The "Heart" of Chapter 11: How to Rebrand the Company

Vol 24/6

The “Heart” of Chapter 11

How to Rebrand the Company Before, During and After Bankruptcy Filing

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 that successfully emerging from bankruptcy will become ever more challenging.

Communications plays a vital role in helping bankrupt companies begin anew.  It’s a role finally beginning to be understood and valued by the legal and financial establishment.  Bankruptcy public relations, in its many permutations, is addressed in this issue of Makovsky + Co.’s Strategies.

Why Bankruptcy Communications
Every bankruptcy has a “head” and a “heart,” and each is crucial to the process.

The head, the technical legal and financial issues, are of course essential. Unless these are done efficiently and effectively, the entity has little chance for survival.

Then there is the “heart.”  Bankruptcy for-ces a company into a high-stakes communications environment.  “Do I want to keep buying this company’s products/services?”  “Do I risk continuing to do business with this organization?”  “Is this a place where I want to build my career?”  If customers, suppliers and employees, respectively, decide to answer “no” to these questions, a company cannot survive.

The heart also has it passions.  It would be nice if the above issues were weighed with cool, Socratic detachment.  But about the only thing bankruptcies have in common with Socrates is hemlock.  Chapter 11 typically unleashes anger, fear, feelings of betrayal and even desire for vengeance. In short, the climate is not conducive for a carefully reasoned legal discussion.

 Let’s look at the three phases of bankruptcy and the specific role communications plays — or ought to play — in each of them.

Pre-Filing: Rumor Control
What we call 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.  In addition, spokespeople often compound this problem by public relations missteps.

Fearful of the communications minefield around them, most companies respond to 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.  Lucent Technologies referred journalists to supportive industry analysts who spoke to the company’s solid cash position. 
 
Naturally, communications options are more limited if the company is actually weighing bankruptcy — or could be in the very near future.  Here the goal is, without explicitly denying bankruptcy is on the table, reinforcing that the company is making deliberate and intelligent decisions about its future.  The foundation, again, is information.  General Motors, for example, explained its principal options and emphasized that Chapter 11 was a “last resort.”  Thompson, SA enlisted creditors to comment about “constructive” negotiations underway to restructure existing debt.
 
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, discuss communications responsibilities, and ask for support.
• Next, all employees:  Group meeting or pre-recorded CEO statement; communicate what is known about HR related issues (pensions, etc.), emphasize that bankruptcy is an opportunity to emerge stronger.  There are many uncertainties and promises are impossible, but vow that management will provide regular updates.
• Finally, purchasing and sales staff: Each will be given responsibilities for contacting the company’s key suppliers and customers with key facts about the filing.

 
Once internal business is addressed, the company should issue the press release.  The public statement should have three equally balanced components: technical details (the terms of the restructuring); reassurance (working capital is adequate, etc.) and vision (where the company is heading, why management believes it can get there, etc.).
 
Bankruptcy press releases have a common flaw: they are long on head and short on heart.  This is especially damaging when we remember that they are the primary source for news stories relied on by customers, employees, suppliers and others for information.  We often learn, for example, that “Simmons Company (hereafter Simmons) has entered into structured agreement with Bedding Holdco Incorporated (hereafter Bedco) and certain affiliates of Aires Capital Management (hereafter Aires) with respect to …” but nothing about why we should expect the organization to be different in the future than it’s been in the past.
 
As a positive example, consider the case of United Airlines, which filed for bankruptcy protection in December 2002 and ultimately reemerged.  United recognized immediately that its survival hinged on whether customers would continue to fly an airline in Chapter 11.  United’s filing day communications included in–person appearances by its senior executives at its hubs, full page ads in major newspapers reinforcing its commitment to customer service and safety, orchestrated communication through third parties like the Star Alliance and the United Pilots Association, and an aggressive media campaign that assured readers in dailies throughout the nation that bankruptcy would have little impact on local day-to-day operations.
 
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, specifically by showcasing its advances in efficiency, innovation and customer service.  Its communications tools include:
 
•  The Reinvention website 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;
•  Several corporate blogs that are candid and objective in editorial focus;
•  A live e-mail forum entitled “Ask  Fritz” with GM’s CEO Fritz Henderson, featured on the company website;
•  Creative national broadcast advertisements, posted on YouTube, that explain the company’s strategic direction.
 
In conclusion, it is important to remember that bankruptcy is always an exercise in re-branding an organization.  Without ongoing support and a recommitment from all audiences that define the brand — financial as well as customers, employees, suppliers and others — the increasingly difficult task of emerging from Chapter 11 as a new, restructured entity will be impossible.