Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, April 21, 1991 TAG: 9104190708
SECTION: BUSINESS PAGE: E-3 EDITION: METRO
SOURCE: By NANCY MARX/ BETTER THE NEW YORK TIMES
DATELINE: LENGTH: Medium
The next morning, with a hundred managers from around the country assembled at Lomas' Dallas headquarters, Hay broke the bad news: The company, with $6.5 billion in assets, would be filing for Chapter 11 bankruptcy that night.
"I felt it was critical to tell the whole story to our management team at once, so nobody would feel short-circuited," he said.
Following a lengthy question-and-answer session, each manager received a packet of materials. It included a computer disk programmed with letters to employees explaining what had happened and why, along with copies of press releases elaborating the details that headquarters was mailing out.
Armed with these documents, the managers returned to their posts and by 9 a.m. Monday, before local radio stations had broadcast the news, Lomas' 3,000 employees knew their company had become the latest casualty of the savings and loan debacle.
An hour later, they viewed a videotape of Hay exhorting them to go about business as usual. Employees also received a toll-free number to call for information.
"From the start, our view was toward exiting Chapter 11 as a strong institution," Hay said. "We weren't Utopian or Pollyanna-ish, but we wanted our people to adopt a good attitude."
With bankruptcies on the rise, such carefully choreographed damage control is becoming common. According to the American Bankruptcy Institute, Chapter 11 filings hit 19,591 in 1990, up from 7,828 in 1981.
The surge, experts say, makes bankruptcy less ominous to employees than it used to be. "Most people are now aware that you can fly on an airline that's in Chapter 11," said Don Bernstein, an attorney with Davis, Polk, Warwell in New York.
"But management still doesn't appreciate what needs to be said, or how quickly it needs to be said."
So along with the growth in bankruptcy has emerged a new breed of expert: the Chapter 11 communications consultant.
"In the first 24 hours of a bankruptcy, there's a window of opportunity when you can win or lose your employees' support," said Harris Diamond, a partner with the Sawyer/Miller Group in New York, which has handled Chapter 11 an- nouncements for Ames Department Stores, Resorts International and Southland Corp. "Of course, you're concerned about your customers, your vendors, your suppliers. But the first people you have to think about are your employees," he said.
At Lomas, the biggest bankruptcy of 1989, Hay turned to Mike Sitrick, a Los Angeles-based consultant whose clients include Manville, Circle K and Greyhound. "We wanted to position Chapter 11 as a positive," Sitrick said. "Properly handled, we knew it could lead to an improvement in productivity. We wanted to use Chapter 11 to build a certain esprit de corps."
While some corporate fiascos foster closeness among employees, bankruptcies can drive them apart. "When it's an outside crisis, like a product liability or an industrial accident, employees will band together," Diamond said. "With a bankruptcy, employees believe it's a self-inflicted wound. They're frustrated and angry."
High visibility can help restore management's credibility. Moments after Ames Department Stores announced bankruptcy last spring, Diamond put 600 managers on a conference call with Steve Pistner, the chain's chairman.
Pistner then embarked on a whirlwind road show, visiting hundreds of stores and warehouses. Likewise, when Resorts International filed for Chapter 11 in 1989, Diamond suggested that Merv Griffin, the owner, tour the company's casinos in Atlantic City and the Bahamas, offering employees reassurance.
Dave Hanlon, Resorts International's chairman, followed up with weekly reports on a closed-circuit television network.
"Everyone wants to know if management is capable of solving the problems that led to the crisis," Diamond said. "You shouldn't offer false promises, you should offer concrete information."
Silence from management, the experts agreed, is the worst mistake.
by CNB