Bankruptcies can be extremely difficult. They can leave employees worried about their jobs, vendors questioning whether they will be paid, and the public wondering if stores will shut down. But companies like Mattress Firm, Diesel USA, and footwear and apparel company Nine-West have all filed for bankruptcy but are still open for business.
“It is a very complicated issue because once stakeholders, especially customers, hear the ‘B’ word, they think ‘going out of business,'” says Arielle Patrick, a senior vice president, transaction director, financial communications and capital markets at Edelman. “In fact, the ‘B’ word can often mean new life.”
Communicating the news to the public, vendors, employees, and investors is an intricate process. Here are a few ways to handle it.
Control your message
The reality of bankruptcy is much more complicated and nuanced. That is why a company needs to communicate the right message to its stakeholders, employees, vendors, and the general public.
“As a communicator, one of the biggest challenges is finding ways to describe the bankruptcy filing process without actually using the word bankruptcy,” Patrick says. At Edelman, a global communications firm, Patrick has helped dozens of companies restore themselves to financial health and thrive.
“It is a very complicated issue because once stakeholders, especially customers, hear the ‘B’ word, they think ‘going out of business. In fact, the ‘B’ word can often mean new life.”
—Arielle Patrick, SVP, Edelman
Often times, positive words like “reorganization,” “restructuring,” “turnaround,” “interim-liquidity,” “recapitalization,’ and “debtor-in-possession financing” are used to help turn around a company’s story when filing for bankruptcy.
“We are trying to basically counter the stigma and call out the real story, which is the management team was proactive in finding a solution to ensure that stakeholders can continue being served in the best way,” Patrick says.
Ross Lovern has experience in mergers and acquisitions, bankruptcies, activism, crisis communications, and litigation. He has represented companies like Energy Future Holdings, Radioshack and SunEdison. As a principal at Kekst CNC, Lovern says that bankruptcy messaging can be very positive, uplifting, and very exciting. “You have an opportunity to launch company 2.0 and really position it so that it doesn’t need to re-enter bankruptcy and it can actually be successful.”
No matter how organized and coordinated a company’s initial bankruptcy messaging may be, leaks and rumors can surface. Leaks are harder to predict and tougher to stop in today’s media landscape. With social media, a person working within a company can leak false or negative information, just as easily as a member of the media.
“Once companies retain banks and law firms to manage the process, more external parties are briefed on the situation,” Patrick says. “This is also the case when there is chatter among creditors. All of these factors increase the likelihood of a leak. There is no way to prevent leaks beyond management consistently reminding company stakeholders and advisors of the importance of confidentiality.”
Having a multi-channel, multi-stakeholder leak plan in place long before the announcement is a good way to head off unwanted or untrue rumors before they gain momentum.
Patrick notes that there are rarely any scenarios where confirming a leak of information is helpful. Often companies will consider multiple ways to resolve debt challenges, and filing for bankruptcy can be just one of the solutions on the table.
“Media rumors typically swirl before the exact course of action is decided, so it would be a mistake to mislead the company’s stakeholders in case the decision changes,” Patrick says.
Lovern says that a constant risk/reward analysis must occur once rumors rise to the surface. “Is it worthwhile for us to engage with the media, or engage with other stakeholders around rumors? First of all, is the rumor true or not? Whether they are true or not, does that provide more credence to those rumors?” he says.
Loop in employees
Employee retention is one of the keys to securing the future of the business following a company filing for bankruptcy.
Stabilizing that audience is very important, says Patrick, adding, “They keep operations running, and if they are left in the dark, feel uncertain of the status of their employment, or lose trust in management…this could lead to attrition. Unplanned headcount loss could hurt the company’s ability to continue business as usual and emerge from the process.”
Lovern says the best approach to take with employees is honesty and communicating with them at the earliest possible moment, even when the message may be difficult to communicate.
The next step is about explaining the process moving forward. “Being able to say, ‘OK, this what is the roadmap we are hoping to stick to looks like. And here are the different milestones, and we will communicate with you around the different major milestones so you understand what’s going on,'” Lovern says.
When handled properly, your company’s communication with employees, vendors, investors, and the general public can be an opportunity to combat negative perceptions, share a positive, new plan for growth, and set up your company for a solid future.