The Century Date Change, Again

By Ettore, Barbara | Management Review, December 1998 | Go to article overview

The Century Date Change, Again


Ettore, Barbara, Management Review


Y2K issues continue to consume organizations, even as they debate how to attract and hold onto the best people and how to cope with privacy and marketing on the Internet.

Dealing with the century date change problem, which has consumed U.S. companies during the past couple of years, continues to be uppermost on their agendas. It seems that as one set of Y2K problems are resolved, another group of dire possibilities becomes apparent, according to the discussions at AMA's Council meetings this summer. Along with this concern, organizations are coping with the consequences of keeping strong performers in a tight labor market and the need to understand the implications of marketing on the Internet.

On the economic front, Councils took a look at the federal budget. In 1993, the United States had a real budget deficit of approximately $400 billion, but today we have a $65 billion surplus, with a potential for $80 billion in 1999. However, concern over the economic crises in Asian countries has experts thinking that there will be a much longer period of international problems than was first anticipated.

Regarding Social Security, Councils voiced alarm that the government has been spending Social Security surpluses. The Treasury now owes Social Security about $1.5 trillion. Social Security presents three options: (1) Keep the system essentially as it is now - not privatized. To do this, the government would have to move the age up and trip the Consumer Price Index adjustment; (2) Put the surpluses into capital markets; (3) Move to defined contributions rather than defined benefits. No matter which option the government were to select, financing both systems during the transition period would be the tricky part.

'WHY-TWO-KAY'

The Y2K matter reared its monstrous head again at the summer round of Councils, reflecting concerns about this serious issue. Finance Council members speculated that the federal government would experience ongoing century date change problems at the turn of the millennium. And because much of the private-sector economy depends on government inputs, the private sector will suffer as well. Members noted that such disparate items as weapons systems and payment systems have embedded technology or older computer systems. Look for problems all around.

Members of the Human Resources Council said they were having trouble retaining their Y2K and information technology programmers. Some of the methods discussed include the following: six-month reviews with a small (5 percent) bonus each time, quarterly raises of 3 percent to 4 percent, an extra 10 percent raise pool for IT people, and $5,000 bonuses for employee referrals that lead to successful IT hires. Other methods included hiring Russian programmers, working with other foreign programmers via satellite and hiring high school students and training them as programmers who can earn $25,000 a year.

Fifteen members of the Insurance and Risk Management Council took an informal poll, ranking the Y2K technology problem on a scale of 1 (no impact) to 10 (disaster). Their ratings: 7.3 in probable effect on industry worldwide and 7.5 in probable effect on the insurance industry specifically. But further discussion revealed that 11 of them ranked the effects on worldwide industry in the 8 to 10 range.

Insurers on the Council were particularly worried about shareholder lawsuits for losses caused by Y2K failures. They said shareholders also could sue directors and officers for failing to disclose the steep expenses required for compliance. Legal firms are gearing up for this type of litigation. One Council member estimated that his company is spending $125 million, as a conservative figure, to fix the Y2K problem. Another company is spending $43 million. A Council colleague said he couldn't think of any other risk situation where the time and date of a pending loss were known and "we have one shot at [fixing] it. …

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