Five Reasons It’s Difficult to Communicate in Bankruptcy or Financial Difficulty

1. Target audiences, like employees, customers, vendors and investors, suddenly have conflicting needs. For example, in a financial restructuring, investors may want employees to share the pain.

2. Allaying fears about the company will become a part of every communications program.

  • Community relations: Communities will wonder if they’re losing jobs and tax base.
  • Employee relations: Employees will fear for their jobs.
  • Marketing: For many companies, potential customers will wonder if they will be able to get their products serviced in the future.
  • Investor relations: If investors lose confidence, the underlying value of the company may erode. In some cases, short sellers manipulate rumors or overemphasize bad news to drive down bond prices.
  • Vendor relations: Some companies depend on strategic relationships with vendors, for example, joint promotional programs. Most large companies need the favorable terms which vendors might deny a company they think is in trouble.

3. Rumors will be rampant and will spread from one market or division to another. After a bond downgrading, or any time a company closes a facility or a retail outlet or makes a minor layoff at one location, rumors will spread that it’s happening everywhere the company has operations. In many places, the news media will take the rumors seriously. A company must, at the very least, tell the news media that it does not comment on rumors, but may also consider denying or discussing certain rumors.

4. The need to communicate quickly increases. If you can’t get to a reporter before the deadline, a rumor may be reported that will concern customers, vendors, investors or employees.

5. During certain stages of financial trouble, there may be constraints on how and what you can communicate.