ANALYSIS: Bankrupt companies find benefits of focusing on PR

Companies working their way through Chapter 11 bankruptcy may make several cutbacks, but increasingly, PR isn't one of them.

Companies working their way through Chapter 11 bankruptcy may make several cutbacks, but increasingly, PR isn't one of them.

Bankruptcy filings have reached an all-time high, with more than 1.5 million petitions filed in the 12 months ending June 30, according to the American Bankruptcy Institute. The biggest headline grabbers have been Chapter 11s, meaning the companies involved plan to stay in business. Brand value and customer bases must be protected while they discount debt, eliminate stock, and otherwise reorganize their finances. Often, companies moving toward Chapter 11 maintain or beef up their internal PR staffs and hire outside financial communications experts. Those filing Chapter 7, or liquidation bankruptcy, have little need for PR since they are selling off their assets and will have no surviving business to protect. "Bankruptcy can be viewed as a strong strategic move, or it can be viewed as a death sentence, and I think to a large degree it depends on how it's communicated," says Michael Kempner, president and CEO of The MWW Group. Outside firms bring specialized experience most companies lack. "This is one of those cases when you may need to invest in outside resources," says Ed Nebb, IR director for Euro RSCG Middleberg. "Typically the court permits it, which says to me that it must be prudent." Globalization increases the need for support from multinational agencies or networks, explains Lynette Kelly, a bankruptcy attorney with Shearman & Sterling in New York. In most countries, bankruptcy means liquidation, and PR professionals often must explain the Chapter 11 reorganization concept to foreign stakeholders. Even at home, many people don't understand our unusually forgiving laws. No matter how hard a company may try to present a business-as-usual front while reorganizing, bankruptcy still carries a stigma. Educating stakeholders about the differences between Chapter 11 and Chapter 7 may help, but an instant credibility problem comes with any bankruptcy filing. Agencies breaking into the bankruptcy sector are making friends with lawyers and financial-reorganization consultants, as most referrals come from those sources. Such experts place high value on experience and prior relationships, however, and some question the quality of the new practices popping up within large PR firms. "My firm hires the PR firm directly, because the PR firm is really helping the law firm formulate the overall strategy for the case," Kelly says. PR may play a key role in keeping businesses afloat during reorganization, but attorneys still call the shots. As intimidating as people who read law books can be, communicators must speak their own minds. "I think the communications person has to fight for the right thing even when the lawyers and the boss don't agree, and sometimes you have to learn to let it go gracefully," advises Martha Sessums, corporate communications VP for Covad Communications, the California DSL provider that emerged from Chapter 11 status in December. Sessums turned to Hill & Knowlton's LA office for help. Keeping messaging consistent Key audiences may not change during bankruptcies, but their pecking order can flip flop, and their interests may compete. Shareholders lose ground to secured creditors, for example. Plant closings may sound good to investors, but devastating to employees and communities. "These audiences all talk to each other, they all influence each other," says Kempner, explaining why messaging must be consistent to all stakeholders. For Tulsa, OK-based Williams Communications Group, IR and community relations messages went to many of the same people. "Many, many Tulsans were shareholders in the company," explains communications director Deborah Trevino. "We had very large community support for the company all along, and conversely, when we went into the restructuring and the shareholders understood how much they might be affected by that, the local adverse reaction was very challenging to manage." MWW stepped in to help with local media relations. Whether a company should tip its hand before filing Chapter 11 is a crucial strategic decision. Marc Jampole, proprietor of Jampole Communications in Pittsburgh, particularly advises mentioning bankruptcy as a possible part of reorganization when prepackaged or prenegotiated Chapter 11s are in the works. In such cases, all or most of a company's creditors sign off on reorganization plans before bankruptcy filings. Discussing the possibility ahead of time reduces the shock, Jampole says. Leaks are another important consideration. "You're lucky if the news doesn't leak out before you talk to your employees," says Glen Jackson, principal of Jackson Spalding Communications Management in Atlanta. He says employees are the most important audience, and that they should get the news first. One might question, then, why WorldCom, Enron, and US Airways filed their petitions on Sundays, virtually ensuring employees would see the news on CNN before hearing it from their bosses. In reality, PR advisors rarely influence timing, and such decisions often come about quickly. Filing on Sunday, when little business transpires, helps companies more clearly delineate prebankruptcy and postbankruptcy transactions. The belief that convincing a judge to unlock the courthouse for a Sunday filing diminishes coverage in Monday business sections doesn't hold much water. "Companies need to be in front of their stories. They need to explain why it's the right decision. That's not a story you put out on a Sunday," says Kempner, adding that filing then gives the appearance that companies have something to hide. "After the first 48 hours, if you communicate effectively and you tell the truth, the news will die down," says Jackson, who believes in training CEOs as primary bankruptcy spokespeople. Executives can't wait until they've fixed their problems to discuss the solutions, Kempner stresses. Repairing financial damage takes time, and companies must talk about their reorganization plans. "If management can't convince their key stakeholders quickly that they have a plan and that they are the right management [to carry it out], the company's chances for survival are reduced, and management's chances for survival are significantly reduced." Getting out of the woods Companies may operate in Chapter 11 for months or even years, during which, they must communicate product launches, big contracts, and other business-as-usual topics while highlighting bankruptcy milestones. Covad's Sessums put together a "fix it" team to respond to inaccurate reporting during her company's reorganization. Although they didn't always get corrections, calling editors gave staff a chance to clear up often-misunderstood bankruptcy laws and to differentiate Covad from NorthPoint and Rhythms, two competitors that closed down after going bankrupt. "I'd argue you need communication benchmarks throughout the entire time," says Kempner. With communication handled properly, a company's exit from bankruptcy becomes a non-event, he says, although releases should be written and employee celebrations planned. For the most part, IR pros seem hesitant to armchair-quarterback their colleagues' handling of prominent bankruptcies, and they note that employees, investors, and creditors of Global Crossing, Adelphia, and Kmart may see different pictures than those who only read about them in The Wall Street Journal. And some of today's most high-profile cases fall outside the norm because they involve criminal behavior. But those cases ratchet up the difficulty of convincing people that bankruptcy doesn't spell doom. "If you haven't been in the world of bankruptcy, you don't understand what darkness is really like," says Lou Grabowsky, partner in charge of assurance and advisory services in Dallas for Grant Thornton, which provides financial reorganization consulting. Grabowsky places particular emphasis on bringing in outside PR help. "It is the ugliest scenario that you can imagine, and if you haven't got experience, you're learning on the job," he says. "Communications consultants are one of the clear value propositions in a bankruptcy situation."

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