The Role of Communications in a Successful Bankruptcy

February 2021
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The journey can start in stomach-churning fashion. You get the confidential call from the CEO. 

After months of exploring options with advisors and debt holders, your company is likely to file for Chapter 11 within 90 days. Thoughts ping-pong from the professional — employees affected, retirees scared, vendors unpaid, investors distraught — to the very personal. 

Reality, though, need not be so stark. Yes, bankruptcy can seem to be a toxic word, conjuring up feelings of fear, shame and uncertainty. The unique U.S. tool of Chapter 11, though, is designed to provide a path not to a tragic ending — but a new beginning. 

This isn’t just happy talk. In fact, skilled communicators are essential to cementing relationships with each of an organization’s core stakeholder groups. The role of strategic communications, in fact, is vital to a successful bankruptcy (not an oxymoron).

Unfortunately, the United States has been undergoing a massive wave of in- and out-of-court restructurings, brought about by the wind shear of converging events: coronavirus leading to unprecedented job losses, a global economic downturn flashing red and massive oil supplies and a downdraft in demand causing energy prices to lag. 

Entire sectors have shown sharp distress. Complicating the landscape: tens of thousands of corporate bonds were already rated “junk” status or lower before the downturn. And the fantastic promise of the vaccine rollout is still likely to keep a number of businesses struggling to comfortably dig out from the deep hole of 2020-21. 

No wonder that May 2020 bankruptcies hit levels not seen since the Great Recession of a dozen years earlier. 

While you might view a bankruptcy as a potential train wreck for your company, though, the better analogy is medical. Heather Lennox is Jones Day’s Partner-in-Charge (Cleveland office) and the lead restructuring attorney. 

“Chapter 11 is really an emergency room process,” said Lennox. “It’s always a crisis, and it’s important for patients to get in and out quickly and have quality specialists at their side. It also, yes, can be painful and expensive. But the results can be transformative.”

Lennox notes that one of those key specialists is the skilled strategic restructuring communications advisor. Done well, Chapter 11 communications can stem the erosion of stakeholder confidence and even strengthen relationships and engagement with key groups in ways that are both surprising and durable. 

Effective communications can help to preserve precious value in the enterprise, shorten the Chapter 11 process, arm stakeholders with vital information, enhance employee morale and productivity, build credibility for management and begin to paint a bright picture of a post-emergence future. 

In fact, companies are often surprised to find that their Glassdoor rankings for confidence in management and overall satisfaction can edge up materially after a company files for Chapter 11. The time preceding a filing can be marked by layoffs, financial distress, and false-start initiatives that fail to cauterize wounds. Chapter 11 represents a firmer launchpad for sustainable future success.

Multiple stages define the Chapter 11 process, each with challenges but also opportunities to deftly move to the next square on the board. 

• The pre-filing period often represents the highest point of uncertainty and angst. 

• Filing represents a choreographed launch across multiple platforms. 

• Submission of the business plan and plan of reorganization is aimed at driving approvals for the go-forward company. 

• And emergence is an outstanding time to rebrand the company, including potential for a new name, new look, new board and new listing of the stock. 

Bankruptcy has its particular language, specialized players and unique blend of conflicts and drama. Here are eight keys that communications leaders can consider in planning for successful restructuring communications:

  1. Remember to show empathy for those affected. Chapter 11 isn’t without its bruises for some stakeholders, including employees whose self-worth has become frayed by events. They need a digestible narrative that they can share with family and friends around what has happened.

  2. Reinforce the many steps that have brought the company to this point. Channel the spirit of the CEO in sharing the many out-of-court restructuring efforts that have led to this point. Help the company’s leadership paint a picture of what the future may hold.

  3. Demonstrate that this process is aimed at a better day. There is a reason that even the straightforward financial world uses the optimistic phrase “Fresh Start Accounting.” Distinguish between balance sheet issues and fixed costs (that can be addressed through Chapter 11), versus the strength of the underlying operations that continues in business-as-usual form.

  4. Use this time as a chance to reinforce your social purpose for stakeholders. Emphasize the essential role for your products and services, as well as the company’s unique strengths and approaches.

  5. Avoid adopting a bunker mentality in the face of legal skirmishes and uncertainty. This may run counter to tendencies of some in your organization, but it’s essential to manage the narrative and work to define your company, recognizing that multiple parties may be working to characterize you in a less-flattering light.

  6. Build management credibility by sharing early successes and momentum. (And avoid guarantees, major speculation or finite predictions of outcome, understanding that the process can bring multiple twists and turns.)

  7. Focus on owned media, both traditional and digital. Maintain direct communications with stakeholder groups in high-touch fashion, rather than relying on media or third parties. Now is a great time to re-cement relationships with key stakeholders. Solicit feedback and share with the management team.

  8. Think about what’s next. Begin to paint a picture of the future enterprise to portray what the company is fighting for, retain stakeholder commitments and best position for successful emergence.

Now’s a good time to remember the words of Warren Buffett in a letter to his managers: “We can afford to lose money — even a lot of money. But we can’t afford to lose reputation — even a shred of reputation.” 

Bankruptcy sets a barrier that can challenge reputation management. However, done well, success in court and on the balance sheet can be matched by tangible achievements by communications leaders. 

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