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

24/7 Wall St.     First Posted: 06/15/11 09:46 AM ET   Updated: 08/14/11 06:12 AM ET

From 24/7 Wall St.: 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.

Below is 24/7 Wall St.'s American Companies Burned Worst By The Media. Read more at 24/7 Wall St.

10. American International Group
1 of 11
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.

Read more at 24/7 Wall St.
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Filed by Harry Bradford  |