Who says what to whom

A company's decision to enter Chapter 11 bankruptcy has a material impact on a number of influential constituent groups, among them employees, vendors/suppliers, customers, lenders, the news media, stockholders (if the company is publicly traded) and of course creditors. These constituents have the opportunity to be heard as part of the bankruptcy process and are capable of applying significant pressure, publicly and through the courts, to assure that their interests are addressed.

And therein lies the case for employing strategic corporate communications to make the company's case in the public arena prior to filing Chapter 11 and on through the reorganization process.

It is rare that a company reaches the point of seriously considering bankruptcy without prior indications in the public arena that financial difficulties exist. Such indications do not stay compartmentalized for long. They generate speculation, rumor and allegation that find traction among a company's key constituent groups and erode confidence in the company's ability to satisfactorily deal with its situation.

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Unanswered speculation, allegation and rumor are very dangerous and can grow to critical proportions very quickly. So much so that a company suddenly finds itself in extremis as employees leave, suppliers and vendors refuse to ship and/or tighten payment terms, customers seek out other sources, and investors flee the stock.

In these circumstances, strategic communications play a key role in controlling prevailing opinion by establishing a consistent and reliable source of current information and identifying and correcting factual inaccuracies that give rise to speculation and rumor.

A company facing the prospect of filing Chapter 11 bankruptcy can use all the good will it can manage, especially from those groups in a position to participate in and affect the outcome of the filing. Empty talk, incomplete or misleading facts and extended periods of silence will only make matters worse.

A company's best policy is to communicate its intention to battle through its current difficulties by establishing the facts of the situation as it unfolds and in the context of the company's intention to re-establish itself as a viable business.

Chapter 11 proceedings fall into the category of crisis communications for the simple fact that the reputation of the company and its management are at risk. As a crisis situation, special conditions are created: Time frames are shortened, normal controls are suspended, and often, a specialized team is created and empowered with responsibilities outside what would occur in the normal course of business.

During periods of crisis, communications is a strategic component in the company's plan to address and remedy its condition, in this case its financial condition. Everything the company does and says should be in support of a plan to maintain a positive profile in the context of management's plan to restore the company's financial condition. For these reasons, the success and impact of a crisis communications strategy is vastly improved by having an experienced hand involved.

Similar to the benefits of retaining specialized legal counsel to expertly guide the company through the bankruptcy process, companies often choose to augment their inside communications capability with a specialist whose experience in crisis communications assures not just good strategic thinking but skill in managing the communications process without obstructing or delaying critical decisions and actions.

Critical audiences are those constituent groups with a vested interest in or established knowledge of the company. As discussed, these groups are important because their interest and knowledge positions them to affect how a company is perceived. A company's key constituencies may also include local communities, regulators and other officials as well as social and professional organizations.

Knowing these constituencies, where they are and how to reach them, is spade work to be carried out early in order that the company knows how to reach every important group most conveniently, whether directly or through specific media outlets and social networks.

Another important consideration is having an awareness of which constituent groups will be principally affected by actions the company is taking as it moves into and through the various stages of the Chapter 11 process.

An example is making sure employees are especially well informed about the company's plans at the time the company decides to enter Chapter 11.

It is a fact that most employees are not well-informed about Chapter 11 bankruptcy. After entering Chapter 11, employees may lose pride or regard for their company; they may be uncertain about whether paychecks will continue to be distributed regularly or their benefits will continue. These concerns, small and isolated at first, can take on a life of their own and grow to the point where productivity is affected.

A capable communications team will work with human resources to prepare and distribute comprehensive information on what Chapter 11 means for the average company employee and have other resources at the ready to address questions and special situations.

There is nothing more potentially damaging than having important corporate information transmitted second hand.

For that reason, no company in a crisis situation can afford to issue information selectively -- inform one group and not others. Without fail, the information in question will quickly find its way into the public arena. Once this occurs, the company has lost the ability to control the flow of information.

For example, informing employees of the company's decision to enter Chapter 11 should not be left to chance or the ever-present rumor mill. Immediately after the bankruptcy is publicly announced, the company should distribute information to all audiences and convene town hall meetings either in person or telephonically.

In this case, all the pertinent facts about the bankruptcy filing and the reorganization process should be in the company's announcement, which is disseminated broadly to targeted news. Then, in meetings with employees, management's job is to explain and reassure employees and other constituents about the meaning of Chapter 11 and the protection it affords them. For employees the discussion should include the plan to emerge from bankruptcy and what the implications are for employees through the process, including how people will be paid, how workforce reductions will be assessed and carried out, and how people should come to the company for answers first.

This is an example of how to introduce key messages to address a particular group's concerns without selectively disclosing anything additional to the central matter of the bankruptcy.

In cases where an audience is not easily addressable in person, key messages specific to a particular concern can be incorporated into broadly disseminated public communications.

In filing Chapter 11 bankruptcy, it is safe to assume the news will draw media attention. If the company has a large presence in a community or several communities or if it is publicly traded, it is almost certain that the news media will become involved to an even larger extent.

Despite several high-profile cases to the contrary, media attention in Chapter 11 filings rarely poses a significant threat as there are really two questions at work: What happened and what's going to happen?

Most news stories will be focused on the facts of the matter, and many if not all of those facts should be anticipated and addressed in some fashion in the company's announcement.

As to responding to specific questions from reporters, company representatives should avoid disclosing new information in a news interview; only expand to a predetermined degree on information that has already been established. The best policy is to be candid and forthcoming with public information.

There is an advantage to participating in a public discussion about the company's situation in that by recognizing, discussing and becoming familiar with the company's financial and operational situation, employees, customers, vendors and other stakeholders are more likely to have greater confidence in the company's prospects of emerging from Chapter 11 as a viable business.

The communications team should make a concerted effort to understand prevailing opinion on the company and its prospects. This investigation should include comments on the company's situation made through the various social media, which include Twitter, Facebook Inc. and LinkedIn Corp.

Should it be that the company's situation is being discussed on these sites, it can be instructive to review such conversations in order to learn points of view and to identify inaccurate information. Another area worth investigating for comment and opinion in the digital landscape is blogs, which can be sources of misinformation and may be written by disgruntled constituents. The company must be prepared to respond to them.

Once the company has established its situation broadly and publicly, and feels secure that its key constituencies are plugged in to its communications stream, it is important to maintain a flow of information that defines the company's condition with respect to normal operations and, as appropriate, to its progress through the Chapter 11 process.

Should the company encounter a challenge or miss an important milestone related to its reorganization, it is crucial that the company issue communications that establish the facts of the matter and reorient expectations going forward as to the effects, if any, on the company's plans to emerge from bankruptcy.

As the company prepares to exit Chapter 11, communications continue to play an important role in defining and establishing the company's vision for its business as a normally operating company.

Just as it was important to have the company's key constituent groups receive and understand the company's situation and messages when it entered bankruptcy, it is as important that these groups continue to understand the company's direction and objectives when it emerges from bankruptcy.

Adam Friedman has practiced strategic corporate communications for more than 25 years. He heads Adam Friedman Associates LLC, an independent agency that provides a full range of communications services and counsel, including crisis communications, to public and private companies.

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