American Companies Burned Worst By The Media

One school of thought about negative publicity is that its impact dissipates over time. It is hard to disprove that theory, especially in the case of large companies.  And sometimes it takes longer than others.

Last year, BP was regularly lambasted in the press because of the Deepwater Horizon oil spill. Recently, coverage of the company has focused on its negotiations with Russian interests to drill in the area north of the Arctic circle. AIG, one of the government’s most expensive bailout candidates, is in the press more often these days for the sales of its shares to pay back the federal government than it is for the catastrophic management decisions that brought the once-venerable insurer to its knees.

• Read The American Companies Burned Worst By The Media

24/7 Wall St. worked with the creators of The Flame Index to find the ten companies which had the most damaging negative press over the last twelve months. The two organizations picked firms that had the worst negative score on The Flame Index for the 12-month period from June 1, 2010 to June 1, 2011.  The Flame Index identifies negative coverage in the media using a patent-pending proprietary algorithm which reviews data every second from more than 12,000 news sources and ranks 1,000 companies based on the coverage they receive.   This goes on 24 hours a day..

The 24/7 Wall St. and Flame Index rank of the American Companies Burned Worst By The Media is based on the number of negative articles published about each company plus the number of days that the negative articles continue to be published. All the daily values are summed to create a single overall score. In that way, the top company is ranked by both breaking news stories and prolonged negative coverage over an extended period. “We are accounting for a specific amount of time for news stories to decay,” said John Jones, co-founder of the Flame Index. “If a story continues in the media and is picked up by multiple sources, the effect is amplified in the ranking.”

The most memorable strategic mistakes of the last two years include Toyota’s decision to slacken its quality control as it expanded its manufacturing operations outside of Japan. Poor workmanship caused hundreds of thousands of recalls and the company’s CEO, Akio Toyoda, was dragged before Congress and chastised for Toyota’s apparent lack of concern for safety. The trouble hurt the car company’s sales and damaged one of the world’s most valuable brands. Johnson & Johnson fell into the same trap as Toyota by allowing the quality control at some of its over-the-counter drug plants to worsen. Lax oversight was one reason for the production of tainted stocks of Tylenol and Motrin. This was compounded when Johnson & Johnson did not immediately admit its mistake, causing damage to brands that took decades to establish.

Negative press coverage means little unless it has a profound effect on a company’s ability to do business either because of damage to its reputation or because it has spurred lawsuits. BP faced both after the disaster in the Gulf of Mexico. Bad press damages public shareholders but can benefit the hearty souls who stand by the company. The S&P 500 is up 20% in the last year. Only two corporations on the list had stock gains above that over the period. One was BP and the other Transocean. Each was at the center of the Gulf disaster. The value of the shares in each firm are up about 50% over the last year. The cause of this is impossible to tell. It may be that the stocks were hurt so badly that even modest rebounds from their lows caused a large percent increase. An alternative theory is that the Gulf disaster is no longer important news, as measured by press attention. It is only a year ago that the Deepwater Horizon incident was on the front page of ever newspaper and news website every day.

The 24/7 Wall St. American Companies Burned Worst By The Media

10. American International Group (NYSE: AIG)
> Number of days in top ten: 52
> Number of days at #1: 0
> Largest rank change in the period: 681
> Date of largest rank change: 9/7/2010
> Stock performance: -20%

The cost of the bailout of AIG, once the largest insurance company in the US, is hard to measure. The federal government invested and loaned money to the firm from a number of sources. The accounting for each of these “investments” was not identical. Most experts put the taxpayers’ burden at $130 billion. The Congressional Budget Office expects that all but $15 billion will be paid back. The expense is not the only reason that AIG coverage was so negative for so long. AIG inflated earnings improperly shortly before long-time CEO Hank Greenberg left the company.  The insurance firm also sold billions of dollars to underwrite the value of mortgage-backed securities. The value of these instruments collapsed as the credit crisis began.

9. Transocean Ltd (NYSE: RIG)
> Number of days in top ten: 61
> Number of days at #1: 2
> Largest rank change in the period: 665
> Date of largest rank change: 12/15/10
> Stock performance: +50%

The Deepwater Horizon drilling platform was owned by Transocean. The company, along with BP and oil services firm Halliburton, was blamed by investigators because they had lax safety controls and poor prevention systems which caused the explosion and destruction of the rig and huge oil leak which immediately followed. Transocean blamed BP for practices which contributed to the disaster. BP blamed Transocean. The legal battles over liability could be in the court system for year including a lawsuit from the US Justice Department.

8. Freddie Mac; Fannie Mae
> Number of days in top ten: 85; 148
> Number of days at #1: 6; 14
> Largest rank change in the period: 718; 803
> Date of largest rank change: 12/28/10; 12/28/10
> Stock performance: both delisted

Fannie Mae and Freddie Mac are so closely tied to one another that they are treated as a single case here. A year ago, both companies were delisted from the NYSE after the value of their shares each dropped more than 99% from their peaks. The firms are taxpayer-owned, and guarantee more than half of the mortgages in the US. The value of the home loans that were backed by these guarantees dropped sharply as the real estate market collapsed. The cost to support the companies has been and will continue to be astronomical. The Federal Housing Finance Agency estimates that the bailout of Fannie Mae and Freddie Mac will cost as much as $350 billion by 2013. The shuttering for the two at this point would further damage the home market as home loans without guarantees become more expensive for buyers and more risky for banks.

7. Hewlett-Packard (NYSE: HPQ)
> Number of days in top ten: 93
> Number of days at #1: 23
> Largest rank change in the period: 824
> Date of largest rank change: 11/23/10
> Stock performance: -22%

Hewlett-Packard had one of the most troubled and confused CEO transitions in the recent history of corporate America. Mark Hurd, considered the savior of the modern HP, was accused by his board of directors of falsifying expense accounts. The money which he did not account for appears to have been spent on his time with marketing “consultant” Jodie Fisher, a tall long-legged blond who had been a reality TV star. The negative press intensified when Hurd was given a $12.2 million severance package. Shortly after Hurd’s departure, Silicon Vally legend and Oracle CEO Larry Ellison accused the HP board of stupidity. Ellison quickly made Hurd co-President of Oracle. This triggered accusations that Hurd took trade secrets with him as he left HP. The news about the company worsened when it hired a poorly regarded tech executive Léo Apotheker as CEO.

6. J.P. Morgan Chase & Co. (NYSE: JPM)
> Number of days in top ten: 109
> Number of days at #1: 8
> Largest rank change in the period: 728
> Date of largest rank change: 11/29/10
> Stock performance: +10%

JP Morgan mostly suffered as a press target because of the huge TARP bailout it received along with America’s other largest financial firms. This was compounded as the bank was accused of an ongoing relationship with Bernie Madoff. JP Morgan was also one of several banks accused of improper foreclosure procedures which allegedly pushed tens of thousands of people out of their homes prematurely. CEO Jamie Dimon has been accused recently as acting as an industry spokesman who argues that new regulations will hurt bank earnings. This, in turn, will harm public shareholders and customers who will have to pay more for loans to make up the cost to company incurs to comply with the regulation.

5. Bank of America Corp. (NYSE: BAC)
> Number of days in top ten: 124
> Number of days at #1: 3
> Largest rank change in the period: 745
> Date of largest rank change: 11/5/10
> Stock performance: -30%

Bank of America has also been harmed by TARP press coverage and by accusations that the firm’s former CEO Kenneth Lewis hid information about executive bonuses from shareholders. Lewis is often also blamed for the firm’s misfortunes because he bought Merrill Lynch which had so many weak investments on its balance sheet that it nearly pulled Bank of America under. The financial firm was further criticized when it gave new CEO Brian Moynihan a $9 million stock based bonus for his 2010 accomplishments. Bank of America’s most recent negative press is because it has at risk billions of dollars to pay back companies which bought its mortgage-backed securities before the credit crisis began. This paper lost most of its value, and accusations are that Bank of America was aware that the risk these financial instruments was greater than disclosed. On November 10, 2010, Bank of America said it would not buy back bad mortgages, despite requests by the Federal Reserve, Freddie Mac, and others.

4. Massey Energy
> Number of days in top ten: 191
> Number of days at #1: 32
> Largest rank change in the period: 697
> Date of largest rank change: 3/8/11
> Stock performance: sold to Alpha Natural Resources

An explosion in a Massey mine killed 29 miners on April 5, 2010. It was worst loss of life in the industry in 40 years. Massey was accused almost immediately of a number of safety violations which may have caused the collapse. A blue ribbon panel reviewed the causes of the explosion and issued a report last month. Massey received all the blame for the incident. The document issued by the group said that the mining firm “knowingly violated the law” and charged that Massey has “blatantly disregarded known safety practices”. Massey’s reputation has been damaged further by its practice of blowing the tops of mountains as a way to inexpensively mine coal. The practice is alleged to cause severe health damage in both human show live in the areas where the mines are blasted and people who live downstream for the mine sites where rivers take contaminants.  On March 8, 2011, three additional lawsuits were brought against Massey Energy for the April 2010 explosion – two lawsuits by families of the deceased and one by a surviving miner.

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3. Toyota Motor Corporation (NYSE: TM)
> Number of days in top ten: 196
> Number of days at #1: 33
> Largest rank change in the period: 674
> Date of largest rank change: 9/30/10
> Stock performance: +17%

Toyota recalled a number of car models. Its largest single recall was for an extraordinary 5.2 million cars on January 28, 2010. The No.1 car manufacturer in the world was accused of being aware of the safety problems and a cover-up meant to save the company the costs of repairs. Toyota CEO Akio Toyota appeared before Congress to explain the reasons for the malfunctions of brake and steering systems. He admitted that the firm’s growth had made it more difficult to maintain the quality controls that were hallmarks of the company for decades. The most harmful accusation to Toyota’s sales and brand value was probably that the Japanese based company had traded profit for safety. Later in 2010 and early this year, it became clear that many of the problems with Toyota cars were due to driver error and not manufacturing defects. That analysis came too late to spare Toyota from the lion’s share of the harmful media coverage.

2. Johnson & Johnson (NYSE: JNJ)
> Number of days in top ten: 193
> Number of days at #1: 42
> Largest rank change in the period: 649
> Date of largest rank change: 5/29/11
> Stock performance: +14%

Johnson & Johnson recalled 136 million bottles of Children’s Tylenol, Benadryl ,Motrin, and a dozen other products in April 2010. The recall was followed by a number of others which included, most recently 57,000 bottles of Topamax, an anti-seizure medication. The source of the trouble with Tylenol and Motrin was found to be in facilities operated by company division McNeil Consumer Healthcare division at sites in Pennsylvania and Puerto Rico. Johnson & Johnson agreed to strict federal oversight at these plants. Some industry estimates place the sales of the children’s version of Tylenol down by as much as 90% because of the news about the dangers of the product.

1. BP (NYSE: BP)
> Number of days in top ten: 212
> Number of days at #1: 60
> Largest rank change in the period: 670
> Date of largest rank change: 11/29/10
> Stock performance: +50%

The Deepwater Horizon incident may be the largest public relations disaster in corporate history. Here are the highlights:

• On April 20, 2010 Deepwater Horizon explodes which kills 11;
• Oil spill estimated at 206 million gallons of crude;
• Slick causes financial damage to thousands of businesses in the fishing, hospitality, shipping;
• CEO Tony Hayward resigns on October 1, 2010 due primarily to his handling of the disaster;
• Rumors of Chapter 11 and concerns about liability cause BP to sell a large number of valuable assets;
• Shares fall from $60 to $27 in one month, which wipes out $100 billion in shareholder value;
• BP is forced to establish a $20 billion fund to cover costs of the leak and the fund may not be adequate;
• BP incident is worst corporate PR disaster in history.