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Business Crisis Concentrations Class action lawsuits remain the most frequent crisis experienced by organizations. Lawsuits were filed across the US for discrimination, product. service defects, declining stock prices, sexual harassment, environmental destruction, casualty accidents, virtually all the crisis categories. Class action lawsuits are spreading to other parts of the world as well, but not at the rate of the US.
Although down a tick from 1999, class action lawsuits accounted for 28.4% of all business crises during the year. Defects and recalls continue this year as the second most frequent organizational crisis. Almost 17 percent of Year 2000 crises fell within this category. Class action lawsuits and defects and recalls seem to track together; as defects and recalls rise so do lawsuits. Customers expect purchased products and services to work. When they don't, customers sue to recoup their lost investment in dollars and time and to "punish" the company. Labor disputes ranked third among the most frequent crises during the year. Throughout the decade of the 1990s, labor disputes ranked within the top three. Although strikes and job-actions disrupt normal operations across a variety of industries, the Screen Actors Guild strike against the film industry attracted the most coverage. Class actions, defects and recalls and labor disputes accounted for almost 55% of business crises coverage in 2000. Fastest
Growing Crisis Categories Crises change from year-to-year. A brief look at the changing make-up of crisis may be useful in understanding the nature of organizational crisis. Three crisis categories increased significantly in 2000: workplace violence, discrimination and defects and recalls. Workplace violence episodes included bomb threats to airlines, spouse murder at a worksite, actions by steel workers and hotel/restaurant strikers, at least one physician was a serial killer of patients and the category included animal and environmental terrorism. Racial discrimination caused employees to sue employers, customers to sue retailers and service providers in order to stop the discrimination and punish the offender. But gay and lesbians, religious groups, AIDS suffers and older workers also fought what they viewed as discriminatory action. Defects and recalls have been described elsewhere. Tires, food, aircraft, cars and trucks, drugs, computer software exemplify the crisis category. As previously mentioned, class action lawsuits frequently follow a defect found or a recall initiated. Crises
Categories Compared The nature of organization crisis has been changing throughout the 1990s. The major shift during the past 11 years has been a decrease in the amount of mismanagement, white collar crime and labor disputes and an increase in class action lawsuits, defects and recalls. The following chart compares the crises of 1990 with those during 2000.
The
Whistle Blower Act apparently has had little effect on the number
of crises caused by a whistle blower. Unfortunately, however, the
media seems to view a whistle blower as a credible source of information
rather than as a "disgruntled employee" to be viewed with
suspicion. Tire manufacturers and filmmakers are newcomers to the annual listing of the top-ten most crisis prone industries. All the other industries have appeared on the infamous list sometime during the past decade. Commercial banks and holding companies, security and commodity brokers, life insurance companies--the three most crisis-prone industries during the 1990sócontinue to appear on the 2000 list.
The telecommunications industry remains volatile as an aftermath of deregulation in 1996. Lucent lost its CEO because of its poor performance in the highly competitive arena of electronic communications. Alleged securities fraud also lead shareholders to file a class action lawsuit against the company. Class action lawsuits related to securities also were filed against Copper Mountain Networks, Vari-L Company and Crossroads Systems. Computer services continued among the most crisis-prone industries since ICM began tracking crises in 1990. Microsoft remained in the public eye because of its on-going legal wrangling with the US Justice Department. Microsoft also had troubles with its operating system which resulted in lawsuits. The company also experienced security breeches of its own computer system. But at least 17 other companies experienced one or more crises during the year: e.g., Legato systems, Citrix and Quintus all faced class actions against them for variations of securities fraud. Tire manufacturers ranked third in 2000 primarily because of Bridgestone/Firestone which has produced tires for Ford for decades. When an SUV tire disintegrates, the top heavy vehicles tend to swerve out of control and turn over. At highway speeds, the roll-over leads to serious injuries and even death (approximately 150). Class action lawsuits in several countries have followed from this combination of tire failure and subsequent vehicle accident. Drug manufacturers continue among the most crisis-prone industries. Clot busters and dietary supplement recalls, FDA challenges about the safety of cold medicines, executive deaths and class action suits kept the industry in crisis. Bristol-Myers Squibb, Gliatech, Warner-Lambert, Alpharma and Glaxo Wellcome PLC all faced angry customers or investors. Scheduled airlines again made the top-ten list. Although flying continues to be the safest form of travel, with deaths per miles traveled virtually unchanged since the 1960s, the tragedies of the Air France SST, Singapore Airlines and Alaskan Airlines generated considerable news coverage. The work stoppage by pilots against American and labor disruptions at United contributed to the industry's inclusion among the top-ten. United's effort to take-over US Airways also was a factor in returning the industry to the infamous list. Aircraft manufacturers re-appeared among the most crisis-prone after a brief absence. Boeing suffered from labor strikes, challenges to several of its products including helicopters, the Osprey, as well as its 737 (the aircraft most used by airlines) and the 717. Lockheed experienced a suit over the release of toxic chemicals, EEOC charges of racial bias and federal allegations of safety violations. Raytheon suffered challenges regarding the safety and performance of several of its products. It also experienced some labor disruptions to operations. The securities industry continues its decade-long appearance among the ten most crisis-prone industries. Moorage Stanley was charged with discrimination against female executives. Knight Trading Group was the target of a class action lawsuit for securities fraud. Kidder Peabody paid a $19 million settlement in a class action suit. Racial bias among traders also generated considerable news coverage. Banks and other depository institutions remained on the top-ten list in 2000. Bank One appeared most often among database records because of lawsuits by investors alleging securities fraud, mass resignations by 40 mortgage employees who defected to a rival bank and continuing difficulties with its credit card unit. Bank of New York's dealings within Russia also generated public scrutiny. The life insurance industry completes the list of the ten most crisis-prone industries. Investors hit Conseco with class action lawsuits alleging securities fraud. The purchase of Green Tree Financial added to Conseco's problems. That unit was accused of predatory lending practices. Racial discriminatory pricing, illegal bond trading, securities fraud continue to plague the industry as well.
Verizon appears mainly because of labor disputes, specifically, a strike by Communications Workers of America affecting more than 85,000 employees. Coca-Cola appears among the leaders in crisis because of its racial bias lawsuit, eventually settled for $192.5 million. Labor disputes regarding quality control and residue from the European contamination episode of 1999 didn't help. Legato made the list because of a collection of class action suits filed by shareholders alleging securities fraud. Citrix Systems Inc. appears because of class action lawsuits alleging securities fraud. Strikes, protests by religious investors for pay-per-view on AT&T cable, proposed breakup of the company into four separate units, class action against AT&T Wireless tracking stock and the proposed connection with AOL put the company on the list in 2000. Several class action suits by investors propelled Priceline.com onto the list. This is a first for a dot.com company since ICM began tracking organizational crises 11 years ago. Food processors usually appear because of contamination leading to consumer illness. Aurora Foods found itself among the top ten because of several class action lawsuits by shareholders charging the officers and directors with "misrepresentation." In another first, Microsoft did not make the top-ten despite its on-going dispute with the federal government. Anti-trust complaints by the Justice Department can be found as early as 11 years ago within database records. Causes of Business Crisis Unfortunately, management continues to be the primary cause of organization crises in 2000 as they were throughout the 1990s. Three-quarters of all crises recorded in the ICM database have resulted from inappropriate action or inaction by top management. Employees account for a little more than 13% while outside sources causes about 11% of all business crises.
ICM describes most events which lead to public scrutiny and media coverage as "smoldering crises." Sexual harassment, gender/age/racial discrimination, security fraud or insider trading and white collar crime exemplify "smoldering" crises. Something isn't proper. Someone knows. No one tells or no one does anything about it The crisis "smolders," like an ember, until something or someone fans the flame by disclosing the activity, frequently to people outside the organization. Once outside, management loses "control" and the organization is forced into a defensive stance. Source of Crisis Information When
the story is told, who does the media turn to for information?
Government officials (legislators, regulators, judges, police officers) account for more than 48.5% of all attributions in printed news stories about organizational crises! In other words, government tells the crisis story! Union leaders and employees are quoted as primary sources in more than one-quarter of the news stories. The official spokesperson for the organization--executives-- served as the primary source of information in 5% of the stories during the year. Of the 16 crisis categories tracked by ICM, only in crises resulting from executive dismissal is the company spokesperson the primary source of information. Organizations are not prepared to speak for themselves or the lawyer insists the company not respond, while government spokespersons are accessible and proximity to and involvement in the crisis makes the victims or witnesses available. Crisis Outlook and Conclusions 1. People errors will remain the most frequent cause of organizational crises: insider trading, fraud, embezzlement, workplace violence. Creating a culture which fosters and rewards ethical and legal behavior is the best prevention. 2. Personnel matters--sexual harassment, discrimination, labor disputes, executive dismissals--will continue to grow as a major source of organizational crises. People who feel wronged will seek correction and compensation. An economic downtown leading to the disappearance of jobs will stimulate lawsuits filled by those whose jobs are adversely affected or lost. Ongoing training may be the best way to prevent these types of crises, plus a culture which sets high standards for ethical and legal behavior and routinely rewards it. 3. Class action lawsuits will continue to be a major aftershock of organizational crises. No evidence suggests that people who view themselves as "victims" will diminish their desire for restitution and vengeance from the offending organization. 4. White collar crime will continue to stimulate increased government intervention in the affairs of organizations. Paying a fair wage, developing a culture which values employees--including managers and upper management that is honest and ethical probably remains the most effective means of preventing crime in the workplace. 5. Natural catastrophes, environmentally destructive events and casualty accidents will remain a small portion of organizational crises. Pressure from government and protest groups have encouraged organizations to improve safety and environmental operations. However, (a) as businesses cluster near population centers the risk increases and (b) the easy corrections in operations may have already been made so that these categories of crises may remain at their current levels for the near future. 6. Government officials, whether elected, appointed or members of the legal system, will remain the primary source of crisis information for the press. The press will use officials because they are easily accessible, somewhat knowledgeable, are perceived as credible with no direct interest in the crisis and willing to speak in order to reach their constituencies. ICM Services The Annual Crisis Report is published by the Institute for Crisis Management, which is a research-based consulting firm providing crisis management and communication services for businesses, government agencies and non-profit organizations worldwide. ICM services include: Vulnerability Studies to help organizations locate and correct potential sources of business disruptions and embarrassment. Crisis Consulting to help management respond to internal and external audiences when a sudden crisis strikes or to help reduce the likelihood of a smoldering internal business problem going "public" or minimizing the damage if disclosure cannot be avoided. Crisis Communication Planning to ensure that management has a carefully prepared response strategy ready to activate within minutes after a crisis strikes. Communication Audits to help organizations locate weaknesses in their internal and external communication systems. Crisis Communications training to prepare executives and managers to anticipate and respond to sudden and smoldering crises facing their organizations. Media Training to prepare organizational spokespersons to be interviewed by the media and/or to give public presentations to target audiences. Database Research from the ICM Crisis Database to define and graphically illustrate crisis trends in specific industries for management presentations and proposals. A complete summary of ICM's crisis research and services can be found at www.crisisexperts.com. Or call 1-888-708-8351. In case of a crisis at night or weekends call and activate the emergency response telephone system and an ICM consultant will call you back within 10-minutes. The
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