Y2K problem bigger internationally

By DOUG WILLIAMSON / Business Editor

Twenty percent of all corporations will go out of business because of the Millennium Bug.

That note in a 1996 article in CIO (Chief Information Officer) Magazine is still raising the blood pressure of business executives worldwide.

The Year 2000 (Y2K) computer glitch also has gotten the attention also of local businessmen.

They are working to get all their systems compatible with the new century, but it is an uphill battle for some.

Nationwide, only 60 percent of all businesses will be fully compliant on Jan. 1, 2000. That ominous projection comes from Manny Fernandez, CEO of The Gartner Group, a respected Y2K research and consulting firm.

Fernandez, quoted in T.E.Q., a publication of the Pittsburgh High Technology Council, warns the problem is worse internationally. Only 45 percent in Europe and 33 percent in Asia will be compliant.

Business could be affected by failures in such things as elevators, ordering systems, accounting, payroll, maturity dates, documents, PBX phone systems and merchant card terminals, Allen Pruitt, executive vice president of Security State Bank, wrote in the current newsletter of the McMurry University Leadership Development and Family Business Center.

Companies are spending money on the problem today. Wal-Mart estimates it will expend $12 million to convert its date-sensitive systems and equipment. Kmart is shelling out $50 million, according to documents filed with the U.S. Securities and Exchange Commission.

Fortune 500 companies plan to spend $11 billion to defeat the Millennium Bug.

One Texas A&M University professor attributes the recent meteoric rise in the number of bank mergers to the Year 2000 bug. Donald Fraser, interim head of the finance department in the business school at the A&M, said problems related to Y2K are one of the reasons for the business combinations.

"I think the banks want to get the mergers done now, because they’re going to have other issues on their plate as they get closer to the year 2000,’’ he said.

Estimates are that financial institutions will spend $6 billion to stomp out the bug.

Banking regulators are forcing financial institutions to go the extra mile. What if the bank’s computers were all 2000 compliant, but one of its big customers’ system wasn’t? What if it significantly hurt the customer’s business?

"Our customers don’t realize it is a problem," said Scott Dueser, president of First National Bank of Abilene. "We’ll send out surveys to find out where they are (in the Y2K process). Our regulatory agencies are dictating that all banks do this.

"We are responsible for rating them (commercial customers) as to how much of a risk they are to the bank."

The Federal Financial Institutions Examination Council set a Sept. 30, 1998 deadline for having most of those assessments done.

You better believe the Federal Reserve Board is stone-faced on this issue. In testimony before the U.S. Senate Commerce, Science and Technology Committee in April, Fed Gov. Edward W. Kelley Jr., said, "The stakes are enormous, nothing less than the preservation of a safe and sound financial system that can continue to operate in an orderly manner when the clock rolls over at midnight on New Year’s Eve and the millennium arrives."

Like banks assessing their customers, other businesses should quiz their suppliers about Year 2000 compliance. If a company depends on just-in-time inventory and the suppliers’ systems crash on Jan. 1, both firms may be dead in the water.

Besides financial institutions, utilities are under the close eye of regulators.

Central and South West Corp., parent of West Texas Utilities, has been working for a couple of years on the problem.

Some gloom- and doom-sayers predict widespread blackouts when utilities systems fail

"I can never make any promises that there are not going to be any types of problems," said CSW spokesman Larry Jones, "but our team is progressing right on schedule. This is an issue we take very, very seriously."

The employees are examining all the types of systems within the utility, whose affiliates cover a four-state area. The team is "identifying programs that either need to be modified or replaced, as well as equipment that needs to be modified, replaced or eliminated," he said.

Jones said programs in the information technology side of the company have been assessed. Of the 32 million lines of programming code, 250,000 lines are having to be rewritten, and that should be done by the end of this year or first quarter 1999, he said.

The team is not looking at each individual piece of equipment in the field. It is identifying all the types and models of equipment and then assessing their 2000 compliance.

Even if all CSW systems were compliant, there still could be some electrical problems if other utilities which participate in a grid (a power load sharing arrangement) are not fully compliant, he said.

One of the keys is the testing of the systems. First National may be ahead of the curve overall. In 1994, the bank replaced its old computer system.

"When we bought the new one, (Y2K) was not an issue at that point," said Gary Tucker, senior vice president of information services. "Today, we have a legal warranty from the software company stating it is certified."

It turned out that the new system, which also processes transactions for FNB’s sister banks, is compliant. Even with testing documentation in hand, Tucker said the bank will bring in additional hardware to test the system.

"We feel real good, but we are still going to do our own independent test," he said.

The only costs Tucker expects will be testing related, and those should be insignificant to the bank’s bottom line.

Compliance can mean life or death to businesses big and small.

(Doug Williamson may be reached at (915) 676-6707 or williamsond@abinews.com.)