On January 14 2009, Nortel Networks Corporation, the communications company, announced that it had filed for creditor protection in Canada, Europe and the US. According to a company press release, the decision to file for bankruptcy had become necessary if Nortel was to be 'put on a sound financial footing once and for all. Eight years ago, the company had a market capitalization of US$250 billion and accounted for a third of the market value of the Toronto Stock Exchange. At the close of trading the day before the announcement, the company's market value had dropped to about $155 million. In spite of numerous reasons to clam up, notably poor financial results, accounting manipulation, SEC investigations, senior management turnover, declining sales and increased competition, the company has maintained one of the most transparent corporate communications programs in the world. In this post we discuss the benefits of cogent and coherent communications to companies facing restructuring, bankruptcy and reorganization.
The natural reaction for most companies bleeding cash and losing market share is to try to tip the balance of coverage in favour of a grain of good news against a tonne of bad news. Not so for Bo Gowan. He leads New Media Strategy at Nortel. Actually, what he did in the circumstance, would get most people fired from their jobs, if they ever had the boldness to even try it. On Nortel Buzzboard, the company’s community site, Bo posted links to critical newspaper articles about the recent company’s Q3 2008 performance, that ’provided a little more in-depth analysis and commentary that [would] provide some differentiation from the typical straight coverage.’ Basically, he had sent an official invitation the public to read about Nortel’s dismal performance from independent sources.
What was Gowan’s goal in doing so? In an interview he gave to PRWeek, he explained that since over 90% of the media coverage on the company was about its financial performance, it made sense to provide visitors to the Nortel blog with links to informative articles on the subject.
If we are going to have an effective blog and have a conversation with people, you have to have that conversation in good times and bad. It is very similar to traditional PR: If you talk in the good times, but say no to interviews in the bad times, you lose a little credibility. And that is much more pronounced with blogs, because it is such a conscious stream of information. It just doesn’t make sense to retrench.
The company’s transparency is proof that it understands the internet: gone are the days that one could easily blackout information that was less than favourable to the company’s board, management and business strategy. Readers would find it anyway. Nortel certainly understood this and it has followed this same tradition of transparency in its bankruptcy communications.
In a press statement issued by the company, Mike Zafirovski, the CEO, is quoted as saying,
These actions are imperative so that Nortel can build on its core strengths and become the highly focused and financially sound leader in the communications industry that its people, technology and customer relationships show it ought to be. I am confident that the actions we’re announcing today will be the fastest, most effective means to translate our improved operational efficiency, double-digit productivity, focused R&D and technology leadership into long-term success. I want to reaffirm Nortel’s dedication to delivering world-class solutions and services to customers.
In the following video he explains the reasons why the company sought creditor protection.
On the same day that it announced that it had filed for creditor protection, the company set a new record for restructuring communications by launching a microsite to serve as a central repository of information on the business and financial restructuring of the company. The site, http://www.nortel.com/corporate/restructuring.html ,which is regularly updated is intended to serve as an authoritative and credible source of information. Those affected by the restructuring or interested in the company can follow its progress through bankruptcy on the site. Of particular interest, since the site has a memorable URL, it is much easier for visitors to tell others about it, which increases its chances of becoming the primary source of information on the restructuring rather than other sites.
An updated review (March 7, 2009) of the Nortel business and financial restructuring microsite can be found here.
There are at least four major reasons why companies entering Chapter 11 need to prioritize communications:
A lot of their affected stakeholders, notably international customers, may not understand the difference between Chapter 11 and Chapter 7.
Stakeholders need to understand that the bankruptcy is in the best interests of the company and its long-term future.
Customers need to be assured that the plan is credible and has a good chance of success or else they will quickly take their business elsewhere before the rehab is completed, even as competitors will stoke the smoke of uncertainty about the company’s future.
Post-bankruptcy, the company will need to raise equity, and it is vital for its future that the investment community is optimistic about its prospects.
Unlike in most other countries, filing for Chapter 11 or creditor protection in the United States and Canada does not mean that a company is going into liquidation, which is the case when a company files for Chapter 7. On the contrary, it is a temporary measure supposed to give the company breathing space, as it were, to negotiate its debt terms, review its cash outflows and revise its cost structure. In a Chapter 11 filing, the company gets respite from the courts to rehabilitate its operations. Filing for Chapter 7, on the other hand, means that the company is going into administration, all its un-exempt assets will be sold to pay off creditors with nothing guaranteed to shareholders and its operations terminated. The fundamental difference between the two is that in a Chapter 11 filing, the company is expected to emerge on a stronger footing to meet its obligations and compete more effectively.
According to Michael W. Kempner, founder and managing director at The MWW Group, a strategic communications consultancy,
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. Executives can’t wait until they’ve fixed their problems to discuss the solutions. 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.
We share Kempner’s view of a Chapter 11 filing as a strategic decision. If management considers it as one, then it needs to communicate this as forcefully as it does other strategic decisions (mergers, acquisitions, spinoffs, entry or exit of a business line, sale, etc). The company needs to present compelling reasons why this is the right and responsible decision to take at this point. It also needs to describe the probable outcomes if it had gone along with competing alternative. The decision to file for creditor protection is a weighty one, and companies must communicate that the decision was not taken lightly.
The third major reason why companies in major business reorganizations need to place communications at the top of their agenda is because customers are likely to leave, or be reluctant to enter long-term contracts, if they are uncertain about its future. Long-term contracts are the gauge of future cash flows, which in turn are important for forecasting how quickly the firm can exit Chapter 11 protection. Customer retention is critical to the viability all companies, and more so during this period. As such, companies cannot stress enough that the re-org will not affect customers. For instance, United Airlines’ December 2002 Chapter 11 filing makes this very clear:
The Chapter 11 process will facilitate UAL’s restructuring which is designed to restore the company to long-term financial health while operating in the normal course of business.
UAL said that during its Chapter 11 case, it will maintain its ability to continue its global operations and continue its long-standing commitment to its customers, safety and reliability. Chapter 11 permits a company to continue operations in the normal course while it develops a plan of reorganization to address its existing debt, capital and cost structures.
Glenn F. Tilton, chairman, president and chief executive officer of UAL, said, ‘United Airlines will continue to provide customers with the same experience and level of service they have come to expect. We stand by our commitment to provide customers with convenient schedules, quality onboard services and the most extensive route network in the U.S. and abroad. Most importantly, throughout this process, customer safety will continue to be our number one priority. We have a solid record as a safe and reliable airline, and we intend to maintain and build upon that record.’
Finally, in most cases, a Chapter 11 reorganization will wipe out the value of the outstanding equity. However, as part of the reorganization, companies will issue new shares to investors. This underlines the need for it to convince analysts and investors that it is a viable business with untarnished prospects. As part of its bankruptcy communications plan, the company needs to communicate new product launches, awards of major contracts, as well as other business-as-usual topics while highlighting bankruptcy milestones. The company also needs to follow all news about the company with vigilance, sending corrections to editors when there is an error in a story and thanking editors when they publish stories that recognize that its turn-around is working.
The last thing a company should do during the bankruptcy is to go dark. Darkness creates a pseudo-vacuum, and it will be filled by other sources of information, that may put out their own guerrilla narratives.
We expect that before the current economic recession recedes, many more companies will file for similar protection or at least, announce other severe restructuring programs. Companies need to borrow a leaf from Nortel. We would even suggest that they do not need to wait until the economy pushes their hand before they commence an active communications program with their customers, investors and creditors. Now more than ever before, companies need to get out there and start talking about how they are reviewing their businesses and costs, negotiating terms with creditors and maintaining the highest service for customers. Delay could be fatal.
One cannot help noticing how Niyi Meka Olowola, Oando's Head of Corp Comms, is nodding in approval. Maybe Goldman Sachs can learn lessons.04:47:49 PM January 25, 2012from HootSuite
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