Negative news
coverage was down more than 19-percent from 2001 to 2002, but still
nearly 16-percent greater than 2000 and up more than that over the
period 1995 through 1999.
The total number
of negative news stories in 2002 compared to a similar rate of negative
news coverage each year from 1990 through 1994.
More Important
Numbers
The total number
of crises is not as significant as the causes and types of crises
that generated headlines in 2002.
It still surprises
many executives to learn that at least half of all crises each year
are caused by other executives and managers, while only about 30-percent
are triggered by employees and 20-percent or less result from actions
or in-action by people or forces outside the organization.
Origins of
Crises
With the number
of corporate scandals making headlines in 2002, it was no surprise
that the number of crises sparked by management was up three-percent
in 2002 – 52% compared to 49% in 2001.
Meanwhile the
ratio of crises originating with employees and “others”
was down one-percent each – employee caused crises were down
to 30-percent in 2002 and all other causes of crises were down to
18-percent.
When you ask
almost anyone to describe the kind of crises they worry about, the
majority still talk about sudden crises – fires, explosions,
natural disasters and workplace violence.
But without
fail, since ICM began monitoring negative news coverage in 1990,
two-thirds to three-quarters of all crisis are the smoldering type
with the rest sudden crises.?/font>
Smoldering Crises VS
Sudden Crises
In 2002, two-thirds
of the crises that got public attention probably could have been
averted and never made headlines.
Unfortunately,
most smoldering issues are either ignored or not recognized for
their potentially damaging consequences.?/font>
“A
smoldering crisis is one that starts out small and internal, and
should be spotted as a problem and a potential crisis before it
goes public.”
Most of the
big business scandals of 2002, as well as dramatic revelations of
abuse within the Catholic Church were there to be seen and managed
before anyone outside those organizations ever heard about them.
In most of the
big corporate debacles, top executives participated in the mismanagement
and fraud and it is almost certain they knew what they were doing.
About the only
way to stop a smoldering crisis, when the most senior management
is involved, is for a whistleblower to tip off the authorities or
the media, or both.
The 2002 ICM
Crisis News Database shows that 65-percent of publicly reported
crisis news resulted from smoldering issues, most of which could
have been averted.
Even when a
problem cannot be avoided, it is relatively easy to anticipate when
and how it will become public and be prepared to manage the aftermath
and minimize the damage.
In 2002, only
35-percent of the publicly reported crises were sudden, unexpected
events. That included industrial accidents, workplace violence and
natural disasters, such as storms, floods, tornados and earthquakes.
In fact, it
is possible that some of the so-called sudden crises were really
smoldering problems that were ignored or unrecognized before they
blew up and blew out into publicly reported issues. If management
had been paying attention or willing to acknowledge that a seemingly
insignificant problem could become a public crisis, it might have
been averted or at the very least the damage minimized.
Biggest Increases and
Decreases
Mismanagement
was the leading headline maker in 2002, up 59-percent over the year
before. Right behind it, white collar crime was up a whopping 55-percent
and, not surprising, news of executive dismissals was up 41-percent
compared to 2001.
By comparison
the next biggest increase was in a related type of crisis –
whistle blowing – up 26-percent over the year before.
Crisis
Categories Compared
(expressed
as a percent of the year’s crises) |
2001 |
2002 |
Catastrophes |
5.0% |
4.0% |
Casualty
Accidents |
5.0% |
4.0% |
Environmental
Accidents |
2.0% |
2.0% |
Class
Action Lawsuits |
23.0% |
20.0% |
Consumer
Activism |
2.0% |
2.0% |
Defects
& Recalls |
15.0% |
13.0% |
Discrimination |
3.0% |
3.0% |
Executive
Dismissal |
.8% |
1.0% |
Financial
Damages |
5.0% |
3.0% |
Hostile
Takeover |
1.0% |
1.0% |
Labor
Disputes |
12.0% |
8.0% |
Mismanagement |
6.0% |
11.0% |
Sexual
Harassment |
1.0% |
1.0% |
Whistle
Blowing |
1.0% |
1.0% |
White
Collar Crime |
8.0% |
14.0% |
Workplace
Violence |
12.0% |
11.0% |
Enron was just
one example of what a whistle blower can do. And the Enron whistle-blower
was similar to a problem at General Electric Jet Engines a few years
ago.
In both cases,
an employee spotted wrong-doing
and took their concerns to superiors who ignored them and brushed
off their warnings. It makes you wonder how arrogant, naïve
and ignorant some executives can be.
Hostile takeovers
were down a whopping 53-percent from 2001 to 2002, but that represents
a relatively small number of actual events (31), so the percentage
drop makes it look like a more dramatic change than it is. Besides,
companies that otherwise might have been in the take-over business
were busy trying to avoid indictments in 2002.
The other big
drop in negative news coverage was in the area of labor disputes,
down 50-percent from 2001. Labor news is cyclical. It was down last
year, this year it will almost certainly make bigger headlines and
more of them. Companies with big contracts at stake in 2003 include
General Electric and troubled airlines, facing bankruptcy and also
facing opposition from their unions.
Three other
categories were down significantly in 2002. There were 45-percent
fewer reports of consumer actions and both class action lawsuits
and incidents of defects and product recalls were down 27-percent
and 32-percent respectively.
Media coverage
of workplace violence had been increasing dramatically in the preceding
two years, but there was 27-percent less coverage of workplace violence
during 2002 in the 1,500 publications ICM monitors.
Experts in workplace
violence estimate more than 16,000 threats are made every workday
while 700 workers are attacked and nearly 44,000 are harassed according
to the Workplace Violence Research Institute. The US Labor Department
reports nearly 675 employees were victims of workplace homicides
in each of the previous two years.
Catastrophes
(-35%), casualty accidents (-25%), environmental accidents (-8%)
and discrimination (-18%) were also all down in 2002.
Most Crisis
Prone Industries in 2002
The Electric
Power Generating and Oil & Gas Extraction industries made their
first appearance on the Most Crisis Prone Industries list in 2002,
but the other eight industries had been on and off the list since
at least 1995.
Telecommunications
led the pack in 2002, after ranking fourth in 2001, first in 2000
and fourth in 1999. Telecom was number nine in 1995.
Since 1995,
scheduled airlines have been among the industries garnering the
most negative news coverage every year except 1996
Most
Crisis-Prone Industries in 2002
(ranked by percentage of database records)
|
1. |
Telecommunications |
2. |
Pharmaceuticals |
3. |
Software
Companies |
4. |
Investment
Banking & Securities |
5. |
Insurance
Companies |
6. |
Communications
Equipment Mfg. |
7. |
Scheduled
Airlines |
8. |
Electric
Power Generating |
9. |
Oil & Gas
Extraction |
10. ?/font> |
Commercial
Banking |
Commercial banking
made the top ten list every year since 1995 coming in tenth in 2002
and ninth in 2001. In 1996, banking ranked second among all industries
in the ICM sampling of negative business news.
The pharmaceutical
industry hit the top ten in 1999 and has not dropped below number
five since.
Except for 2001,
investment banking and securities brokers have been among the most
crisis prone businesses in the past eight years.
Most Crisis Prone Businesses
in 2002
Again, it was
no surprise that Enron Corporation was the leader on the top ten
list of most crisis prone businesses in 2002. Enron broke into the
top ten the year before when their accounting fraud first began
to make headlines and propelled them to the top spot in 2002.
Hardly a week
went by without new revelations about Enron, Worldcom, ImClone,
Adelphia and Arthur Anderson and as a result they each made the
infamous top ten list for the year.
Most
Crisis-Prone Business in 2002
(Ranked by number of database records) |
| 1. |
Enron Corp. |
| 2. |
Worldcom,
Inc. |
| 3. |
ImClone
Systems, Inc. |
| 4. |
Adelphia
Communications |
| 5. |
Arthur
Anderson |
| 6. |
Boeing |
| 7. |
Merrill
Lynch & Co. |
| 8. |
Microsoft |
| 9. |
Global Crossings |
| 10. |
Dynegy,
Inc. |
| 11. |
Peregrine
Systems, Inc. |
| 12. |
Elan
Corp. |
| 13. |
Tyco |
Besides Enron
making the list two years in a row, there were only two other holdovers
from previous years.
Boeing first
showed up on the ICM Most Crisis Prone List in 1995 and Microsoft
first made the bad news top ten in 1997.
Boeing showed
up on the most crisis prone list in 1995, 1997, 1998, 1999, 2000
and 2001.
Fears of defective
parts in Boeing aircraft prompted the Federal Aviation Agency to
order inspections of fuel pumps.
More headlines
followed Boeing’s union vote to recall its president and treasurer.
And then a strike vote failed.
But Boeing’s
biggest negative news hit came when the FAA ordered replacement
of faulty rudders on Boeing 737s. The directive followed two deadly
crashes blamed on the device's failure. The program cost the company
$364 million.
Microsoft failed
to make the top ten list only once since 1997, experiencing a variety
of different crises during those years.
Alleged patent
violations and anti-competitive business practices were among the
crises Microsoft wrestled with in 2002.
ImClone’s
ex-CEO faced insider trading charges and the domino effect of that
scandal hit Martha Stewart, tainting her company and leading to
an unresolved probe of possible obstruction of justice.?
Among it’s
other negative news headaches, Merrill Lynch made headlines when
it fired a vice-chairman and head of the energy investment unit
for failing to cooperate in the Enron investigation.
To add to Merrill
Lynch’s woes they had to pay $100-million to settle Net boom
claims, as investors lined up to sue over biased advice. The New
York State Attorney General used e-mails to support his allegations
the company mislead investors.
A number of
the companies that made the “most crisis prone” list
were also linked to Arthur Anderson, which made the top five bad
news list itself. Peregrine was one of those clients and sued Anderson,
blaming the audit firm for practices that led it to bankruptcy.
Before the year
ended, Tyco’s former chief, Dennis Koslowski and two other
Tyco executives were charged with conspiracy, larceny and corruption.
Then Koslowski was accused of a $1-million art scandal and evidence
tampering in his tax evasion case.
“Deja
Vu” All Over Again
In the twelve
years preceding 2002, white-collar crime, mismanagement, hostile
takeovers and environmental damage all had significantly decreased.
ICM Consultants believed aggressive government oversight and managements’
decision to reduce liability, litigation and government intervention
contributed to the decreases.
2002 shattered that idea.
On the other
hand, in that same twelve-year period, organizations had been their
own worst enemies. More crises had been caused by internal forces
and people – discrimination, fraud, embezzlement, sexual harassment
and labor trouble – than from external forces – natural
disasters, fires, explosions, consumer activists.
That has not changed.
Almost all the
scandals that beset the most crisis prone industries were the result
of insiders – mostly top executives and upper-level managers.
But the damage went far beyond the reputation and careers of those
executives.
It wiped out
whole companies, destroyed pension plans, devastated families
and retirees and shook the very foundation of the United
States economy.
