OVERALL ASSESSMENT

The number of business crises reported by the media in 1996 dipped to the second lowest level since 1990. Based on the ICM database of 54,383 negative business stories collected since 1990, the decline in crises may be considered good news for America's business leaders.

The ICM database organizes news reports into 16 business crisis categories. As it has for the entire decade, white collar crime (bribery, theft, embezzlement, fraud and insider trading) remained the most prevalent crisis category accounting for nearly one-in-five business crises in 1996.

Labor disputes and mismanagement (conspiracy, false advertising, negligence, collusion and unethical behavior) followed, together accounting for 28% of the negative news stories during 1966.

However, some categories of crises have changed during the past year. Sexual harassment lawsuits continue to increase, up 100% over 1995, due in large part to the allegations made against both commissioned and non-commissioned officers in the U.S. Military. Class action lawsuits also have increased more than 55% in one year, spearheaded by suits against the tobacco industry.

Between 1990 and 1996, sexual harassment (505%) and class action lawsuits (208%) have increased the most. The actual number of cases in each instance was relatively small in 1990, which contributes to the extemely high percentage growth over the seven years.

While also increasing since 1990, executive dismissals (45%), financial damages (37%) and whistle blowing (32%) have grown less rapidly than other crises.

THE NATURE OF ORGANIZATION CRISES

Over the course of the decade, the sudden, catastrophic events--stereotypically viewed as crises-- have diminished significantly. News of serious accidents and natural disasters declined again in 1996, continuing the downward trend over the past seven years.

News reports of environmental accidents also continue to decline, dropping more than 63% since 1990. A similar trend is seen in casualty accidents and catastrophes, down almost 20% each since 1990.

ICM believes the decline can be traced to the Exxon Valdez oil spill in 1989, not the largest oil spill in history, but one generating worldwide media coverage. The consequence has been an increase in the vigilence of companies and the "watchdog" of state and federal agencies, all of which are highly sensitive to negative news coverage.

Nature is not so easily controlled. But, because of increased preparedness by organizations vulnerable to natural disasters -- utilities, police, fire and emergency agencies -- the adverse impact of storms, floods and fires has been diminished.

Anticipation, the key to successful crisis management, requires two efforts: assessing organizational vulnerabilities and correcting them before they become crises; and, planning and practicing to control and communicate about a crisis once it occurs.

Two other crisis categories--defects and recalls and workplace violence--declined during the past year as well. The 22% drop in negative news reports of product defects and recalls appears to be the result of increased management concern about legal action and government penalties as well as the competitive problems associated with the widespread publicity product defects generate.

Despite the increased public awareness of workplace violence, the number of news stories in the ICM Crisis Database declined between 1995 and 1996. News coverage of workplace violence rose through 1994 but decreased during the past three years as increased security and improved employee communications programs to prevent these tragedies have taken effect.

While several categories of crises have declined, sexual harassment, as notedpreviously, ranks as the fastest growing crisis category of the 16 categories tracked by the ICM database. Negative news coverage resulting from sexual harassment doubled in 1966.

News coverage of Astra Pharmaceutical, Mitsubishi Motors, Northwest Airlines, Chevron, the US Military and President Clinton all exemplify the complexities of sexual harassment in the 1990’s. Each incident seems to lead to a government investigation and civil litigation that become "aftershocks" following the initial crisis.

One crisis sets off additional problems, compounding the operational and/or communications issues in the original event as well as prolonging the negative public perceptions. Inevitably the long-term standing of the company or individual tends to be irreputably damaged.

Crises because of labor-management conflict were down 16% from 1995 to 1996. However, GM, Boeing and Caterpillar all continue to experience disruptions due to labor's response to the company’s policies and actions. ICM expects labor unrest to continue to increase over the rest of the decade as employee insecurity and militancy grows in the face of downsizing, global competition and corporate re-engineering.

Although not dramatically increasing, the two categories generating the most negative coverage of the 1990's, also are personnel-related: mismanagement (scandals, questionable policies, unethical actions, etc. ) and white-collar crime (bribery, fraud and insider-trading, etc.). Together these two categories account for more than 32% of all organizational crises in the 1990s.

The AT&T insider trading scandal, Barings Bank collapse, money laundering at Citibank, charges of fraud at Kidder Peabody, GM’s allegation of industrial espionage by Volkswagen, price-fixing at Archer Daniels Midland, Sumitomo’s copper price manipulation and special price deals by NASDAQ traders all illustrate the nature of white-collar crime and mismanagement in the 1990's.

ICM, unfortunately, expects white-collar crime and mismanagement to remain the chief causes of organizational crises in the US for the foreseeable future. Several factors contribute to the prediction.

First, is the lack of organizational discipline to uncover and deal with these types of crises. Mission statements nothwithstanding, top management teams and members of the board on too many major companies seem to be willing to look the other way when they become aware of a smoldering crisis that has yet to go public.

Executive egos and the corporate culture itself tend to make management the source of the problem in many instances, especially in the areas of white collar crime and mismanagement. Numerous costly crises begin with a member of management who is considered too valuable to the organization or whose decisions are not to be questioned.

The basic problem of management denial also is a factor. Many managers are afraid to admit they have a potential crisis on their hands. Others ignore reports of problems until someone "blows the whistle" or they leak out to become public, and out of control.

There also may be a "kill the messenger" climate within many organizations that effectively suppresses an employee's willingness to report potential crises while they are still managable problems. Nobody likes to deliver the bad news if their career may be on the line.

CRISIS-PRONE INDUSTRIES

Automobile manufacturers ranked as the most crisis-prone industry last year accounting for nearly 5% of all business crisis stories. General Motors experienced labor-management conflict in plants across the US and Canada. Further, the entire industry felt the brunt of the attack on air-bags. Mitsubishi continued to face litigation and investigation of charges of sexual harassment and mismanagement. And, GM pressed its industrial espionage claims against Volkswagen, generating worldwide negative coverage.

Commercial banks ranked second in 1996 continuing to rank as one of the top five industries experiencing crises in the 1990's. Barings PLC continued in the news, as did Chemical Bank, Daiwa Bank Ltd., PNC Bank and Citicorp. Fraud, embezzlement and mismanagement contributed to their ills. Signet Banking, Wells Fargo and NationsBank also contributed to the high ranking of banking.

Ranking third in 1996, and consistently among the top five during the decade, are security brokers and dealers. Preferential pricing among a few NASDAQ dealers was a major crisis. Fraud practiced by a few brokers at Smith Barney, bilked investors of millions of dollars.

For the first time since ICM began collecting data, a government agency - placed among the top ten crisis-prone industries. Attacks upon the Environmental Protection Agency (EPA), perhaps dating back to the Valdez accident, as well as on the Department of the Interior's handling (or mishandling) of the usage of federal lands accounted for considerable negative news during 1996.

Labor organizations also are a newcomer to the list of most crisis-prone industries although labor-management conflict has remained within the top five crisis categories during the 1990's. The bitter strike at the Detroit newspapers continued during the year. Labor discontent continued at Caterpillar. GM and Ford faced brief wildcat strikes. During the year the UAW was involved in a contentious struggle for leadership.

With the investigation of the explosion of TWA 800, the continuing investigation of ValuJet, the life-and-death competition between Boeing and Eurobus, and the buy-out efforts affecting Hughes Aircraft, McDonnell Douglas and Northrop Grumman, aircraft manufacturers appeared once again on the most crisis-prone industry list for 1996.

The software industry remained among the top ten, a position they have maintained throughout the 1990's. Microsoft and its problems with Windows 95 and Intuit experienced a number of newsworthy crises during the year. The America Online shutdown raised concerns about both the hardware and software driving that provider of internet services.

Insurance carriers continue to rank among the most crisis-prone industries. Prudential Insurance has faced federal charges for overcharging policy holders. Even "the quiet company," Northwestern Mutual, experienced allegations of misdeeds by salespersons in Indiana.

Grocery stores appear on the top ten list for the first time since ICM began collecting data. The Food Lion suit against ABC, the difficulties at Safeway and charges of price-fixing against Archer Daniel Midland all influenced the ranking.

Finally, steel makers also appear for the first time among the most crisis-prone industries in response to environmental problems, labor disputes and hostile takeovers.

MOST CRISIS-PRONE COMPANIES

Perhaps not surprising because of its size and diversity of activity, General Motors ranks as the most crisis-prone business organization of 1996. GM has been among the top ten throughout the 1990's. Labor disputes, the sale of some of its holdings, and the bitter suit involving Volkswagen made 1996 a bad year for GM.

Mitsubishi became embroiled in a sexual harassment suit leading to investigations of executive behavior and organizational climate. McDonnell Douglas was involved in the ValuJet accident and bought-out by Boeing. The crash of the ValuJet DC-9 in the Everglades and investigations of its maintenance arrangements that resulted in its grounding placed the low-cost airline high in the rankings. Texaco made errors in race relations leading to investigations of its employee training, board of director selections and management leadership. Representatives of Prudential Insurance committed fraud. Brown and Williamson, as a tobacco manufacturer, experienced challenges from both private and governmental agencies concerning their manufacturing and marketing practices.

Newspapers in Detroit hired replacement workers to keep the presses rolling. Some of the strikers crossed the picket lines directly, or indirectly, inciting violence. And, Exxon continues to feel the "aftershocks" of the Valdez oil spill in 1989: remaining in court, facing investigation from federal and state agencies and paying damages to fishermen and others whose income was adversely affected by the spill.

PROSPECTS FOR 1997 AND BEYOND

Based upon our tracking of business crises throughout the 1990's, ICM makes the following predictions:

1. Personnel crises will continue to increase and/or remain near the top of the chart until employers place people ahead of profitability in their corporate priorities.

2. Catastrophic accidents, natural disasters and environmental incidents will continue to decrease as risk management and emergency response techniques continue to improve.

3. Organizations will continue to increase their proficiency in crisis management by developing plans that focus on coordinating the operational and communications response to newsworthy crisis situations.

4. The impact of satellites and telecommunications technology will increase the scope of any newsworthy crisis making the awareness of the problem global within minutes and increasing the aftershocks via the media and the Internet.

©1995; 1996 The Institute for Crisis Management. All rights reserved.