Where No Business is Good Business

Many American corporations rely on the security of "workplace-recovery centers" -- fully equipped but empty office space reserved for the moment when disaster strikes.




IN a quiet office park in the Minneapolis suburb of Minnetonka, half hidden by a knoll, stands an unexceptional one-story office building. No sign identifies the building's purpose. Inside is a securities-trading floor with up-to-date computers, data lines to the world's major stock markets, and banks of telephones. Wall clocks tell the time in Singapore, Minneapolis, and London.
Not even on the busiest day of the year in the stock markets, typically, do the phones on this floor ring or the computer screens light up. Periodically cleaners come in to wipe away the fine layer of dust that accumulates on the French Impressionist prints in the conference room, the kitchen counters in the break room, the tables, desks, and chairs, and the empty wastebaskets. Except for a skeleton crew of two in the front office, no one works here. Everyone is happy if the work stations that fill the building remain unused as much as possible. In the upside-down world of workplace-recovery centers, of which this building is an example, no business is good business.

The Minnetonka building, which is owned by Comdisco, of Rosemont, Illinois, will open its doors to subscribers when a power outage, a tornado, a fire, a blizzard, a flood, or some other interruption to business strikes. Subscribers -- in particular, securities-trading firms -- will simply forward their calls and move temporarily to Minnetonka. They will thus avoid the financial losses and ill will resulting from an inability to execute trades; few customers will ever know that any transfer of operations took place.

Although subscribers frequently visit in order to test their disaster-recovery plans and equipment, the Minnetonka facility has never in its four years under the current ownership been fired up in an emergency situation. Scores of other facilities around the country sit in a state of continuous anticipation, awaiting disasters that may never happen.

Subscribers annually pay $400 to $800 per work station for the right to occupy a recovery facility in an emergency, and they will be assessed additional fees (often covered by business-interruption insurance) if they actually begin using it. Today the biggest concentrations of such facilities are near the financial centers of the East Coast. But the business originated in the upper Midwest, when a Minneapolis consultant named Ken Israel, an expert in computer and communications recovery, realized that trillions of dollars in trades were endangered every year because most financial-services firms lacked backup offices and equipment.

ONE day in 1988, as Israel was offering disaster-recovery recommendations to a large brokerage firm, the idea of workplace-recovery centers hit him. "I was highlighting the company's points of weakness, and I saw that data was not the important piece," Israel recalls. "They made their money via communications and trading, and they had a huge exposure [to losses]. They were spending hundreds of thousands of dollars backing up their mainframe computers, but that wasn't what they needed most."

Israel, a slight man who is visibly intense and energetic, conceived a simple, valuable idea: securities traders needed disaster-proof temporary quarters in the event of an emergency, with adequate equipment and connections to the world's securities markets -- and he would build such quarters. At first Israel had difficulty imagining what his facility would even look like. Then, searching the Twin Cities for a vacant building, he stopped at one place and peeked through a window. "I got a vision," he says.

His mind's eye showed him a miniature trading floor, a shrunken replica of the space in which his brokerage client conducted its daily business. The building would have satellite-linked phone service and diesel generators supplying backup power. Israel and a partner leased the building, got design assistance from the Securities and Exchange Commission, and established connections to 144 securities exchanges worldwide. They called their firm Exchange Resources, and they acquired several subscription-paying clients, including the company now known as American Express Financial Advisors.

One of the biggest pools of potential customers was in New York City, and in 1992 Israel persuaded J. P. Morgan & Co. to buy a $30 million subscription that allowed Exchange Resources to build a facility on Staten Island. In the minds of New Yorkers at the time, terrorist attacks loomed larger than other disasters as threats to business, so the new facility was built "in the last place anyone would look," Israel says -- right next to the Fresh Kills landfill, one of the world's biggest garbage dumps. The building has satellite uplinks, low windows designed to foil the assaults of terrorist sharpshooters, and a walk-in electrical generator "that could light up Broadway and still have juice left over for Hoboken," Israel says. "New York could have sunk, and we'd keep on trading."

Exchange Resources later opened workplace-recovery centers in Singapore and England. The English facility, built in an old cookie factory, concealed its true purpose by allowing a local baker to run the ovens, sending the aroma of freshly baked cookies over the neighborhood.

The company's technological capabilities did not remain untested for long. When the "storm of the century" hit New York City in December of 1992, and flooded the streets, a securities-trading subsidiary of National Westminster Bank lost its electrical power and telephone service. By 6:45 a.m. on the next business day seventy-five of the bank's securities traders were doing business out of Exchange Resource's Staten Island facility.

By then, however, Israel was starting to lose his love for the business. Exchange Resources prided itself on the extent to which it could replicate a client's home trading floor -- complete with speed-dial numbers programmed into the telephones and framed photos of executives' families on the desks -- but clients wanted more. They demanded exclusive space, emergency offices bigger than what their competitors were given, and menus of the catered food they would be served on days of emergency. "Monday had to be Chinese, Tuesday French, the next day pizza -- and they were dead serious about this," Israel says. "They wanted eleven bagels toasted light, et cetera. This was ass-kissing and not staying focused on the business."

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