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Communicating with Stakeholders in a Crisis

Deloitte Insights video

While Companies may find themselves in operational or financial turmoil, communicating with your stakeholders about your challenges does not expose your weaknesses. On the contrary, communicating with your constituents can help restore credibility, create clarity and provide a window toward a solution that will help to create a more lasting partnership into the future. An organization should aim to reach consensus on its next steps and ultimate endgame, and should involve employees, customers, vendor, investors and other interested parties from day one. With open and regular communication, stakeholders can help a company weather a crisis. Watch this episode of Deloitte Insights to learn more.

Speakers

Mark Liscio, Partner and Co-Chair, Bankruptcy & Restructuring Department, Kaye Scholer
Michael Epstein, Principal and COO, Deloitte CRG within Deloitte Financial Advisory Services

Transcript

It is time for Insights, a video news production of Deloitte LLP. Now, here is your host, Sean O’Grady.

Sean O’Grady: Hello and welcome to Insights where today we will be talking about talking, more specifically the importance and the process of communicating with stakeholders during a financial crisis. Now, joining us in the studio for this discussion are Mark Liscio, Partner and Co-Chair of the Bankruptcy & Restructuring Department of the New York-based legal firm, Kaye Scholer. We also have Michael Epstein, Principal and COO of Deloitte CRG within Deloitte Financial Advisory Services. Gentlemen, my first question for you — and we can begin with you, Mark — is what bothers you when you turn on the news and you see an organization taking hits because of a miscommunication during a financial crisis? What’s the first thing that comes to your mind?

Mark Liscio: Sean, the first thing I think about is the company has missed an opportunity to manage a problem and also has missed the opportunity to get a problem under control. It is not that we shouldn’t see problems in companies and other organizations encounter those problems, but those occur and it is really what you do after that occurs and manage that. So, that’s what I get disappointed in that firm missed that opportunity.

Sean: How about you, Michael?

Michael Epstein: And I think, Sean, what’s most important at that moment, as Mark said, when you see that opportunity arise, it is to quickly kick into gear and develop a plan of action. What is that plan of action for the organization? Recognizing that an issue exists or potentially that there is an opportunity to avoid an issue is how quickly can you develop that plan, but you need a credible plan. Just going out to your stakeholder audience and telling them that all is well is insufficient. There needs to be support behind what you are trying to achieve there, not only what’s going on, where you are going, but what the endgame looks like.

Sean: Well, let’s go there. Where does an organization begin? How do they go about developing that plan?

Michael: Again, once the crisis, whatever that crisis is, has presented itself, we really look at developing a command center like mentality. It’s a bit like putting together the three legs of a stool — the financial situation, the operational situation, and the communication situation. So, financially, we want to stabilize; operationally, we want to optimize; communication wise, we want to legitimize. So, these are all the critical tools that go into this command center mentality and the leadership requirement that the situation demands.

Sean: How about you, Mark? Do you agree with that command center idea?

Mark: I do. I think there is a threshold issue in order to get to implementing the plan. One of the difficulties that organizations face is recognition by — let’s take a corporation — the seniors officers or the directors that they actually have a problem, and that is where a lot of firms fall down by not recognizing that there is a problem. Unless you have a particularly seasoned management team that might have been through it, they really have no idea what’s about to happen to them. So, it is recognizing and then finding the right people to help.

Sean: I see you nodding your head.

Michael: No and Mark mentions a great point because most of our management teams, most of our clients have never been through this before, and frankly, I often tell clients that you should have these situations at least occur to you once in your professional life, but only once because the experience itself is a learning growth experience, but, as Mark said, bringing in seasoned professional talent that can deal with the issues of crisis and allow the management team to deal with the issues of running the business is a critical partnership that optimizes the opportunity for success.

Sean: So, is there a prioritization to that? Is there a formula that is available for every single situation? I am guessing not, but again about the stakeholders here.

Michael: There is no formula. As Mark mentioned, the most visible and vocal groups are those that have a seat at the, let’s call at the primary table. Those people that the company is interacting with every day, but there is this constant need to remember that there is a whole community. For any corporation, there is a whole community beyond those that have direct representation sitting at the table. Think about civic groups, think about municipalities and towns where these businesses operate, think about the schools in which these companies that are about to go through some sort of change in their financial structure. Remember, we are talking about the financial crisis that exists. A financial crisis is often the manifestation of an underlying operating issue in a business where it may have factories that are no longer productive and they may have workforces that are not as productive as they once were. And think about the toll on the community that an absence of information and absence of communication, what that toll can be on groups that are already underfunded, understaffed, undermanned, or about to be swept up into some maelstrom of change through unemployment, through changes in the workforce roles, through changes in the tax space, and the more you can do to communicate with those groups; You know, Mark mentions the primary groups which are the people we have to deal with every day because without them there is no solution. The ancillary groups are the ones who are often most impacted and have the least ability to participate in that solution or participate in change, yet they are critical to the morale and the ability to get through the situation by galvanizing the community around a solution, whether that solution is a 70% is better than 0%, whatever those numbers may be. So, there is no formula, Sean, back to your question about how you get through these situations.

Sean: Now, here is the fly in the ointment and that is this is the digital edge, so you could have the best laid plan, but one person with mobile phone within ears reach if something that is going on could potentially make that plan have to be activated much quicker, in a much more quick way. So, my question is, how do you advise organizations to do just that to have a plan while at the same time they might have to be communicating because there is a lot of technology that might make it difficult for them to keep some control? How do you advise that?

Michael: There is a toolkit out there called contingency planning; what if A happens, but what if B happens, and if B doesn’t work, what if C happens? It works operationally, it works from a financial perspective, and it works from a communication perspective as well. You really need to be ready and that is what folks that do what Mark and I do for living. We are the fire alarm rings. We have to be ready. We have to be ready with multiple plans for that to adapt to the circumstances and what the digital age has done, it has accelerated and made those paths concurrent or almost concurrent because as you said if we can’t react quickly enough, then the rumor will overtake the fact.

Mark: Mike, don’t we often times have to set the goal of what we want to accomplish. So, the crises are always different and you need to figure out what is the goal. Is the goal to minimize the damage? Is the goal to set the stage for resolution at a later time? So, I think, one of the first things we do is set the goal for the management team and for the shareholders to figure out what they want to accomplish in light of the crisis and then I think we have to periodically — and this is really your contingency planning — reassess that goal as we go on. One of the things I have observed over the years of practice is the corporations and the entities within the crisis take on a bunker mentality and get very defensive when in reality they may not need to be that way. They may need to be open. They may need to acknowledge. The external advisors are able to be very neutral and objective. That is really the biggest difference between the restructuring professionals in a credit crisis versus the officers who are in the middle and may have caused the crisis. That is a big… human nature takes a very important role in these crises. So, what the external advisor, legal, financial, etc., is to really take an objective view as to what goes on and counsel and guide the parties as to the best way out of the morass or the maelstrom.

Michael: Mark, I think you are exactly right. Having that end goal is critical. The one thing we know is the path to that goal. The one constant in every situation is the path to that goal will change and it will change multiple times along the way. In these situations you are working with imperfect information, you are working emotional responses, not necessarily always logical responses, and we are making decisions with 60% or 70% of the information with an aim to get into the next decision note always with an eye on the horizon, always with an eye to where we are going in, and always communicating to the stakeholders that that’s the horizon we are going for. If you disagree, now is the time to tell us because what would be terrible for this organization is to get there and find out that wasn’t where you wanted to go. There is a famous quote from Henry Silverman from Cendant, the travel-related business, who once said when Cendant was going through all of its trouble that the most important thing we can do during this time of crisis is to make the right decision, the second most important thing we can do is to make the wrong decision, and the worst thing we can do is to make no decision. Our clients tend to get paralyzed by not knowing where that horizon is and not knowing how to go from here to there, and our goal is to say there is no bright line to get from here to there. There is a path and we will tread that path together and that path will change along the way, but we will be proactive and we will keep moving forward along the path.

Sean: Clear to see how emotionalism could pull you right back into the swamp. I guess my last question for the two of you — and we can begin with you, Mark — does drop on personal experience since you both had the opportunity to work through these kinds of restructurings for our audience what have been the real hard lessons learnt that you would like them to walk away with from this conversation?

Mark: I think that some crises are huge and bad, and it is a problem and your main job is to contain them and limit the damage. Other crises and this is where the lesson comes in, other crises can be managed and you can avoid further problems, the key is to develop a coordinated and objective approach to getting there. What I take away and what my lessons are you have to be coordinated and have a plan, and as Mike says, you have to do something. Doing nothing is not an alternative and what Mike and I have said in the cases we worked together and I have seen it, radio silence equals death. So, an entity that has stakeholders or customers or whatever, if it doesn’t communicate an effective plan, then the counterparties are left with the conclusion that things are bad and there is no solution, and those are the worse situations.

Sean: So, no radio silence. Last thoughts from you, Michael?

Michael: I think you all hit a great point, Mark. Mark nails it that not answering phone calls, not returning correspondence, the absence of communication will be assumed to be the worst because that is human nature. Human nature fills the vacuum with negative thoughts. Emotion, we talked about management teams having emotion clouding their judgment. Emotion is a good thing, energy is a good thing. I think you can hear when we speak. We are energetic and emotional and passionate about what we do, but we need to marry that passion with the logical approach, the logical response. I think turning a situation around, resolving a crisis, frankly is a lot like a sporting event. You know momentum plays a huge role because people in crisis and people in trouble want to be led, I believe, naturally. They are looking for someone to step in with a calm but passionate view and say, “I know where we are going. I know how to get there. Follow me.” And that will galvanize a solution, but it requires this regular communication, it requires a cadence about what you do. You can’t communicate fast and then stop communicating. It requires getting into routines and people like routines and getting the message out there in a credible way such that people don’t have to think. They just know they are going to be updated. They just know they are going to see progress, and progress will come in days, in weeks, in months, and they won’t have to be left to wonder where things stand.

Mark: I was going to turn your question around which is what are the positive lessons to take away, and I was thinking as you are going through your explanation, Mike, and that was my positive lesson that there are good communicators and good managers in our field, which is how I met Mike. We worked on a case and our relationship has been based and grew from. We were on the other side of the table from each other, but Mike was an effective direct communicator with honesty and one of the hallmarks of the successful professional in financial crisis is to have not only advocacy and representation of your client, but to also be interested in the outcome, and if you are interested in a positive outcome and that might be a dissolution, it might be a liquidation, or it might be a combination, if you are motivated to accomplish that goal and you use communication, that will produce a successful result. So, from crisis come good relationships, from crisis come positive impacts on the company, and it is really how you manage that and the participants you work with that can change the whole outcome.

Sean: So, keep the focus on the message and you stay out of the mind traps.

Michael: That’s right.

Mark: Yes.

Sean: Gentlemen, thank you both for your time today.

Michael: Okay. You are welcome.

Mark: Thank you.

Sean: Alright. We have been discussing the process of communicating with stakeholders during the crisis with Mark Liscio, Partner and Co-Chair of the Bankruptcy & Restructuring Department of the New York-based legal firm, Kaye Scholer, and Michael Epstein, Principal and COO in Deloitte CRG, which is within Deloitte Financial Advisory Services. If you would like to learn more about Mark, Michael, or any of the topics discussed on today’s broadcast, you can find that information on our website. It is www.deloitte.com/insights/us. For all the good folks here at Insights, I am Sean O’Grady. We will see you next time.

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