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Business Crisis Concentrations ???? Although down a few percentage points over the past two years, class action lawsuits remained the #1 crisis faced by organizations.? Lawsuits may be labeled aftershocks using an earthquake analogy.? That is, the class action lawsuit follows some other ?shock? experienced by an organization, a shock for which someone or group seeks restitution and punishment of the organization. The nature of the lawsuit, the number of people involved and the size of the awards demanded become a ?second shock?--an aftershock--to the organization.? Shareholders were particularly aggressive during the year in seeking compensation for perceived bad decisions by management and/or poor stock performance. ???? Defects and recalls remained the second most frequent organizational crisis last year.? The category, like class action lawsuits, was down from preceding years yet still accounted for about 15% of all crises. Class action lawsuits and defects and recalls continue to track together, as defects rise or fall so do lawsuits.? Apparently, customers and investors expect organizations to perform at the highest levels of quality and profitability. When they don?t, those groups turn to the courts for solace, restitution and organizational punishment.
Labor disputes ranked third among the 16 categories of crisis followed by ICM.? Labor disputes have consistently ranked within the top three most frequent crises experienced by organizations since 1990.? It is interesting to note that the other two most frequent crises at the beginning of the 90s, mismanagement and white-collar crime, have significantly diminished over the past 11 years.? More on that comparison later in this report. Workplace violence, which has generated lots of headlines while accounting for relatively few crises in recent years, emerged as the fourth most frequent crisis in 2001.? Violent acts in the workplace accounted for more than 12% of all crises.? Contrary to popular belief most of the acts were not employment related but occurred at work or school because the perpetrator could count on the victim being in that location.? Unfortunately, innocents often were killed or injured just because they happened to be in the same location as the victim and the perpetrator. Four crisis categories--class action suits, defects and recalls, labor disputes and workplace violence--account for nearly two-thirds (62.74%) of all business crises in 2001. The next group of crises, accounting for almost 24% of all crises were (in order): white collar crime, mismanagement, catastrophes (storms, fires, explosions, etc.) and financial damages (fines, jury awards, settlements). In other words, eight crisis categories accounted for more than 80% of all crises. Of course, this overview offers a broad brushstroke summarizing all the stories in 2001. Individual industries? experience different crises at different proportions; e.g.,? discrimination remains the most frequent crisis at colleges and universities; airports it was mismanagement;? nursing homes--labor disputes; healthcare--defects and recalls (medical and administrative errors).? Space does not permit this annual report to detail the crises experienced by each major industry. Fastest
Growing Crisis Categories As mentioned in the overview, crisis events increased in all 16 categories. Workplace violence saw the greatest increase.? Some of that increase was due to the stories of workplace deaths at the World Trade Center and the Pentagon.? But not all.? Anthrax killed or sickened postal and news workers.? San Quinton and other correctional facilities experienced prisoner revolt and violence toward guards, administrators and other prisoners. Chevron faced a bomb threat.? Airline flight attendants requested more protection, before September 11, from ?out of control? passengers.? Several incidents lead to planes being grounded and passengers arrested because of disruptive, even threatening behavior.? A fire at Coors Brewery may have been sabotage. Executives and employees worldwide were kidnapped and -- sometimes -- killed; i.e. church workers in the Philippines.? Hijackers forcibly stole trucks often killing the drivers. National reports indicated that physician errors may be a leading cause of death and injury in hospitals, clinics and other health facilities.? And, print and electronic journalists covering Afghanistan, the Middle East, Africa, Latin America and elsewhere died trying to bring the news to the? rest of the world. Sexual harassment, like workplace violence, has consistently garnered headlines while accounting for very few organizational crises.? Not this year.? Dial Corporation faced a trial over harassment.? Women charged sexual harassment at MetLife, Inc., California Grape Growers, Ale Jewelry Corp. and Nike to mention but a few of the companies charged.? Flight attendants from several of the major airlines complained of being ?fondled and groped? by passengers, airport workers and security guards. Hostile takeovers also increased.? Although a relatively small percentage of all the stories in the ICM database deal with hostile takeovers, the number almost doubled between 2000 and 2001. SunTrust went after Wachovia Bank which eventually merged with First Union.? Willamette Industries was the target of Weyerhaeuser?s bid.? Hunt Oil sought a hostile takeover of Berkeley Petroleum. AT&T Broadband became the target of several companies with ComCast eventually winning the bidding. AES made a hostile bid for C.A. National Telefonos de Venezuela.? Russian TV became a? takeover target.? Fiat and Electricite de France sought to take over Montedison to the tune of $4.2 billion.? Even a taxi company serving the John Wayne Airport in California faced a hostile takeover.? It elected to file for bankruptcy as a maneuver to prevent the takeover. But remember, every category of crisis increased.? The three mentioned above were those categories which had the greatest increases. The other 13 categories increased an average of almost 22% from 2000 to 2001.? The smallest increase was 2.5% in cases involving discrimination. Changing
Nature of Business Crises The nature of organization crises has been changing since 1990.? White-collar crime, mismanagement, hostile takeovers and environmental damages all have significantly decreased over the past 12 years.? Aggressive governmental oversight and managements? desire to avoid liability, litigation and government intervention may partially explain the decreases.
Defects and recalls, labor disputes, workplace violence and class action lawsuits all have increased.? Companies initiate voluntary recalls to avoid liability.? Occasionally government agencies such as the FDA or the FTC force a recall when complaints to these agencies raise suspicions concerning the safety of a product. This brief comparison identifies the dynamic nature of crises.? Many forces within and outside businesses stimulate changes in their behaviors.? Only a handful of experts imagined commercial airliners could be used as bombs against skyscrapers full of innocent citizens at work.? Thousands of people suffered at the hands of inhumane terrorists.? Crises arise because of a wide variety of forces, not just from fires and explosions as is the stereotype. Sudden and Smoldering Crises Generally, for the past 12 years, organizations have been their own worst enemies.? More crises have been caused by internal forces -- discrimination, fraud, embezzlement, sexual harassment, labor disputes -- than from external forces -- natural catastrophes, consumer activism, hostile takeovers. Except for 2001, the vast majority of crises -- 76% on average -- were of the smoldering kind.? That is, something is going on within the organization which could be trouble IF someone finds out.? The situation continues.? It ?smolders,? like an ember, until something or someone fans the ember into flame by disclosing the activity, often to people outside the organization.? In other words, through neglect, inattention or inaction, a problem is allowed to grow into a crisis.? Someone within the organization knows but no one tells or no one does anything about it.? Firestone and Ford knew of the relationship between Explorer rollovers and tires for almost 10 years.? Enron management knew about the risky nature of its off-the-book deals, even was warned by other executives, but did nothing. In 2001, the increases in workplace violence, labor and consumer activism, and catastrophes and casualty accidents explains the sudden jump in sudden crises compared to smoldering ones. The Causes of Crises The most common causes of crises also changed during 2001. Typically, management is most responsible for sparking crises.? In fact management is responsible, on average, for about three-quarters of all crises.? Employees cause about 15% and ?other? (nature or outsiders) cause the remaining 10%, that is until 2001. That formula was altered by the events of the past year.? Management caused 48.6%, employees 20.1% and other accounted for 31.4%.? Terrorist acts, estranged lovers or spouses, class action attorneys, vigorous regulatory agencies, eager competitors, all ?others? generated an increased number of crises. Most Crisis Prone Industries There were no newcomers to the typical list of industries suffering the most crises in 2001.? Every one of the top ten from 2001 has appeared on the infamous list sometime during the past 12 years. Of course, the order changes year by year.? Last year, the telecommunications industry led the list.? This year the honor belongs to the computer software industry.? The continuing saga of Microsoft versus the US Department of Justice generated a number of original news stories during the year.? Microsoft also discovered that its own network had been invaded by hackers.? A fire in Vitech America (Brazil) stopped assembly of computers.? Lawsuits against Microsoft, InforMax and ONYX and a host of other software manufacturers put the industry at the top of the list.
Security and commodity brokers remain among the top three most crisis prone industries, a distinction they have held the past decade.? Gold and silver was found buried under the debris of the World Trade Center.? The EEOC sued Morgan Stanley Dean Witter for gender bias.? The world famous Lloyd?s of London was sued for racial bias.? An ex-broker won $27 million in damages from Waddell and Reed.? A former Putnam vice president was found guilty of conspiracy.? The demise of the dot-coms led to several score of class action lawsuits against brokers underwriting or pushing IPOs, which soared than failed. Scheduled airlines ranked number three on our list of ten.? Of course, American and United gained international notoriety when terrorists used them to bomb New York and Washington.? Another American aircraft crashed into a NYC neighborhood within weeks of September 11.? These events kept thousands of travelers from the airways during the last months of 2001. The aftershocks of the fiery crash of the Concord continued to generate crises for Air France and British Airways.? TWA settled harassment claims at JFK airport for $2.6 million. A Comair pilots strike lasted almost three months.? The Comair strike spread to the pilots of Delta although with less impact.? Flight attendant unions of AeroMexico and American struck their respective airlines.? Northwest faced a discrimination suit from the EPOCH on behalf of employees with seizure disorders.? Flying still remains the safest way to travel despite the crises experienced by the airlines. The telecommunications business continues among the most crisis prone of industries.? The continuing changes at AT&T, the loss of service caused by the collapse of the World Trade Towers and the volatility of e-commerce all contributed to the industry?s placement among the top ten.?? Metromedia responded quickly to rebuild its network following a fire, but it did experience damage.?????? AOL 5.0 caused computer crashes according to customers. Amazon.com experienced several class action lawsuits for a variety of reasons.? The FTC charged Amazon with deception regarding its privacy policy.? Voices against web pornography instigated boycotts, lawsuits and vigorous political activity. Pharmaceuticals remained on the list because of defects and recalls and fights over patent rights.? AIDS activists as well as aging citizens voiced their concern regarding the escalating prices of drugs.? Merck, Lilly, Pharmacia and others all had to defend their pricing strategies and their expenditures on research and development of new drugs.? Genetech and GlaxoSmithKline wrestled with the FDA.? A meningitis strain was found in cortisone injections.? Alpharma experienced a fire in its animal feed additive plant. Computer equipment manufacturers also suffered crises.? Emulux was stung by a hoax, a phony Internet news release which cost investors millions.? Cisco, negatively affected by the economic downturn, faced class action lawsuits as did Cooper Mountain Networks.? Mobile phones were challenged as a cause of cancer and traffic accidents.? Marconi was challenged by its unions.? Lucent accused three on the grounds of espionage and then were criticized on its handling of the arrest. The telephone industry continues to have its troubles.? E-mail and mobile phones have cut into the profitability of long distance carriers.? Local companies find it difficult to grow within the traditional business.? The destruction of the World Trade Center damaged the Manhattan telecommunications hub.? Ameritech faced a $60 million suit and continuing state regulatory investigations of its service, or lack thereof according to customers.? In Maryland, a fiery train wreck disrupted service by WorldCom. Qwest has seen its stock price drop to less than $10 per share after consistently selling in the mid-30s.? Then Qwest was hit by a suit for consumer fraud by the Attorney General of Arizona.?? Software glitches continued to badger the industry.? This year it was SBC Communications which suffered from computer problems. Car and truck manufacturers experienced a variety of crises.? Of course, Ford remained in the headlines because of its dispute with Bridgestone/Firestone.? That dispute lead to a separation of a long standing business relationship.? It also led to the change of leadership with a Ford returning to head the company.? The Explorer and Chrysler Jeeps performed miserably in crash tests to the dismay of both companies.? GM again faced challenges to the safety of its side-mounted fuel tanks on trucks when an engineer?s memo surfaced.? The memo indicated that GM has known of the potential hazards for nearly 30 years.? VW workers struck a plant in Brazil.? Saturn suffered the rejection of its retail-chain concept from at least two states.? Finally, the downturn of the economy pushed car and truck sales down during the early quarter of 2001 forcing worker furloughs and layoffs. Banks and bank holding companies also had their share of troubles.? Eleven cuts in interest rates reduced margins and sent banks scrambling to add fees to make up for the revenue loss.? Mellon Bank destroyed? tax returns. Wachovia Bank became the target of two bidders for its assets, SunTrust and First Union.? After a short but bitter battle Wachovia joined First Union.? The head of JP Morgan Chase and Co. stepped down because of illness.? US Trust was fined $10 million for breaking rules designed to stop money laundering. Computer and office equipment manufacturers conclude the list of the most crisis prone industries. Researchers discovered that children risk future injuries by steady use of computers.? Lexmark International, Inc. and Apple Computer faced lawsuits on behalf of investors.? Apple also experienced a recall of its power adapter. Juno and Gateway settled charges by the FTC for deceptive advertising.? The SEC charged an IBM executive with insider trading.? Finally, the Compaq Hewlett-Packard merger generated a bitter fight for the votes of shareholders putting the CEOs and boards of both companies at risk. Given the nature of crises within the ten industries listed above, the members of the following list should not be a surprise.
Ford and Bridgestone/Firestone lead the list for the second year.? Boeing ranked third in 2000 and again in 2001.? The others are all newcomers to the list of the most crisis prone business.? Most have been mentioned elsewhere in this report but three deserve brief comments. Credit Suisse First Boston was hit with scores of class action lawsuits because of its backing of IPOs, many of which did not live up to expectations.? This led to NASD charges of collusion and a probe into the sales of IPOs of tech stocks.? Credit Suisse also shook up First Boston by replacing the CEO in a sudden change of management.? Critical Path also experienced scores of class action lawsuits. Boeing experienced a variety of difficulties.? It announced its corporate headquarters move from Seattle to Chicago with consequent fear among employees, disruptions of lives and the loss of tax base and payroll to the Seattle area.? Its Osprey frequently crashed, with the Marines blaming inherent flaws in the hydraulic system and computer software.? Employees were laid off as orders for the 717 Jetliner did not materialize.? Cracks in engines lead to the grounding of several Boeing jets.? Finally, the company offered $92.5 million to settle a class action law suit on behalf of shareholders. Crisis Outlook and Conclusions 1. The easy organization problems to solve? will continue to stabilize and/or decrease.?By ?easy? we mean environmental damages (toxic spills, illegal dumping, etc.) and machines and processes which are worker safe. 2. The more difficult problems of personnel--insider trading, embezzlement, fraud, workplace violence, labor disputes-- will continue to increase.? Efforts to prevent these crises frequently infringe on the individual?s rights leaving management? to walk a fine line between oversight for prevention and personal invasion.? As the US economy begins to perk-up, we anticipate increased labor activity in an effort to regain benefits lost in previous contract negotiations. 3. Terrorism, and efforts to prevent damages from such activities, will increase for the foreseeable future. Already lives have been changed by increased security in airports, stadiums, office buildings and? other places where people congregate. The threat of bioterrorism will become an increasing concern. 4. While declining in recent years, class? action lawsuits will remain the number one aftershock; that is, inappropriate, discriminatory or product/service quality issue will continue to generate lawsuits.
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