OVERALL ASSESSMENT

Business crisis news stories jumped 19% in 1997 continuing a three-year trend that indicated growing public concern about business crises in the U.S. and abroad. The results also reflected a transition in media emphasis from industrial and environmental accidents to the management, financial and technology problems of the late 1990’s.

These findings are based on the Institute for Crisis Management’s analysis of 7,646 business crisis news stories in 1997 in more than 1,500 newspapers, business magazines, wire services and newsletters worldwide. They are contained in the ICM Crisis Database, a computer file of more than 55,000 business crisis news stories since 1990.

Most Common Business Crises

Once again in 1997, white collar crimes such as bribery, theft, embezzlement and fraud) were the most prevalent crisis category, accounting for 18% of the records and increasing by 5% over 1996.

Fastest Growing Crises

Hostile takeovers were the crisis category that grew the fastest in 1997, more than doubing over the previous year as the record-breaking gains in the stock markets worldwide made many companies with lagging performance highly vulnerable to corporate raiders. The 24% increase in executive dismissal news stories during 1997 was due to the same basic factors.

Consumer activism, up 31% in 1997, could be traced to the growing worldwide awareness of questionble corporate practices. Irate individuals and dissident stockholders were highly visible in taking on corporate giants such as Nike, NationsBank and Microsoft. Large consumer and religious organizations also became more vocal. The Southern Baptist Convention, for one, urged members of its churches to boycott Walt Disney for its perceived support of gays

.

Product defects and recalls were the other crisis category that jumped significantly in 1997, increasing 23% over the previous year. Automobiles, pharmaceuticals, software and commercial aircraft, which accounted for most of this increase, are no stranger to this kind of crisis news coverage. The newcomer was food processing, particularly fruits, juices and meats, which were hit with sharp increases in outbreaks of e-coli and other deadly bacteria both in the US and in Asia.

Who Gets Involved in a Crisis

A new area of analysis by ICM has focused on the types of people or organizations which get involved in crisis news stories. In 1997 government officials or agencies were mentioned in nearly 25% of the stories, followed closely by employees at 22% and executives at 14%. The remaining 40% of the references mentioned unions, attorneys, activists, consumers and customers.

The Good News About Business Crises

On the positive side of the crisis balance sheet, sexual harassment news coverage declined 22%, whistle blowing stories were down 20% and workplace violence news dropped 58%. The declines reflect increased vigilance of companies, non-profit organizations and government agencies vulverable to these crises. Top managenent has become painfully aware of the costs of these kinds of crises, both in negative publicity and financial damages, and has strengthened the sensitivity and response programs within their organizations.

The Most Crisis-Prone Industries

Many of the most crisis-prone industries in the past made the list once again in 1997, along with a few newcomers.

The increasingly global nature of crisis management was clearly evident in the ranking of the financial securities industry as the most crisis-prone area in business 1997. The Bre-X gold mine "salting" in Indonesia unleashed a crisis for the Canadian Stock Exchange and thousands of investors who bought Bre-X stock after the initial news reports of the largest gold discovery in history. Similar securities fraud cases in Japan, Shanghai, and other countries resulted in companies like Diawa Securities and Nomura Securities facing multi-million dollar fines and penalties.

In the U.S, where they had previously spent millions building their images, First Boston, Kidder Peabody, Lazard Feres, Merrill Lynch and Prudential Securities faced significant negative news coverage and damage to their business reputations as a result of investigations, class actions and financial settlements.

The banking industry ranked a close second with a similar worldwide scattering of fraud, embezzlement and mismanagement crises. The Swiss banking system came under intense public and media scrutiny for its questionable handling of the assets of Jewish Holocast victims.

In the US, Chase Manhattan, Citibank and Bank of America were among the most prominent financial institutions facing crisis situations. Bank of Credit and Commerce International and Lincoln Savings & Loan also were the subject of negative news stories in 1997, clearly showing the length of time crises can continue once they erupt in the media.

Airlines, no stranger to business crisis events, again ranked in the top ten, this time in the No. 3 position. While most of the industry’s negative news coverage in the past has centered around crashes, in 1997 the major problem was labor disputes. Labor crises among the international airlines included disputes at Air France, Swiss Air and British Air. In the U.S., the labor disputes at American Airlines and UPS Airlines garnered most of the negative business news stories.

Because of the parallyzing effect of the Teamsters strike against United Parcel Service on the U.S. economy, UPS ranked at the top of the list of crisis-prone companies in 1997. The impact of the strike was felt in both the air and ground operations of UPS, which had major financial and competitive losses in the two weeks of the walkout. The crisis also caused many of its important customers to rethink their distribution systems to avoid similar problems in the future.

Healthcare delivery was the fourth most crisis-prone industry with a broad cross-section of newsworthy crises. The major problems centered around human errors at hospitals that resulted in highly damaging lawsuits and financial settlements, and several class actions against major corporations. The FBI search of Columbia/HCA offices and subsequent indictments of several employees on Medicare fraud charges resulted in the ouster of its CEO and monumental stock market and financial losses.

The automobile industry, no stranger to the top ten crisis-prone industries list, ranked No. 5 in 1997 with crises in all of the 16 ICM crisis categories except hostile takeovers. The biggest concentrations were in labor disputes and automotive defects/recalls, which have been perennial problems for the industry. Human resources problems also generated significant crisis news coverage in Mitsubitsi Corporation’s mishandling of its sexual harassment problems and the discrimination allegations against Ford at its Explorer assembly plant in Kentucky.

White collar crime was another area of crisis for the automotive industry in 1997 with the conviction of the chairman of Fiat on corruption charges and the racketeering allegations against Volkswagen and a former General Motors executive accused of stealing GM secrets for VW.

Steel, aluminum and other primary metal production had a bad year in 1997 from a crisis standpoint, and ranked No. 6. Labor disputes were the most prevalent crisis for this business, as they often tend to be, with the strike at Wheeling-Pittsburgh Steel generating the most negative news coverage and having the most serious consequences.

Mismanagement and white collar crime were the other major areas of crisis with numerous allegations of dumping, predatory pricing and violations of environmental laws. The corruption charges at Hanbo Steel in Korea triggered an international incident and ultimately led to the naming of a new prime minister in the country.

Petroleum production and distribution, another of the perennial crisis-prone industries, did better in 1997 than in the past, ranking No. 7. Even though it occurred in the last quarter of 1996, Texaco’s discrimination problems continued to generate news coverage in 1997. Hostile takeovers were another crisis area for the oil industry in 1997, especially in Canada. News of the Clyde Petroleum takeover activities aimed at Gulf Canada Resources and Canadian 88 Energy Corp’s hostile bid for Morrison Petroleum’s Ltd. generated government investigations and frenzied trading on the Canadian Stock Exchange.

Microsoft’s running gunfight with the US Government over anti-trust allegations boosted the software industry into the No. 8 position. The industry had other significant crises in copyright infringement, and white collar crime including insider trading, theft of secrets and a variety of fraud convictions involving smaller software companies.

The ICM crisis index ranked aircraft manufacturing in the No. 9 position. Media coverage of plane crashes was about

at the same level in 1997 as 1996 although the TWA 800 disaster continued to generate additional news aftershocks. The industry’s major problem area was in safety defects including Boeing’s problems with the tail assemblies of its 737 aircraft and several types of jet engine failures on commercial and military aircraft, including one which exploded and killed a passenger on a Delta Airlines jet.

The grocery industry was a newcomer to the top ten rankings, at No. 10. The major area of crisis was in labor disputes including strikes against several food chains, most notably Giant Food, Albertson’s and Shaw’s Supermarkets. Giant Food and Albertson’s had other crises to contend with in 1997 as class actions were filed against both companies.

A multi-year crisis for one company in the industry ended on a positive note. Food Lion sued ABC News alleging ABC committed fraud and trespassing in developing an investigative news report on supposedly contaminated food processed by the supermarket chain. The jury in the lawsuit trial agreed, finding ABC guilty and awarding Food Lion $5.5 million in damages.

 Crisis Outlook for 1998 and Beyond

In analyzing business news coverage throughout the 1990’s, there seem to be no new business crises. The same problems occur year after year, and the same companies and industries consistently make the most crisis-prone list.

What is changing is the speed and extent to which these crises generate public awareness via the news media and the financial impact they can have on the companies as a result. Any bad business news situation, whether it is lower-than-expected earnings or the indictment of a company official, will be known worldwide within minutes. And with disgruntled or disillusioned employees seeing how easy it is to leak information to the media, or to millions of surfers on the Internet, it is becoming extremely difficult to contain problems with the potential for erupting into a serious business crisis.

One new crisis area is emerging that is of major concern to ICM and it is literally a timebomb set to begin exploding on January 1, 2000. We firmly believe the Millennium Computer Crisis, or "Y2K", will have a catastrophic impact on companies, non-profit organizations and government agencies worldwide.

This smoldering crisis has reached the point where it needs to be addressed by top management and anyone involved in internal/external communications. The programmers who are working to find and correct the two-digit year codes that have the potential to create havoc in the 21st century cannot control the impact it will have outside their organizations.

Your organization needs to be thinking about how this crisis will be managed if all the computers you count on and take for granted do not work. Even if your computers are "compliant" there will be other computer systems and embedded computer chips that your organization and its employees depend on which will not function correctly in January 2000.

How will any computer system failures in January 2000 effect the future of your business? The answers to that question, and what may make or break any business when the Millenium begins, will be determined by how well they have anticipated this crisis and taken action to be prepared.

What every organization needs to develop is a strategic crisis communications plan for the beginning of "Y2K". There needs to be realistic contingency and communications plans for maintaining the most important business areas if many of the computers they depend on are not functioning.

 The first few months of 2000 could be the most difficult crisis our industrialized world has ever experienced. Those organizations that have anticipated how the beginning of the Millenium could handicap their normal business activities and have plans to minimize the impact will be those that will survive. They also will have a distinct advantage over the hundreds of thousands of their counterparts and competitors which did not take the "Y2K" crisis seriously. Many are likely to find they cannot function in the 21st century and will be forced to alter their operations drastically or go out of business.

The Institute for Crisis Management is a research-based consulting firm providing crisis management and communications services for businesses, government agencies and non-profit organizations worldwide. The services ICM provides include:

• Crisis Consulting to help management minimize likely public reaction in a
  sudden or smoldering crisis.
  
  
• Database Research from the ICM Crisis Database to define and graphically illustrate the crisis trends in specific industries for management presentations and consultant’s proposals.
  
  
• Crisis Communications Plans to provide organizations with a realistic response plan that will notify key people quickly and allow it to communicate with the public and the news media within 60 minutes of a crisis.
  
  
• ICM Workshops and Seminars to train executives and consultants in developing crisis communications plans, managing sudden and smoldering crisis situations and providing management with the information needed to manage crisis situations effectively.