makes good business sense to carry out a risk assessment to identify possible threats and vulnerabilities. Indeed, a risk assessment is a legal duty under the UK's 1992 Code of Practice for the Management of Health and Safety at Work. It is difficult for any organisation to plan and implement effective security measures if it has not examined the threats that it potentially faces. Some large and famous businesses may be directly targeted by terrorists. However, the likely risk for most UK businesses lies in being affected by a terrorist attack that is directed at another target: a shopping centre, public transport or a high-profile tourist site. Extraordinarily, only half of IoD members have carried out a risk assessment to identify possible threats and to assess their vulnerability to attack. Only half had contingency plans in place to help them survive a terrorist attack. A third of these had not even tested them in the last six months. Too many businesses are ill-prepared for the aftershocks of terrorism.

Part of the reason why many businesses have not improved their security since 11 September 2001 is because the threat of terrorism has not had a significant impact on their fortunes. Some 76 per cent of IoD members believe that terrorism has had either no impact on their business's profitability or that it is impossible to say. Particular industries such as the aviation, tourism and hospitality sectors and certain retail outlets are vulnerable to falls in demand due to fear of terrorism. Fortunately, every cloud has a silver lining. For high-technology businesses involved in or related to security, biometrics, chemicals, electronics and private military companies, the economic environment since 11 September 2001 has become more conducive to growth and profitability.

Increased demand for products and services offered by businesses in these areas has largely come from the public sector. Governments in the both the US and in the UK are giving a powerful impetus to the development of high-technology businesses. For example, Acambis, the British vaccine maker, secured a deal with the US government worth more than USD500 million in the aftermath of 11 September 2001. Similarly, the war in Iraq has given a major boost to private military companies who provide personnel to assist the US, British and Iraqi government forces in the country. According to one estimate, Iraq boosted British military companies' revenues from GBP200 million before the Iraq war to more than GBP1 billion.

The 'war on terror' has also stimulated research in universities. For example, researchers at the University of Manchester Institute of Science and Technology are working on ways to improve face recognition via CCTV. On the one hand, it is good that the threat of terrorism has had no discernible impact on the profitability of businesses. On the other hand, it is because most businesses do not believe that the profitability of their enterprises is affected either way by terrorism that they have not placed as much emphasis on security as they probably should.

Transport system

Even before July's attacks on London, terrorism was already affecting many businesses in respect of commuting to work. A quarter of IoD members reported that their organisation has experienced either a significant or moderate level of disruption because of employees experiencing delays caused by security alerts on the transport system. In the Greater London area, this figure rose to two-fifths. Hopefully, further terrorist attacks on the transport system can be avoided, but delays caused by security alerts are likely to become a familiar part of life for the foreseeable future.

The spectre of terrorism is also changing the way that directors communicate. Recent years have seen the development of new methods of communication such as e-mail, video conferencing, conference calls and web conferencing. More businesses are using these new forms of communication because the technology is becoming cheaper. Significantly, however, six per cent of IoD members in the same survey cut down on their number of face-to-face meetings and volume of travel specifically in response to the terrorist threat.

UK businesses must prepare for the eventuality of additional terrorist incidents. Further attacks by Al-Qaeda and its sympathisers on different aspects of the transport system would not only harm passengers but also the transport, tourism and hospitality industries. The retail industry, its employees and customers could be hurt by attacks on shopping centres. Terrorist activity in the future could also have implications for businesses across the entire economy.

Disruption to oil supplies due to terrorist activity could result in greater increases in prices, which in turn could result in higher inflation and lower output. Merchant shipping could be intercepted or hijacked, driving up costs for the shipping industry, exporters, insurers and ultimately the consumer. Interruption to power supplies could entail disruption to transport and the temporary closure of factories, businesses and shops. Terrorist interference with water supplies could have public health implications as well as causing difficulties for some businesses. Interruptions to power supplies would have serious financial consequences for many businesses, but significantly in the energy, insurance and banking sectors. More generally, security measures taken by governments around the world in response to terrorism could add to the costs of trade and impede the free movement of people. This may be necessary from a security perspective but it could slow the dissemination of ideas across countries and cultures. It would be particularly unfortunate if fewer individuals from oppressive regimes were unable to acquire first-hand experience of Western liberal democracies. Such people may help to transmit liberal democratic values back home to their own societies. All of these possibilities confirm the need for businesses to make risk assessments, develop contingency plans and act upon them.

Abraham Lincoln once said that "the shepherd drives the wolf from the sheep's throat; for which the sheep thanks the shepherd as his liberator, while the wolf denounces him for the same act as the destroyer of liberty". Traditional British liberties should be treasured, but the preservation of life is important too. After the death of innocent Britons on 7 July, most businesses and Britons will probably be reassured if the wolves howl about their increased loss of liberties in the months ahead.

Dr Richard Wilson is Head of Business Policy at the Institute of Directors. He is the co-author (with Mike Harris) of the research paper 'Profits, loss and fear: doing business under the shadow of terrorism' (Institute of Directors, 2005).

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