Overview

Business crisis news coverage declined 20% in 1998 and registered the fewest number of yearly records in the ICM Crisis Database during the 1990s. The decline was due to fewer crisis events which tend to attract media attention -- natural disasters, casualty accidents, environmental damages and discrimination suits. Class action lawsuits were the exception as they increased during the year and continued a decade-long trend.

These findings are based on ICM's analysis of 6,050 business crisis news stories in 1998 reported in more than 1,500 newspapers, business magazines, wire services and newsletters worldwide. The stories cateloged in 16 crisis categories, are stored in the ICM Crisis Database, a computer file of more than 62,000 business crisis news stories since 1990.

Most Common Business Crises

Labor disputes were the most covered business crisis during 1998. Although the total amount of coverage decreased from 1997, labor conflicts remain one of the most frequent business crises during the 1990s.

White collar crime generated the second most coverage. White collar crime remains one of the three most frequent business crises during the decade. Traders on the floor of the New York Stock Exchange, fraud in the bankruptcy of Bre-X Minerals, Ltd., charges of fraud and SEC probes of violations by HCA/Columbia exemplify the crisis category.

Management-caused business disruptions were the third most newsworthy crisis category during 1998. Nike's problems in plants overseas, Zilog's ignoring unsafe working conditions in its plants, and actions by "Chainsaw Al" at Sunbeam before
his ouster contributed to the negative business news coverage.

Fastest Growing Crises

Class action lawsuits was the crisis category that grew the most rapidly in 1998. This continues a trend throughout the decade during which class actions against organizations have increased 265% since 1990.

The tobacco industry faced litigation from individuals and more than half the states. Chrysler lost its defense of mini-van latches in court and faces additional court dates because of peeling paint. Dow-Corning remains under bankruptcy protection because of the continuing breast implant controversy. The increase in class action lawsuits has led some to remark that the US may be implementing legislation through litigation.

The courts as well as federal agencies continue to cite organizations for not putting a stop to sexual harassment. The increase continues a decade-long trend of increases in sexual harassment: up 390% since ICM began tracking crises in 1990. Approximately 15,500 cases were filed in 1998 compared to 6,900 in 1991. Neither the U.S. Army nor the President of the United States was immune from charges of on-the-job sexual harassment.

Product defects and recalls were the other crisis category that jumped significantly, increasing 11% and marking the second straight year of double-digit increases in this crisis category. Auto manufacturers, pharmaceuticals, software and commercial aircraft producers and food processing, particularly fruits, juices and meats, accounted for these increases.

Whistle-blowing grew slightly from 1997 to 1998. A relatively small crisis category--less than 2% of all the stories in the database--whistle blowing should be a concern for executives. In the cases in the ICM Crisis Database, the whistle often was blown outside before anyone reported unsafe or dishonest practices inside the organization.

On the positive side, the 12 other crisis categories tracked by ICM registered declines due in large part to the increased vigilance of organizations vulnerable to these type of crises. Another factor has been more aggressive oversight by governmental agencies in forcing organizations to develop appropriate working conditions or face the prospects of fines, lawsuits and unwanted publicity.

The Good News About Business Crises

On the positive side the 12 other crisis categories tracked by ICM registered declines due in large part to the increased vigilance of organizations vulnerable to these type of crises. Another factor has been more aggressive oversight by governmental agencies in forcing companies and also non-profit organizations to develop appropriate working conditions or face the prospects of still fines, lawsuits and unwanted publicity. Senior executives also have become painfully aware of the financial impact of these types of crises, which in many instances have resulted in changes in top management.

The Most Crisis-Prone Industries

Each of the ten most crisis-prone industries in 1998 has been among the top ten in previous years.

Auto and truck manufacturers, consistently among the five most crisis-prone industries, topped the list in 1998. Multiple strikes against General Motors and the spin-off difficulties of suppliers to GM sparked considerable media and government attention. Recalls of Chrysler's Cirrus and Stratus models and increasing concern about sports utility vehicles--produced by most automakers--also caused corporations difficulties. Makie Automotive Systems and Hyundai strikes also contributed to auto manufacturers rating as the most crisis prone industry.

Financial holding companies and other investment organizations ranked second last year. Two hostile bids for American Bankers Insurance Corporation and Glen Burnie Bancorp’s resistance to a take-over by First Mariner contributed to this industry's high ranking.

Cramming, slamming and labor unrest caused turmoil for the telephone industry. US West, Southern New England Telephone Company and Bell Atlantic all experienced strikes during the year. Ameritech was the subject of a class action suit which was settled, and then was challenged on its settlement.

Most Crisis-Prone Industries in 1998
(ranked by number of database records)

1.	Auto and truck manufacturers	409
2.	Financial holding companies	371
3.	Telephone companies	345
4.	Insurance carriers	308
5.	Security and commodity brokers	282
6.	Prepackaged software	233
7.	Airlines	227
8.	Depository institutions	225
9.	Radio/television	203
10.	Computer/ Office Equipment	153

Insurance companies ranked fourth. Aetna triggered a crisis when it charged two medical care providers with dialysis fraud. AllState took similar action against 45 people in Los Angles accused of creating fraudulent auto accidents and also sued doctors and chiropractors in California for fraud. Nationwide Insurance meanwhile settled a $100 million suit.
Security and commodity brokers were once again among the top five in newsworthy crises. Price fixing, illegal trading and fraudulent activities all received extensive coverage in 1998. More than $1 billion was paid by thirty brokerages to settle a class action suit alleging price fixing on the NASDAQ exchange. Merrill Lynch faced charges of sexual harassment while Monroe Parker Securities was charged with price manipulation and fraud. Sweeney Capital Management was accused of misappropriating commission fees.

Ongoing challenges to Microsoft by the federal government and lawsuits over Y2K non-compliance pushed the software industry to the sixth ranking. Cybermedia Inc. and Interactive Software were charged with fraud in class action lawsuits. Novell was charged with financial misrepresentation and falsifying financial statements. Computer Associates engaged in a hostile takeover of Computer Sciences Corporation. Y2K problems led to suits against Software Business Technologies and Intuit

Scheduled airlines remained in the ten most crisis-prone industries. The Swissair crash killing all on board captured international attention for several weeks, but airlines ranked high with other crises. Air France, Northwest Airlines and Aeromexico all experienced strikes. Flight attendants sought legal redress from secondary smoke and unruly behavior of passengers. Delta Air Lines made headlines because of potentially dangerous doors on Delta flights.

Travelers worldwide expressed concern about Y2K problems associated with air travel. Potential air traffic control computer problems in many countries has encouraged some airlines to consider not flying to selected airports from December 15, 1999 to January 15, 2000.

Depository institutions also continued to rank among the most crisis-prone, primarily for problems triggered by management and the behavior of employees. South Chicago Bank and Advance Bank were charged with theft and the creation of a slush fund from which to make political contributions. Norwest was charged with discriminating against low-income people seeking mortgage loans. Embezzlement charges also caused a crisis for BankBoston while CoreStates was forced to pay employees $1.48 million to make amends for unequal pay practices.

Since the media’s news reports are the basis for the ICM Crisis Index, it is ironic that the radio-television industry also made the most crisis prone list in 1998. CBS and “60 Minutes" were sued over papers alleging a connection between "the mob," Marilyn Monroe and President John Kennedy. ABC locked out more than 2,200 members of the National Association of Broadcast Employees and Technicians, forcing managers to run the production side of the network. The Jerry Springer and Jenny Jones talk shows stimulated critical, legislative and legal debate over the violence these shows encourage and even instigate in order to boost ratings.

Computer manufacturers returned to the list. Lotus, IOMEGA, Silicone Graphics and Sigma Designs all faced charges of insider trading from the SEC, resulting in class action lawsuits by investors. Computer Associates waged a temporary, and ultimately failing, hostile takeover bid of Computer Sciences Corporation. Union workers struck Lucent Technologies, Inc. slowing production and distribution of its important computer products. CEOs were ousted by Seagate and Teknor.

Companies With the Most Negative News in 1998
(ranked by number of database records)

 

1.	General Motors	211
2.	Northwest Airlines	169
3.	US West	165
4.	Microsoft	59
5.	Bell Atlantic	56
6.	AMP Inc.	43
7.	Boeing	34
8.	Mitsubishi	31
9.	Ford	30
10.	Sunbeam and Columbia/HCA (tie)	26

 

Labor disputes also put Northwest Airlines near the top of the list as its pilots threatened a strike over salary. The company’s machinists union also threatened to strike and a work slowdown coupled with vicious public company-union arguments drove travel agents and travelers to select other airlines. In addition to the strike, Northwest was charged by the government, along with most major airlines, with predatory pricing.

The strike against US West caused considerable difficulty for the company, its vendors and customers. US West also found itself in court defending charges of discrimination against blacks and mishandling its pension fund. Bell Atlantic, like US West, was hit by labor unrest and strikes disrupting business-as-usual and generating considerable media and regulatory attention.

Microsoft's fight to preserve its competitive advantage continued throughout the year, but the software giant also faced a trademark violation suit and a virus attack on its NT operating system.




AMP, Inc. found its stock plummeting, leading to questions about its leadership. Allied Signal made a hostile takeover attempt to grab AMP. Before the year ended, AMP found itself in court facing a fraud suit.

The entire aviation industry was shaken with the discovery of problems with the 737 manufactured by Boeing. The company’s Bell Helicopter also experienced mechanical difficulties and it was also charged with bias leading to a class action lawsuit.

Mitsubishi remained in the top ten as the effects of a sexual harassment suit continued and the EEOC required payement of $34 million to the harassed women employees. The company’s initial stance of denying the charges probably lengthened the crisis keeping it in the "terrible ten" for 1998.

Faulty ignition switches in Ford cars leading to fires and a subsequent suit by AllState Insurance over the cost of those fires to the insurance industry helped return Ford to the list of crisis-prone companies. Ford also faced a recall of its pick-up trucks to repair faulty front wheel nuts. Employees took the company to court with charges of sexual harassment and racial bias. The federal government also took Ford to task for violations of the Clean Air Act.

Columbia/HCA and Sunbeam made the list for the same reason--mismanagement. Allegations of Medicare fraud against the managed care giant continued to make business news as the company attempted to respond to the charges and the SEC got into the act by charging the company with violations of security laws. At Sunbeam, the ouster of "Chainsaw Al," Dunlop was compounded by a class action lawsuit charging financial misrepresentation and false financial statistics.

Causes of Business Crises

From reading the descriptions of the most crisis-prone industries and companies, it will come as no surprise that most crises are triggered by management. Throughout the decade, three-quarters of all crises compiled in the ICM database have resulted from inappropriate action or inaction by top management.

Sources of Information in a Crisis News Story

ICM has been tracking eight sources of information most mentioned in business crisis news stories carried by the print media. As was the case in 1997, government officials--elected and regulatory--were the most quoted sources.

Source of Crisis Information
(ranked by % of mentions in crisis news stories)

1.	Government	22.50
2.	Union	19.62
3.	Judicial	16.75
4.	Employees	16.72
5.	Executives	8.98
6.	Customers	6.55
7.	Activists	6.14
8.	Consumers	2.69

One in four stories cited union spokespersons as a source of information. Nearly 17% of the stories included comments from employees and members of the judicial branch of government (police, officers of the court, judges). Executives, official spokespersons for an organization, were mentioned as sources of information in fewer than 10% of the crisis stories.

Crisis Outlook for 1999 and the Early Years of the 21st Millennium

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

Sexual harassment is a case in point. Despite growing publicity surrounding these stories during the 1990’s, many organizations still seem to have no policies or training programs in place that might prevent harassment or protect the business from charges of negligence and complicity. A Time/CNN poll early in 1998 revealed that slightly more than 25% of those polled viewed sexual harassment as a "big problem" for women in the workplace.

Unfortunately, the same point can be made for incidents of discrimination based on race, age, ethnicity and life style. ICM believes the trend toward crises based on "personal" matters” will continue.

What has changed since 1990 is the speed that publics outside the organizations know about a crisis. Global news media and the world wide web contribute to the speed by which information, often erroneous and frequently damaging, is disseminated. ICM thinks the availability and speed of information delivery will continue to increase in the foreseeable future. What this means to organizations is they must be prepared to distribute information quickly in order to tell their side of the story in bad news situations.

Equipment failures have been a growing business problem throughout this century as the scope of news media has expanded to today’s global coverage. However, the "Y2K" or "Millennium Bug" offers a new twist on an old problem--Everyone knows it is coming!
Some experts predict the Y2K problem to be the most serious business crisis in history as measured by the amount of resources needed to repair before and litigate after midnight December 31, 1999. Law firms are already gearing up to litigate more than $1 trillion in law suits in the developed nations alone.

How will any Y2K glitches effect the future of your business when the clock turns to 2000? The answers will be determined by how well management has anticipated this "smoldering" crisis by assessing the vulnerabilities, taking steps to correct them, and preparing realistic contingency plans for responding to whatever business disruptions occur.