A company that is in financial distress or is in the process of implementing a business rescue plan is a company that is in crisis. Unfortunately, humans do not react the same way to a crisis. Our fight or flight response kicks in and will largely determine our next move.
How do these decisions impact your circle of influence? Your actions have a direct impact on those below you. This is why communication during a crisis is essential and will dictate whether a company can effectively address its challenges or continue its downward trajectory.
Case study
I recently read an article which discussed the case of a distressed company and how communication would have helped the situation.
The article points out that just before Thanksgiving in 2022, the owner of a furniture company in Ohio texted and emailed all his employees outside of the business operating hours, informing them that their services were no longer required and the company was bankrupt. He then flew to Paris, France, for a holiday. No one knew where he was; he did not return any calls or respond to messages.
The impact was immediate; social media exploded with employee outrage, and traditional media platforms picked up the situation and had a field day. People were scathing, and rightly so. Irrespective of the operational and legal outcome of the bankruptcy, the reputational damage to the owner, his family and his company is irreparable.
The article adds that the challenge from a communications perspective in any crisis is that a wide range of interested parties need to be addressed as early as possible, when many aspects of the process are subject to uncertainty, as is the outcome. In some cases, this may be before a formal restructuring announcement is made as rumours need to be addressed, worried employees reassured, and business partners calm down.
Communication ideally needs to follow a specific formula.
Preparation
The article points out that preparation is before any restructuring announcement is made and, hopefully, before rumours emerge.
One of the few mitigating factors of restructuring is that it only sometimes happens over time. The risk does not have to be identified first; it is clearly defined in advance, and there usually is a run-up that allows the company to prepare behind the scenes. So even if no general crisis plans are in place, there is some time to catch up.
The article adds that the first task will be to create response templates. What would our messaging have to be? Who would be the stakeholders we ought to communicate with? First and foremost, people. Employees, suppliers, customers, creditors, community leaders. There may be more. How would we reach them? What questions are each stakeholder group likely to pose, and how would we best answer them? What would be the conceivable scenarios once we have made an announcement, and how would we prepare for each one to ensure a suitable, timely response that aligns with the company’s legal, financial, and business goals?
Image By: Gerd Altmann via Pixabay
In communications-advisor speak, this means creating a narrative, mapping stakeholders and communications channels, creating a Q&A, and all of that, not just for the initial announcement but also for all conceivable subsequent scenarios.
The article points out that timing must also be carefully considered in advance. For instance, which stakeholder group does the insolvency officeholder speak to first – employee representatives or senior company executives? The symbolism is essential to get the right stakeholders on the side at the right time.
Consider another example; to the extent that is legally permissible, it may be advisable to get specific facts and decisions on the ground in place before an initial restructuring announcement is even made. Delays increase leak risks, yes, but may facilitate more transparent communications. This is not the only time in a restructuring process when legal, operational, financial and communications decisions fuse.
This is why communication is vital.
Navigation
The article points out that thorough preparation will stand the company in good stead to navigate the restructuring process, but it does not mean it can sit back and wait for things to unfold. The initial announcement will likely trigger intense media queries and coverage, employee inquiries, and questioning by business partners and local, regional and national politicians. But even once this decreases, there are many more reasons for flare-ups: with social media, the cycle never stops, and all rumours can suddenly increase.
Moreover, by its very nature, a restructuring process is designed by legislators and regulators to be transparent. Therefore, each step will be visible to all stakeholders and must be explained by the company. To keep messaging consistent, a disciplined internal coordination process needs to be in place between Management, Legal and Communications (and Investor Relations in the case of a listed company) to prepare each piece of active company communications and picks up each part of news/commentary/rumour, assesses it and responds to it with one voice.
In restructuring terms, this constitutes the stabilization, winding-down and liquidation phase:
- Townhalls and individual conversations with employees happen;
- Temporary salary and wage payment guarantees are put in place;
- Negotiations with business partners are conducted;
- Receivables are verified;
- Liabilities are examined; and
- Creditors are kept up to speed with all of these workstreams.
Any one of these elements can erupt into a flurry of assertions, rumours and emotional outbreaks. In other words: it can lead to further and immediate demands on the communications work the company must do.
The article adds that no restructuring process is entirely predictable, nor is the response to it by stakeholders. Companies must constantly monitor the media cycle, respond to it, prepare for news announcements, adapt their messaging to changing scenarios, and cater to critical stakeholder groups. This painstaking process (from a time- and resource-consuming perspective) requires discipline, attention, flexibility, speed, sound judgement, a reliable media network and creativity. Ultimately, this exercise aims to preserve the credibility of the company and its management in order to facilitate the final phase of a restructuring process, the rebuilding of the company’s reputation.
At the end of this arduous process, the remaining assets will have been liquefied and distributed to creditors. The financial transformation will be complete.
Image By: Selver Učanbarlić via Pixabay
Rebuild through communication
The article points out that a new company emerges as the restructuring process ends. That’s probably not going to be the view of all audiences, particularly employees, but it is absolutely true from an external perspective. It is an opportunity to reset, restart, and tell a new and different story. To signal this to the world, the communications approach has to change: messaging should highlight a more positive future after a complicated recent past and build on the successes of the pre-crisis era.
The day-to-day work of the communications team is freed from regulatory and legal shackles to be more transparent, cooperative, active, easy-going and optimistic, no longer burdened by the difficult, grinding restructuring process. All audiences should notice the difference, not only in the narrative but also in terms of the whole approach to communications. These audiences will be the same: nervous employees, cautious business partners, cynical media types, disappointed politicians, etc. It will take time and energy to establish a new narrative, to demonstrate a new approach, and to rebuild credibility. You might as well start immediately and energetically.
Importantly, lessons will have been learned, and the next crisis is always just around the corner, even if it is unlikely to be another restructuring. So refining crisis communications plans while the memory is acute is advisable. This is why communication is vital.
Managing crises through communication
Imagine how beneficial a proper communication campaign would have been in the Steinhoff or Comair disasters. Both of these cases were criticised for the sudden nature of the events and the number of people they impacted.
Follow the steps discussed in this article, and the restructuring/business rescue process can become more manageable. Additionally, you will be able to build credibility.
The Mystery Practitioner is an industry commentator focusing on the shifting dynamics and innovative thinking that BRPs and turnaround professionals must embrace to achieve business success.
