OVERALL ASSESSMENT

1994 was witness to a 7% increase in news coverage of business crisis events, driven up by such headline grabbers as the Intel Pentium chip error, Microsoft's legal woes, the GM pickup truck fracas with NBC and relentless hits on tobacco companies. The total number of records in the ICM Crisis Database has grown 65% since 1989, with 101,410 accounts of business crisis events now logged into the Database.

In analyzing both the crisis categories and the database records themselves, it is obvious that the news media is increasing its focus on labor and environmental issues, as well as product concerns. The greatest changes in negative news coverage from 1993 to 1994 were in: worker safety (up 79% over 1993); violent crime (up 71%); and labor disputes (a 42% increase).

CRISIS-PRONE INDUSTRIES

Our analysis of the database indicates that last year’s negative news coverage closely mirrors 1992. Financial institutions, followed by the automotive, petroleum, airline, and computer industries ranked as the top five crisis-prone industries, significantly ahead of other areas of business in garnering negative media coverage in 1994.

The aftermath of the savings and loan meltdown was compounded by a diversity of crises in banks to make financial institutions the most crisis-prone industry in 1994. Other industries made the list on the basis of hostile takeovers, product defects, labor disputes, fraudulent business practices, legal battles and questionable human resources policies.

The automotive industry, while enjoying a barn-burner year in terms of sales, suffered a number of public relations setbacks. One was a General Motors Corp. strike that began at a AC Delco plant and spread to nine more factories and idled as many as 30,900 workers. Even though it is in a different industry, Caterpillar has been at odds with the same union in its prolonged strike that has resulted in significant negative news for the company and months of uncertainty for its customers.

Pharmaceuticals, always one of the most crisis-prone industries, had a number of recalls and product-related problems. In 1994, the industry's crises were aggrevated by the controversy surrounding the drug Prozac^tm, manufactured by Eli Lilly.

The airline industry also was subjected to severe negative PR in 1994 involving the threat of bankruptcies and takeovers as well as fatal accidents. Following USAir crashes in Charlotte and Pittsburgh, and American Eagle's deadly accident in Indiana, airlines and airline safety continued to be the focus of the media for months.

COMPANIES IN CRISIS

Intel Corporation led the list of most crisis-prone companies in 1994, garnering this dubious distinction in the last 90 days of the year when the company's management misread how the public would react to a computation flaw in its heavily advertised Pentium computer chip.

Microsoft Corp., meanwhile, continued to generate negative headlines when it signed a decree with U.S. Justice Dept. trust-busters, ending a five-year probe. The settlement, however, banned some of Microsoft's most aggressive licensing practices and caused the buying public to raise its eyebrows.

Talk about kicking 'em when they're down --a jury decided that Exxon should be punished for recklessness in the Exxon Valdez oil spill five years ago. The plaintiffs, 14,000 fishermen, Alaskan natives and others, originally sought $15 billion in damages. They wound up with more than $4 billion for an environmental accident that caused an estimated $1 billion in damage. The excess $3 billion in the jury award is considered by many in Alaska to be the public's retribution for Exxon's insensitivity and PR mismanagement in the aftermath of the spill.

Prudential Securities paid $370 million to settle a multitude of claims from investors allegedly coaxed into buying limited partnerships, which exposed them to big losses.

While it was not in the top ten, Eli Lilly, the Indianapolis-based pharmaceutical giant and manufacturer of the anti-depressant Prozac^tm . Lilly endured public scrutiny as a Louisville jury decided whether the firm was culpable after a gunman assassinated several of his co-workers before shooting himself to death. The gunman was on Prozac^tm at the time. The jury ultimately did not find Lilly culpable, but the company had to endure weeks of negative publicity.

Tobacco companies also received more than their share of negative publicity from cancer-stricken smokers and ex-smokers. Brown & Williamson was embroiled in a battle involving both the courts and the news media when a para-legal leaked confidential company documents to the press indicating the company knew tobacco smoke was unsafe. B&W fought to keep the media from using the papers, saying they were "stolen", which generated additional negative publicity.

Phillip Morris meanwhile took a beating after the U.S. Government announced that cigarettes contain five ingredients classified as "hazardous", including some carcinogens, and that Philip Morris reportedly did secretive addiction experiments in which the results were allegedly suppressed.

One of the most visible American companies, General Electric, dealt with a significant amount of negative press, as CEO Jack Welch was criticized for favoring the bottom line over ethics. The U.S. Justice Dept. hounded GE over corruption charges stemming from alleged on-the-job offenses. GE's money-losing brokerage unit, Kidder-Peabody & Co. had the dubious honor of having head government bond trader Joseph Jett on its bankroll. Jett was accused of concocting $350 million of phony profits over a 29-month period before he was fired.

To complicate GE's problems, federal officials charged that the company had conspired with a unit of South Africa's DeBeers mining company to fix the price of industrial diamonds. A whistle-blower, armed by the FBI with a tape recorder to probe charges that GE had repeatedly ignored warnings about electrical problems that could compromise safety of its aircraft engines, turned attention even more in GE's direction.

In the aftermath, GE entered into talks about selling NBC after a bad run in programming luck, and the infamous exploding pickup truck debacle on one of its news magazines.

CRISIS MANAGEMENT AND MISMANAGEMENT

A number of companies have anticipated the possibilities of a significant impact on their business from negative media coverage with quick, ubiquitous responses. Consider how USAir took out full-page newspaper ads emphasizing their concern about aircraft safety following the deadly Pittsburgh crash. To their credit, they backed up their words with actions, bringing in independent aviation experts to do a full audit of their maintenance and operating procedures.

Others chose the "blame the butler" bandwagon approach, only to aggravate their existing problems. Jack-in-the-Box fast food restaurants, for example, initially blamed their meat supplier for an outbreak of e-coli food poisoning at their restaurants in the Pacific Northwest. Later, they had to change their story, compounding the crisis.

Many organizations were able to anticipate the possibility of significant impact on their business from negative media coverage. For example, with a trial date set many months in advance of the day in court, Eli Lilly had plenty of time to develop a proactive media response plan regarding Prozac^tm.

Airlines know that an accident may occur at any time, and they tend to have excellent response plans as a result. However, in the aftermath of a fatal crash in Indiana last fall, the American Eagle commuter airline apparently failed to execute elements of its crisis plan that dealt with the all-important need to communicate with the families. As a result, the media had a wide-open opportunity to attack the company.

Some crash victims' relatives told the media that the airline mistreated them by withholding information about a mass burial of unidentified body parts. They also said the airline misled them about when, or if, the personal effects would be returned.

Non-profit organizations are even more vulnerable to newsworthy crisis situations. Consider the PR crisis United Way of America continues to endure. Ex-chief William Aramony and two former associates allegedly stole more than $1 million to pay for gambling sprees and an elegant apartment for Aramony's 17-year-old girlfriend, federal prosecutors said at the start of Aramony's fraud trial. This crisis, like any newsworthy trial, will continue for months and undoubtedly will impact United Way fundraising in 1995 as when the scandal was first disclosed.

FASTEST GROWING CRISIS CATEGORIES IN 1994

Worker Safety news stories rose 79% in the past year. Since the Imperial Chicken plant fire in 1992, in which 27 workers died because of numerous safety violations, the specter of a company not protecting the safety of workers has become a high-priority for the media, as it has for OSHA and other government agencies in the face of downsizing.

The increase in Violent Crime, up 71% in 1994, was due largely to restaurant and abortion clinic shootings and the growing number of incidents involving disgruntled workers seeking revenge on their employers.

Labor Disputes also grabbed an increasing number of headlines, growing 42% and driven by the GM and Caterpillar strikes, as well as various airline labor disputes.

Environmental Damage news reports jumped 17% over 1993. The media focused on highly visual oil spills, clean water violations and the burning of hazardous materials.

FASTEST GROWING CRISIS CATEGORIES

The fastest-growing crisis category continues to be sexual harassment. With a 375% increase since 1989, sexual harassment has hit everyone from AT&T to Jenny Craig.

Class action lawsuits have risen 161%, and we expect the trend to go higher. Keep an eye on how plaintiffs are taking on the big tobacco companies.

Executive dismissals, with a 105% increase, continue to indicate that organizations often will find a scapegoat in the aftermath of a real or perceived crisis. The 100% increase in whistleblowing news stories is tied to corporate down-sizing and the growing number of disgruntled managers and workers seeking revenge on their employers.

IMPLICATIONS

Top Management, like it or not, is the embodiment of their organization when a crisis occurs. How effectively management communicates in the chaotic first hours ultimately will determine how well the news media and the public believes the crisis was managed.

Fires and explosions tend get a lot of media attention, but our data indicates they are infrequent and short-lived. If top management wants to cut down on the most likely sources of crisis in their organization, the first place to look is at their personnel practices.

Public Relations Professionals need to make sure top management understands the cost of not preparing for a crisis - in terms of lost sales, earnings and stock price as well as reputation. The millions of dollars spent on image building can be wiped out in 24 hours by one newsworthy crisis. How effectively executives plan for and manage the crisis often will make or break their careers.

The key for both top management and PR people is to anticipate what the public reaction will be if the news media ever moves in to cover one of your most likely crises. Then have a response plan in place. Think of it as communications risk management.