Bankruptcies are booming. Last year, they were up 50%, with more than 200 big companies in a broad range of industries filing for Chapter 11 protection. Experts predict that these trends will continue through 2010 and beyond, and that successfully emerging from bankruptcy will become ever more challenging.
HEART OF THE MATTER
Every bankruptcy has a “head” and a “heart,” and each is crucial to the process.
The head—the technical, legal and financial issues—is, of course, essential. Unless these issues are addressed efficiently and effectively, the organization has little chance for survival.
Then there is the “heart.” Bankruptcy forces a company into a high stakes communications environment. “Do I want to keep buying this company’s products/services?” “Is this a place where I want to build my career?” If customers and employees, respectively, decide to answer “no” to these questions, a company cannot survive. The heart, therefore, is the key to survival.
There are three phases of bankruptcy, and communications must play a role in each:
â–¶ Pre-Filing: Rumor Control: The “pre-filing” period is the moment when persistent financial problems—declining sales, balance sheet issues or strained creditor relationships—spark rumors of bankruptcy. Bankruptcy rumors, whether true or false, are dangerous because they signal that management is losing control of communications with audiences whose support is crucial to the company’s survival.
Fearful of the communications minefield around them, most companies respond to a bankruptcy rumor with a curt statement: “There is no substance to the rumor that …” Not surprisingly, the public is rarely convinced. Better is what we call the informational denial—giving evidence for “no substance.” Blockbuster, for example, denied rumors of imminent bankruptcy by explaining how it was currently working to replace an expiring line of credit.
Naturally, communications options are more limited if the company is actually weighing bankruptcy. Here the goal is reinforcing that the company is making deliberate and intelligent decisions about its future, without explicitly denying bankruptcy is on the table. General Motors, for example, explained its principal options and emphasized that Chapter 11 was a “last resort.”
â–¶ The Filing: Filing day communications should follow a carefully scripted scenario, moving rapidly from internal to external audiences, all triggered by the filing of the petition in bankruptcy court.
• First, senior management: In-person (or teleconference-assisted) meetings to detail the plan, explain what it means for the organization going forward, review key messages and discuss communications responsibilities.
• Next, all employees: Group meeting or prerecorded CEO statement; communicate what is known about HR-related issues (pensions, etc.), emphasize that bankruptcy is an opportunity to emerge stronger.
• Finally, the purchasing and sales staff: Each will be given responsibilities for contacting the company’s key suppliers and customers with relevant facts about the filing.
BALANCED RELEASE
Once internal business is addressed, the company should issue the press release. The public statement should have three equally balanced components: technical details; reassurance; and vision. One common flaw: Releases are often long on head and short on heart.
â–¶ Post-Filing: General Motors, in its creative use of electronic and social media since its Chapter 11 filing, reminds us that bankruptcy is a public process that demands continued outreach to customers, employees and others. GM has virtually branded the term “Reinvention” as a concept to communicate a new identity for the company. Its communications tools include:
• The Reinvention Web site that features live chats with company executives, Twitter, Flickr and Facebook links, news forums and progress reports;
• A corporate Facebook page that is the foundation of its social network, focused on reinvention; and,
• Several corporate blogs that are candid and objective in editorial focus.
Ultimately, bankruptcy is an exercise in rebranding an organization. Without ongoing support and a recommitment of all stakeholders, the difficult task of emerging from Chapter 11 as a new, restructured entity will be impossible. PRN
CONTACT:
Scott Tangney is EVP of financial and professional services at Makovsky + Company in New York. He can be reached at [email protected]..