To all company directors, in any industry, anywhere in the world: if you think that the Year 2000 problem that is poised to bring computer systems crashing around our ears on or before January 1 2000 is a mere technology problem, wait until you start getting sued. According to Clarity Consulting, a Marblehead, Massachusetts computer systems consultancy, the legal and economic implications of the prolem will be enormous, and lawyers are set to have a field day. The problem goes far beyond individual companies tackling the task of changing all the dates in their systems currently stored as two digits, whereby 00 could be 1900 or 2000, and 05 is before 99 rather than six years after. The knock-on effect will be more far-reaching than any of us can imagine, says Clarity principal Ian Hayes. Hayes has been studying the problem for two years, and says the more he delves, the worse it gets. He believes that Gartner Group estimates of $300bn to fix the problem, and a further $300bn for lawsuits and knock-on economic impact, are, if anything, on the low side. However, based on these estimates alone, the cost equates to about $120 per person living on the planet. While the problem is truly global, and anyone with a computer anywhere in the world will be affected in some way, in reality it is likely to be the developed countries that end up footing most of the bill.
Terrified to ask
Also, third world countries are likely to fare slightly better, in that they are currently less dependent on computers than the developed world. The generally-accepted wisdom is that the US is some 12 months ahead of the UK in tackling the problem, and that the rest of Europe is six months or so behind the UK. There is no doubt that companies and governments are waking up quite quickly now to the fact that there is a problem, but we are approaching the end of 1996, and there are only 1,160 odd days to go to sort it out. No doubt these days will be filled with people getting stuck in to the nitty gritty of evaluating systems, deciding which tools to use, which programs to fix and which to ditch, whether to contract the work out, and finally getting the work done. The time will also be filled with internal arguments, technology managers terrified to ask for the appropriate budgets, and persistent denial of the scale of the problem. Certainly not everyone will be ready in time, and resources will get ever thinner on the ground. So exactly what are the knock-on effects likely to be? For a start, there are the legal implications. Companies have to disclose to the Securities & Exchange Commission anything that will affect business risk and would be likely to impact the share price. Hayes says if a company is not taking the right steps to ensure it resolves its Year 2000 problems in time, this could result in massive shareholder lawsuits. In practice, directors are going to have to prove that at the least they have a coherent, viable plan in place that will ensure the majority of their essential systems will continue to run in 2000. Imagine the cross-questioning in court when some hapless director is asked when did you first realize we were approaching a new millennium? Several insurance companies have already excluded Year 2000 compliance from director liability policies, which in itself could have a huge impact on company officers. Then there are the contractual issues. How many orders will not be fulfilled to contract because the computer system responsible cannot handle Year 2000 dates?
By Joanne Wallen
It is in this area that the knock-on effect is most clearly evident. We no longer have back office computer systems simply running internal accounts, payroll and management reporting in isolation. With the growth of Electronic Data Interchange, intranets and the Internet, systems are becoming more and more dependent on each other. For example, with just-in-time manufacturing, companies are no longer holding vast amounts of stock. Parts are delivered by various suppliers as and when required, and often the manufacturer and the supplier exchange data electronically. Even if the manufacturer is fully Year 2000- compliant, just one supplier in the network that has not fixed its systems could be enough to break the chain, resulting in unfulfilled orders. Financial companies and institutions are generally seen to be further down the road to fixing the problems than manufacturers. However, once again, it takes only one bank in the chain to plunge thousands of credit card transactions into chaos. So, you’ve got your house in order, so too have your suppliers, customers, distributors, but you are on the acquisition trail. What if the company you are about to buy is not Year 2000-compliant? Will a full system audit be part of due diligence? A senior partner of auditors Ernst & Young says the firm is taking the problem very seriously, and he believes auditors will begin to qualify company accounts if they do not think the company will be Year 2000-compliant in time. Hayes says we will all personally suffer the impact of the problem. Not only are our personal computers, bank accounts, credit cards, doctor and dentist appointments likely to be affected. There is also the issue of our investments. How safe is the money we have invested in a company, if its systems might not survive past 1999? Even more fundamentally, what sort of government systems, in place for our protection in some cases, will be affected? Ian Hayes reckons that the Internal Revenue Service will not be able to cope with making its systems Year 2000-compliant in time. He even moots the idea that it may resort to imposing a flat rate of tax on all to simplify its systems. With all this liability flying around, and so much money involved, it seems inevitable that people will be looking to defray the costs, or recover them from third parties through either litigation, or insurance. All this will no doubt have a huge impact on the information technology market in particular. For a start, where companies have contracted their systems out to facilities management companies, it may, depending on how and when the contract was written, be the responsibility of the facilities manager to bear the Year 2000 costs. Presumably there will be those that will simply go out of business in the process – like as not taking their customers with them. Similarly, if a company is using packaged software, written by a relatively small supplier, will that supplier be liable, and will it be viable for it to fix the problem? Naturally, some folk will clean up in the process.
Day in court
Dale Vecchio, director of solution marketing at Year 2000 tools vendor Viasoft Inc, points out that Viasoft’s shares went from about $12 to $120 in the first nine months of this year, (before a two-for-one share split). There is no doubt that the Year 2000 tools and services vendors will make a lot of money out of the problem. Likewise, it is a seller’s market for consultants, with many of the larger reputable firms filling up their capacity already. Cobol programmers are crawling out of the woodwork and commanding $120,000 a year, and the figure is rising all the time. Some companies are even taking university students and training them in Cobol. Which does not answer the question where all this money going to come from. Hayes suggests that the nearer we get to countdown, the more money will be deflected from new development budgets. Those software vendors that do not have Year 2000 tools and services, will, he maintains, be badly hurt in the process. There will be a shift of money affecting the entire economy, he says. He believes that the involvement of lawyers, auditors and insurance companies will finally begin to convince people of this fact. There is absolutely no time left for prevarication, procrastination or in-fighting over budgets. Companies, organizations and governments the world over have to act now, or prepare for their day in court.
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