Explaining complex financial jargon to the press and keeping up a
dialogue with employees are the most crucial PR tasks for a bankrupt
company. Robin Londner reports.
If you weren't familiar with the term "Chapter 11" before the beginning
of this year, it's likely that you are by now. The grim state of the
economy has contributed to 2,961 companies entering Chapter 11
bankruptcy proceedings in the first quarter of this year, up from 169
during the same period in 2000.
Chapter 11 is the chapter in US bankruptcy code that provides for
court-supervised reorganization of companies in debt. Filing is often
voluntary, but it can be an involuntary order from creditors. The court
will need to see not only a reorganization plan, but also many
management functions must be court-approved. Chapter 11 ends when the
debt is paid or the company is forced to go out of business, usually
liquidating its assets to pay creditors.
Since most companies know for weeks or months that they're in trouble,
press releases should be drafted before Chapter 11 documents are even
filed, and released as soon as the company's lawyer confirms that the
filing has been made.
The key messages to explain to constituencies are: what Chapter 11 is,
why the company has moved itself into that state, and how Chapter 11
status will affect each person's relationship to the company. Releases
should stress that the company remains open for business. Media and
analyst contacts should be sent a release, as well as other media
outlets liable to write stories.
Michael Sitrick, chairman and CEO of Sitrick and Company, a firm that
has handled 120 Chapter 11 bankruptcies since 1989, stresses the
importance of explaining the filing to the media. He uses the example of
his work with then-bankrupt Orange County, CA. Sitrick got an 11pm call
from a reporter saying he had it on good authority that a number of the
county's $5.5 billion in bonds didn't exist. It was 2am in New
York, so Sitrick couldn't get hold of bank Solomon Smith Barney. He woke
up the newspaper editor at home, and convinced him to hold the story for
"In a big case, you have a lot of reporters thrown on a project, some of
whom don't know the difference between a balance sheet and a bedsheet,"
says Sitrick. "It turned out these bonds were shelf registration issues,
which is why they weren't listed. When I told Solomon about this, they
said had this story been published, it certainly would have delayed and
harmed the bond sale. It would have created pandemonium that would have
affected the sale price. Figuring it would have a 1% effect, that would
have been a $55 million impact."
In addition to educating the media, a PR person should deliver
statements targeted to the concerns of company constituents, including
employees (the top priority), vendors, creditors, suppliers, customers,
shareholders, the sales force, and other important groups.
Companies with dispersed employees may want to use an intranet,
closed-circuit TV, or conference call to give the initial news. Many
companies also set up toll-free phone numbers or password-protected
websites for concerned constituents. If the company has an employee
newsletter, consider a special edition or bulletin.
Also remember that people talk, sometimes across constituency
"Once any of your constituencies knows that you face difficult financial
times, it is important to increase communication to all of them about
the benefits your company provides," says Marc Jampole, president of
Jampole Communications. "Be able to fight off the rumors of facility
closures and bond defaults quickly."
To avoid misinformation and gossip, the company shouldn't necessarily
seek a high media profile, but it must communicate its key messages
quickly and efficiently. Because Chapter 11 is a mercurial process,
every corporate change should be announced to all constituencies. Since
many Chapter 11 management activities must be court-approved, news is
often public record, and will be reported whether or not it is
Bob Butter, SVP and associate director of Ketchum's global corporate
practice, has done bankruptcy communications consultation for 10
He stresses communication with all audiences, but says employees,
especially, need to be informed.
"You want to be able to retain the best employee talent, and employees
want to know on a frequent basis what's happening to the company," says
Butter. "We operate under the premise that your supervisor is the person
you as a worker trust the most for information about the company. Train
supervisors to be able to talk about it to their staff and people who
report to them."
However, it's important to remember that Chapter 11 can, in the case of
Eastern Airlines, for example, result in the company going out of
Jennifer Mercer, senior account supervisor at Hill & Knowlton, says when
a company no longer has hope of recovery, the key message becomes
simple: "We're going out of business."
As always, Mercer says, when a company is going under, it should alert
"I've been fortunate in the years I've been doing this that I have found
most companies do try to provide HR assistance in terms of helping folks
find other jobs or providing severance packages," says Mercer, who says
successful employee relocation can be a good story to tell amidst a very
But the end of a company is the worst-case scenario. Many companies,
including Dow Corning and Macy's, have emerged from Chapter 11 healthier
and stronger than before. The press release announcing a company's
successful exit from Chapter 11 is often accompanied by events to thank
employees, vendors, customers, and other constituencies for sticking
with the company.
Making your way through bankruptcy proceedings isn't pretty. But handled
efficiently, it can at least be less painful.
1. Do keep your CEO front and center to show responsibility and
2. Do be knowledgeable of the legal side of Chapter 11. You'll need to
be able to explain legal dealings
3. Do work on a team including the board of directors, CEO, CFO, HR
executives, legal counsel, and corporate communications director. You
should know each person's concerns
1. Don't create an emergency situation. Instead, position the bankruptcy
as a recovery situation
2. Don't issue releases that rehash lawyer-speak. Instead, articulate
legal messages with a personal touch
3. Don't make any corporate announcements without explaining their
relevance to the Chapter 11. Constituents will relate everything back to
the bankruptcy, anyway.