Preserving a Company’s Reputation in the Wake of Bankruptcy

In bankruptcy, there is more at stake than who gets paid first.

Should a company file for bankruptcy or even begin the discussion, it is important to address the public’s opinion as much as it is to deal with the legal issues.

After all, reputation matters.

Corporate failures today are front-page news. In the first quarter of 2011, 366,178 companies filed for bankruptcy. This was down 6 percent from those filed in the first quarter of 2010.

Today’s economy puts many companies and individuals in difficult positions where they must choose what needs to be done for their economic survival.

Should a company choose to file for bankruptcy, it does not mean they are going out of business or up for sale. In most cases, bankruptcy means restructuring the company to be smarter, leaner and more efficient.

An effective communications strategy provides critical information to key stakeholders at every step in the process and can help minimize risk. Therefore, managing the message as to how a company got to this point, what they are doing to address the problem, and what they plan on doing when they re-emerge are all critical to how people will perceive the company during and after bankruptcy.

In filing for bankruptcy, it is important to prioritize key constituencies and determine the best way to communicate with them. For example, communicating to investors or shareholders may be different in how you communicate with vendors or customers.

Investors want to know how sound their investment will be, if the company plans on staying public, and the plans for emerging from bankruptcy. Customers want to know if their warranties will be honored, where they can go for service or who they can call if they have an issue with the product or service.

Also, vendors want to know their place in all this — if they should continue with their current production or performance and if they will get paid and when.

In communicating a company’s approach to file for bankruptcy, it is important to carefully communicate the reasons why and possible outcomes as to avoid any misunderstanding of the company’s true intention. As a result, transparency and honesty in one’s financial situation is vital to making sure that key constituencies will not read into the companies actions.

Instead, the company must be forthright as to everything they file with the court. That’s because many people following the company — particularly a public one — will likely go online and read the documents surrounding the bankruptcy.

Once the company does file, it is equally important to constantly be in touch with your core constituencies. For example, GM and Chrysler each took us along for the ride as they filed for bankruptcy, announced their restructuring, and emerged as a new company.

Earlier this year, Borders filed for bankruptcy and sent out notices to their customers and investors, ensuring business will go on and service will continue, but changes will have to be made.

And on the day United Airlines filed for bankruptcy in 2002, its CEO flew to Chicago to meet face-to-face with employees. Other executives did the same in Denver, Washington, San Francisco, and other hub cities to reassure the public and their employees that the airline is, and will always be, a viable company.

They did not just send out a news release. After they filed, they took out full-page ads in major papers explaining what they were doing and why. Once they emerged from bankruptcy, they were a new company with their reputation intact.

In communicating messages during a bankruptcy or wherever litigation is involved, lawyers should be given the opportunity to sign off on what is being communicated. At the same time, attorneys must be able to see the big picture as to why the PR counsel is even involved and why they must communicate through the media.

Attorneys need to be open about what is being communicated with the idea that they are working to protect and, at times, enhance the public perception of their client.

At the same time the message is crafted, companies should actively monitor the online chatter about their company and their industry, and work to quell any misinformation being communicated about the company or its employees.

Today, an individual and a company are only as good as their reputation. In general, with the economy the way it is, we understand that in tough economic times, companies as well as individuals may have to file for bankruptcy.

As long as there is honesty and maturity in how you communicate your problems or situation, people will understand. Being upfront and proactive in your actions will help position your company for future success and go a long way to bolstering your individual and corporate reputation, while putting to rest any potential negative ramifications from the filing.

Lawyers savvy enough with the how the media works, and in protecting and enhancing their client’s reputation, understand the interplay between the law and legal process on one hand, and public opinion and business strategy on the other.

And there is benefit to working with experienced PR professionals in creating and delivering the right message publicly, without jeopardizing the legal process or strategy. In fact, the messages that are communicated may lead to successful settlement or reorganization.

A Few Pointers

• Tell your story first.

• Know what you want to communicate  and why.

• Call in third-party supporters to support you.

• Put a human face on the situation.

• Use all the communications tools at your disposal, such as social media and web, as well as traditional.

• Make the story about recovery, not liquidation. For example, focus on jobs and service.

• Focus on what you want the expected outcome to be and stay on message in getting there.

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