Long after I have left this life, it will be up to others who knew me and worked with me to decide what, if any, were the great achievements of my career, but one of them surely has to be this: I helped save the Twinkie. Twice.
This spongy, super-sweet snack teetered on the brink of extinction in 2009 as the global economy reeled in the Great Recession. The Twinkie had been a culinary and cultural standard since its invention during the Great Depression as a cheap little lift for hard times, at two for a nickel. Eighty years later it was getting squished by consumers’ embrace of low-carb diets and, even more so, by high pension and healthcare costs, burdensome union rules, and revolving-door management.
Far more was at stake than popular treats: the livelihoods of almost thirty thousand workers were on the line at the Twinkie’s maker, the Interstate Bakeries Corporation (IBC), whose roots traced back more than a century and whose other products included Ho Hos, Ding Dongs, Drake’s Cakes, Yankee Doodles, and Wonder Bread. In my business, it is especially gratifying when I can help save jobs at a company that otherwise might shut down, and this has occurred a number of times in my career—but the Twinkies case was especially sweet. Sorry, couldn’t resist.
When the U.S. economy melted down in 2008–2009 and took the rest of the world with it, waves of fear roiled the global banking system. Banks stopped lending, credit dried up for even the safest clients, and thousands of companies suddenly were at risk. All of this was happening just as Interstate Bakeries, one of the largest commercial bakers in the United States, was set to emerge from four years of reorganization proceedings in bankruptcy court.
The company had first hired my firm in 2004, when it filed under Chapter 11 of the U.S. Bankruptcy Code for protection from creditor lawsuits while it worked on a reorganization and a workout plan to pay its debts. We had been involved intensively since that time, including through much of 2008, as Interstate neared the end of its Chapter 11 journey, ready to reappear like a butterfly from a cocoon. It was taking on a “new” name it had used as a brand since 1930: Hostess. It had closed nine outdated plants, combined some overlapping distribution routes, exacted concessions from the unions that represented most of its employees, and landed new financing of $600 million in debt and equity from new investors.
A key part of this metamorphosis was $125 million in new credit from GE Capital, the giant finance business owned at the time by the conglomerate General Electric Company. Hostess needed the money to install faster and more efficient production lines to better compete on cost, volume, and freshness. Much of the gear in its forty-five plants was old and worn out, and without an upgrade the baker might not make it at all.
Then came the urgent call to my BlackBerry from two lawyers advising Hostess. “Can you get on a conference call to discuss a critical development relating to Hostess?” one of them asked me. “When?” I responded. “Now,” he said.
I was in Cancun, Mexico, on holiday with my family. It was Christmas Eve 2008. GE Capital had just balked at completing its end of the deal, the lawyers told me, pushing the baked-goods giant to the verge of collapse. Without GE’s promised line of credit, the reorganization plan would topple, taking the company and all those jobs with it.
Time was running out. The company’s short-term “debtor-in-possession” financing was expiring in early February, just five weeks out. Now Hostess wanted my help handling communications for the next move: a lender-liability lawsuit it was preparing to file against GE Capital Corp. It was a case of Twinkies vs. GE. The lawyers said we had a great case, but even if we won it months or years later, the company would be gone by then, and all the workers would lose their jobs.
A few minutes later we reconnected on a conference call, my partner Lew Phelps joining me and the two lawyers who first had called me—Greg Milmoe and J. Eric Ivester, both of them with the New York firm of Skadden Arps Meagher & Flom, and both considered among the top restructuring lawyers in the United States. Also on the phone was the formidable New York litigator Marc Kasowitz and the Hostess CEO at the time, Craig Jung. The lawsuit idea came up, and Craig Jung said, “That’s great, but by the time that gets through the courts, all twenty-nine thousand of my employees will have lost their jobs and company will be forced to close.”
“I Don’t Think We Have to Shut Down the Company”
“Wait a minute,” I said, “didn’t GE take TARP money?” The federal government’s Troubled Asset Relief Program had doled out several hundred billion dollars in emergency capital to nineteen giant banks, infusing them with cash by purchasing ownership stakes in them and buying their financially suspect, hard-to-sell bonds. TARP was one of myriad remedies the feds used in the collapse, known by an alphabet soup of initialisms—TARP, TALF, FSP, TLGP, PPIP, CPFF, and more. The presumption was that the recipients would circulate this cash by loaning it out to businesses to help the economy and save jobs.
Everyone on the line was listening keenly, and Lew Phelps, tapping away at Google, cut in to tell us that, no, actually, GE hadn’t received TARP money after all. “GE got HARP money,” or some other acronym, Lew explains. Me: “Same thing!” And then I added, “Of course Lew would know that.”
“Well, then, I don’t think we will have to shut down the company. Let’s get IBC’s local congressmen and senators to write letters to the CEO of GE,” I said to those on the call. “Let’s get the unions involved. Let’s see if Senators Clinton and Schumer will write him and ask, ‘When the government gave you that HARP or TARP money or whatever it was, wasn’t that to enable you to lend money so you can save or create jobs? Why is it you are refusing to honor your commitment to provide $125 million to this company, and in the process eliminating twenty-nine thousand good American jobs?’ The media will love it. Government officials can’t ignore it.” Everyone on the call climbed on board.
The company’s passage through Chapter 11 had been difficult. Its new $600 million financing plan (including the GE chunk) was contingent on exacting cost cuts on the labor side, and the Teamsters were defiant. Yet the union had offered to make concessions to other investors it had coaxed into bidding for the company—Grupo Bimbo of Mexico City, and Yucaipa, the private-equity fund of billionaire Ron Burkle (at the time also a client of mine).
The mainstream media are naturally sympathetic to the unions in these disputes, and Interstate Bakeries wanted to balance out the debate by increasing engagement with reporters. Two Sitrick employees had been embedded at headquarters in Kansas City, Missouri, for much of the previous year, but now the company wanted extra help from someone with expertise in dealing with the media during labor disputes. So I dispatched Lew Phelps to start spending a lot of time in Kansas City.
Soon after he showed up, he asked a local reporter covering the story to sit down for lunch. As they dined, Lew frankly told the reporter that he hoped to provide more fodder for the company’s side of the story, because the unions’ views seemed to predominate in the local coverage thus far.
A few days later, as Lew sat in a courtroom late one afternoon for a pivotal hearing and the reporter was sitting in the front row, as usual, the perfect opportunity arose: an attorney for the Teamsters told the court the union would rather see the company go through “liquidation” and go out of business—wiping out the jobs of 9,500 union members who drove the company’s trucks—than give in to the salary and benefit cuts that Interstate Bakeries was seeking. Lew looked over to the reporter to make sure this revealing comment struck home—but the reporter wasn’t paying attention. Missed it entirely.
Later that afternoon, Lew called the reporter and brought up the union rep’s startling statement, repeating it to make sure it got across accurately. The next day the local paper reported:
IBC said that if Yucaipa and Bimbo do not submit an offer or if their offer is not accepted, the rational thing for the Teamsters would be to return to the bargaining table.
Frederick Perillo, an attorney for the Teamsters in the reorganization, said that would not happen, telling the court, “My client prefers liquidation to the company’s business plan.”
Mission accomplished. We made sure that IBC made the most of this, advising its labor-relations team to photocopy the story and post it on company bulletin boards in Hostess factories and warehouses across the country. To some workers, it was a sign their union might sacrifice their jobs to avoid setting a precedent by giving in to management’s demands for cuts in pensions and other costs.
Ultimately, the Teamsters and other unions came back to the bargaining table and granted roughly $100 million a year in concessions in exchange for a 20 percent ownership stake in Hostess Brands once the company started growing again. The unions gave in by September 2008, letting the Chapter 11 reorganization proceed, and a wrap-up was now ready—until GE Capital balked and jeopardized the whole package.
Clearly, we needed to put pressure on GE Capital and get the attention of their bosses and the bosses at the parent company. GE had sought government help twice in the financial collapse. The CPFF (Commercial Paper Funding Facility) gave GE Capital access to almost $100 billion in government-provided borrowing to help it ensure that all of its overnight loans could be renewed in the short-term “commercial paper” market, which had frozen. The second program, the TLGP (Temporary Liquidity Guarantee Program), had the Federal Deposit Insurance Corporation guarantee repayment of GE Capital debt totaling $139 billion, ensuring the company’s access to borrowing, and at lower rates.
To be sure, GE Capital may have had good reason to rethink the Twinkies loan. The business had been in decline for years, and the product line was a throwback. The “too big to fail” banks were under contradictory pressures from their federal overseers to shore up their balance sheets with fatter reserves for bad loans and stricter new lending, while also funding a U.S. recovery . . . by making more loans.
Nudging a Giant
But the GE Capital bankers had made a commitment, and nothing had changed since they had done so. My job was to find a way to nudge GE Capital into delivering the $125 million in financing as promised. Our ad hoc posse descended on Washington just as the media were looking for their first examples of how TARP was working out.
We targeted congressmen from areas where Hostess factories and distribution centers operated, and both of New York’s populist U.S. senators, Democrats Hillary Clinton and Chuck Schumer. We were able to get a letter from Senator Clinton’s office addressed not to GE Capital but to the CEO of its owner, General Electric: Jeffrey Immelt.
Senator Schumer went even further, calling for hearings into the matter and personally demanding that GE provide him with “daily updates” on the issue. He sent his letter to GE Capital’s CEO. Even the august senator from Massachusetts, Edward Kennedy, got involved, calling on GE to make the loan and save several hundred jobs in his home state. Meanwhile, we sought out officials with Hostess’s two biggest unions, the Teamsters and the bakers’ union, to enlist them to contact their congressmen.
One idea we considered was putting pamphleteers in Twinkie costumes on the steps of the Capitol to hand out leaflets hailing Hostess and humorously jabbing GE. I forget who proposed this—it might have been me, it could have been Lew, or perhaps Dale Leibach, the Washington operative we were working with at the time. But I do recall that I liked the idea a lot . . . until the client nixed it.
Meanwhile, back in bankruptcy court in early January 2009, Interstate Bakeries got approval to hire Marc Kasowitz’s law firm as “special litigation and conflicts counsel,” as the hometown Kansas City Star reported, “to take whatever action is required to enforce ‘the legally binding commitments of the parties’ that agreed to finance Interstate after it emerged from bankruptcy.” This was a warning shot fired across the bow of GE Capital. Interstate’s short-term DIP financing was slated to run out in a month, on February 9.
Hostess made a particularly good “actor” for this story. Food brands, more so than other product categories, have a special, more personal relationship with their customers, maybe because they appeal to our senses of sight, scent, and taste, which can evoke memories and transport us back to an earlier, comforting time in our lives. (Think of Marcel Proust’s bite of a madeleine cookie in Remembrance of Things Past.) This provided us with an extra asset: fans of the Twinkie and its sweet siblings.
Twinkies also had a hold on the cultural psyche, renowned for their long shelf life and seeming ability to outlast any calamity. (In truth, as a Forbes story later told it, “Twinkies—. . . able to survive flood, famine and nuclear war—had a shelf life of only about 25 days.” New chemistry later extended this to sixty-five days.)
In 1978 after a member of the San Francisco board of supervisors assassinated his fellow supervisor Harvey Milk and Mayor George Moscone, the killer mounted what later became known as the “Twinkie defense,” arguing that the sweet snack had driven him crazy. In the 2009 film Zombieland, Woody Harrelson plays “an AK-toting, zombie-slaying badass whose single determination is to get the last Twinkie on earth,” as Columbia Pictures put it. In one scene, he finds an abandoned Hostess truck filled with fresh pastries, but curses when they all turn out to be pink, marshmallow-frosted Sno Balls covered with coconut flakes.
Sometimes only Twinkies will do.
In finding ways to put pressure on the people running GE Capital, we offered up Hostess as a poster child for businesses challenged by the banks’ reluctance to loan out some of the bailout billions they had received from the feds. Sometimes the goal when you place a story is not to rile a million readers but to get the attention of one key individual. In this case, it was the CEO.
And so one day in late January 2009, Craig Jung, the CEO of Hostess, received a call from the GE chief. Jung had been trying for weeks to reach the top levels of GE to appeal for a re-hearing, only to come up empty. Jung told us that Jeff Immelt expressed interest in working things out—but first Hostess must turn off the PR assault. This same sort of thing has happened in a number of cases in which we have been involved: we will deal, but first you must call off the hounds. But why grant that relief from the Wheel of Pain, before you have exacted what you were seeking?
We had anticipated this possibility. Jung responded that he couldn’t end the campaign—the workers, union reps, and politicians weren’t going to let up until Hostess got the financing that GE Capital had promised—to say nothing of the media interest. This was beyond his control.
Some weeks later, the deal was done, Hostess Brands was reborn, and the Twinkies maker emerged from Chapter 11 in February 2009. GE Capital had provided $105 million rather than the $125 million it had originally pledged, but the other investors already in on the refinancing made up the shortfall. It was a rewarding outcome to more than a year of intensive advice and arduous execution. It also was a surprise ending to a story that could have taken a worse turn, toward the loss of almost thirty thousand jobs.
The press celebrated the rescue, especially the local papers where Hostess had a presence. Senator Kennedy put out an eloquent statement: “In these very dark and uncertain economic times, this announcement is an urgently needed ray of light.” Senator Schumer issued a triumphant statement, saying he had “successfully helped broker a deal between International Bakeries Corporation and General Electric that ensures the company can now emerge from bankruptcy, preserving the jobs of the 230 Upstate New Yorkers who work for Drakes Coffee Cakes.”
On February 23, 2009, the Wall Street Journal carried a story headlined, “There Is Life after Bankruptcy for Some Companies,” with Interstate Bakeries as the lead: “It was a near-death experience for the Twinkie.”
Reaching out to U.S. senators and congressmen, waging a campaign on old-fashioned bulletin boards, sitting through bankruptcy court hearings, educating local and national reporters, employees, creditors, and other constituents—as you can see, handling a Chapter 11 case requires far more than the typical PR routine. Over the years my firm has built a thriving practice specializing in the arcana, vagaries, and peculiar needs of businesses undergoing Chapter 11 reorganization or some other restructuring, debt workout, or similar life-or-death maneuver.
Focus on the Fix
It is the corporate equivalent of bypass surgery. Oddly enough, I like the field, for while it can entail confrontation, discord, and brinkmanship, it is also steeped in renewal, reanimation, and the drive to set things right. If I had to pick only one of my Ten Rules for Engagement to use in Chapter 11 cases, it would be No. 5: focus on the fix. Stories on your client should explore where a company is headed next, not rehash the mistakes it made in the past.
Bankruptcy-code filings, in fact, have been a foundation of Sitrick And Company from our first days, thanks to the baptism by fire I experienced in the 1980s as the senior vice president of communications at Wickes Companies, the acquisitive owner of furniture and home-improvement retailers and consumer goods makers run by one of my greatest mentors, Sanford C. Sigoloff. Sandy had been brought into Wickes nine months after I got there, and only weeks later, bent on saving the company, the new CEO had put Wickes into Chapter 11, exposing me to a master’s lessons in the black art of bankruptcy.
In my years at Wickes, I learned the ins and outs of the federal bankruptcy code. In the three decades since then, my firm has handled over four hundred companies in Chapter 11 reorganizations and roughly half that many out-of-court restructurings and workouts that otherwise would have landed in bankruptcy court. Greg Milmoe, the Skadden lawyer and former head of that law firm’s restructuring practice, who called me on Christmas Eve in Cancun to tell me that GE Capital was about to crush IBC, once explained my role to a reporter for the Financial Times in London:
Mike is the guy who pioneered the business of public relations in bankruptcies and distressed situations. . . . He developed the systems and the approach to communicate with employees, vendors, unions, suppliers—which is common sense if you think about it. But before he came along nobody did it.
I owe the late Sandy Sigoloff for that. He was one of the most gifted businessmen I have ever known. A bona fide turnaround artist with a sense of humor, he nicknamed himself “Ming the Merciless” (from Flash Gordon) for the sometimes draconian measures that he had to take to save companies and thousands upon thousands of jobs during his career. Sandy, who died at age eighty in 2011, was viewed in the industry as “Mr. Chapter 11” for his success in rescuing companies through bankruptcy reorganization. He had brought Wickes out of bankruptcy and expanded it with a couple of billion-dollar acquisitions, financed on the high-yield bond market with the help of the brilliant Mike Milken at Drexel Burnham Lambert.
In southern California in the 1980s, Sandy was known for starring as himself in TV ads for Wickes’s home-improvement chain, Builders Emporium, an idea hatched in my group. He was depicted as a tough, demanding boss, saluted in the tagline: “We got the message, Mr. Sigoloff!” Truth in advertising.
Sandy could be a formidable presence, and soon after he arrived at Wickes, he and I sat down for an exchange that would shape my approach to client cases for years to come. We had settled into our seats on a commercial flight and were waiting for takeoff when he asked my advice on a sensitive company issue. “I think you’re wrong,” I told him, and explained why. Then came a pause that was a little unnerving, as Sandy stared at me with his steely blue eyes. I wasn’t sure of my job status under the new management. In fact, nearly every other officer who was with the company when he first arrived had been “made available to the competition,” as he used to say. I suspected that my advice was the opposite of what he wanted to hear.
“Sandy,” I said, “if you’re looking for someone to tell you what they think you want to hear, then you’ve got the wrong guy. Just give me enough time to find another job, because I have a family.”
“Thank God someone has the guts to tell me what they really think,” he said. “That is what I want. That is what I need.” That helped reinforce a lesson I had learned earlier in my career: the best and brightest leaders in the business world prize the unadorned truth, which is in short supply.
By now we know the bankruptcy drill, and in the ensuing years other firms have launched Chapter 11 practices, but in my view, many of them have erred by trying to make this a mindless routine: open up the book and pull out employee, vendor, customer communications, and lockstep press releases (even if not literally, close). Often they put inexperienced people on the case “to keep costs down.” They don’t respond to media inquiries beyond the news release, or if they do, they offer some boilerplate response.
The problem is that a reorganization—whether in or out of court—is too complicated to follow a template. Emergencies come up with employees, vendors, and customers. If you don’t engage—and sometimes even when you do engage—the media will make errors in reporting on the events, sometimes critical ones. I ask potential clients, when asked whether they should hire us, if a significant error appears in a story on Bloomberg or in the Financial Times or Wall Street Journal at nine o’clock on a Sunday night, can the other agency you are considering get a top editor on the phone to get it fixed? We can and do.
In a Chapter 11 case, in which your constituents are already concerned that you are on life support, significant errors can have a critical if not fatal effect. You can’t automate your communications, nor should they be left to people with little or no experience. As I am wont to say, it is not the place for “on-the-job training.”
Getting Technical
Now for an explanation. First, let’s get technical. When a company goes out of business, it files for “liquidation” under Chapter Seven of the U.S. Bankruptcy Code. There is no effort to keep the company alive. The focus is on liquidating the company for the preference of the creditors. But when companies file under Chapter Eleven, they “file for protection from creditors.” They file in bankruptcy court to reorganize their affairs and mend their finances while being insulated from creditors’ lawsuits. The debt is often near default or already in it and must be renegotiated, perhaps under looser terms or reduced in exchange for an ownership stake in the company-on-the-mend.
Admittedly, the stated goal of Chapter 11 isn’t to protect jobs, it is to enhance the company’s chances of surviving so it can pay off its debt holders, who rule the top of the heap in a Chapter 11 case. For centuries, the law has favored lenders over owners when a company fails. This is why in Chapter 11 the stock of a company can get wiped out—that is, the “equity” owned by investors who had bought shares of ownership in the company—while all efforts are focused on paying back the banks and bondholders that had loaned it money. In exchange for this payback priority and their lower risk of loss, debt holders accept a lower return on their money than that promised by a riskier investment in the stock.
Now, let’s get emotional. Chapter 11 can be a rollercoaster for the people at any company that goes through it. One of our jobs is to do what we can to make sure that people at the company worry about doing their jobs rather than about losing their jobs. People fear not knowing what’s coming next. Vendors must have enough confidence to supply goods on credit, and sooner rather than later. Customers need to have confidence that you will be around long enough to fulfill their orders, let alone honor your warranties on your products.
My intention here isn’t to sound like some shrink or life coach. I am not known for being touchy-feely, but this needs to be understood. These are natural responses to the one feeling pervading the entire Chapter 11 process: a sense of failure. The stock of the company often falls to nearly zero or stops trading altogether. Wall Street analysts stop following it.
“Filing for Chapter 11” is so stigmatized, even today, that in the 2016 presidential campaign, critics of Republican nominee Donald Trump bashed his business savvy by citing a handful of Chapter 11 filings amid the hundreds of ventures and buildings that he has owned. So notorious is a descent into Chapter 11 that some companies will stay in denial and stall entering the process, making their plight even worse—sometimes to the point that they are forced into liquidation.
I tell my clients that a Chapter 11 reorganization, if properly handled, can and should be a new beginning, not the beginning of the end. It is important that you let your employees, customers, and other key constituents know that you believe, so you can make them believe (to take a page from a Baptist preacher). From day one, you need to talk about what steps you are taking to address the issues that made the filing necessary; how you are going to fix the business, strengthen the balance sheet, increase revenues, and enhance profitability.
This can be a difficult sell. Sometimes the leaders of a troubled company can lose the will to fight. A case in point is the aptly named Purgatory ski resort in Durango, Colorado. As I recounted in Spin, it was set to close down in the early 1990s because its longtime bank had refused to renew a line of credit. A lawyer who had worked with me on a case involving another ski resort called to ask for my advice in handling communications for the shutdown of this one. “We need to do damage control,” he said. And that would have been that for some people in my profession. They would have put together and implemented a communications plan. But I don’t always take the direct approach.
Hearing about Purgatory’s hell-bent path to closing, I asked the lawyers for my new clients why the bank was balking at extending credit. Was Purgatory unprofitable? They told me the resort was in the black, but a giant, out-of-state bank had acquired the local lender and had no interest in lending to the ski industry. How long ago was the local bank sold? Within the last few weeks, they said. In that case, I told them, Purgatory won’t have to close at all.
I asked my puzzled clients to imagine what the state banking commissioner would say when the Denver Post asked him whether, before approving the deal, he had bothered to ask the new owner of Purgatory’s bank if it had any plans that would hurt the state’s most important industry? What do you think the governor would say? There was momentary silence on the other end of the line, and the lawyer asked, “How soon can you have someone here?” A Sitrick partner flew in the next day.
So we set the plan in motion, getting the lawyers’ okay for my personally briefing a Denver Post editor over the weekend and letting it be known the story might happen, but doing so entirely off-the-record, so that a story would run only if we told the editor it could run and no mention of what we discussed would appear in any form if the bank settled with my client. He agreed.
Purgatory’s lawyers met with the bank’s lawyers that Monday. When the bank’s lawyers in effect told them to take a hike, I was given the okay to call the editor and have him send in a reporter. The story ran a day later, unleashing waves of reaction and a call for a state investigation. By the end of that week, Purgatory had a new line of credit.
In my view, the greater mission, the right mission, had been accomplished—saving several hundred jobs. In fact, the ski resort even snagged a lower interest rate.
Almost instinctively, we had shifted the Purgatory ski resort’s objective from managing a shutdown to finding a way to stay open, by targeting the right pressure point and preempting the story with a better one of our own. I had recognized that this was a great story and that media pressure might persuade the bank to rethink its position. To get the media to invest the time and give the story the “play” we desired, we had offered an exclusive. The resort still is in business today (under new owners), yet it might have shut its doors had it not been for our asking that first question—why is the bank refusing to extend your line of credit?
Lawyers as Field Marshals
Senior executives can become exhausted by the workout process when a business is on the ropes. But it is critical they focus on the fix. In a Chapter 11, as much or more than any other situation, having top, experienced advisors is essential. Advisors with a track record of success. Lawyers, in my experience are the field marshals. They can make or break a case. You need good financial advisors, investment bankers where appropriate, and experienced, creative communications professionals.
Communicating to your key constituents is more than just keeping these groups informed. It is making sure they understand your objectives, accomplishments in turning things around, and for most of these constituents, how they are part of the process. Who are these constituents? Lenders, vendors, landlords, government officials, customers, your senior management team, rank-and-file employees, and yes, reporters.
Keeping reporters updated on the latest twists in the circuitous administrative processes of Chapter 11 is a more critical objective of “bankruptcy PR” than many who practice in this area think. Sometimes PR professionals advising companies in Chapter 11 will advise ignoring the media and just communicating directly to the other constituents from the outset. I think that’s dangerous. I ask clients, “Whom will your customers believe—the Wall Street Journal when it reports that your company has only enough cash to survive three days, or an email from you the next day saying everything is great?”
Some years ago, the communications VP for a major retailer got a call from a reporter at the Journal who had heard that vendors were not shipping because the retailer could not pay for goods. The retailer’s PR chief talked to his outside PR advisor at the time, and they concluded he should not comment. In fact, their response was, “That is so ridiculous it doesn’t deserve a comment.”
The story was published anyway, of course, citing a few vendors by name. This provoked what I have come to call a vendor stampede. All of a sudden, the company’s other vendors began refusing delivery unless they got cash up front or upon delivery. After all, it was in the Wall Street Journal. Few, if any, retailers could withstand that demand. The PR team contacted vendors by phone and in writing, but the onslaught did not abate. The retailer ultimately filed for Chapter 11 and then Chapter 7: liquidation. It no longer exists today.
What should the PR chief have done? He should have asked the Journal reporter, before the story ran, who these vendors were and whether they would be named in the story. There is a good chance the reporter would tell him who they were. If the reporter refused to provide the names, the PR chief should have told him that he was going to appeal to his editor. (I never go behind a reporter’s back.) If the editor likewise refused to identify the vendors, the PR chief should have said, “I will give you fifty other vendors. Call any of them.” The company later told me they could have gotten five hundred vendors to say they were still shipping. At the very least, the story would have reported that six vendors interviewed by the Wall Street Journal said they were continuing to do business as normal with the retailer, although the payments were stretched out a bit, and three others said they were refusing to ship. But that’s not what the story said. And the sad thing is that, once the facts were uncovered, it turned out that the real reason the vendors named in the story weren’t getting paid by the retailer was that the goods they had shipped were late or defective or both.
The better approach is to use the facts with the media to help you strategically position a company’s Chapter 11 filing as a new beginning. We have represented several airlines prior to and during their Chapter 11 reorganizations. The CEO of one was particularly concerned that the company’s filing of Chapter 11, if it occurred, could result in a dramatic drop in passengers and the ultimate failure of the company and that if it leaked Chapter 11 was one of the options being considered, it could become a self-fulfilling prophecy. He shared these concerns with me one afternoon as we mapped out our strategy.
“Why don’t we preempt the news?” I asked him, and he asked what I meant by that.
“Let’s set up a series of meetings with reporters and editors from key media and take them through our various options, explaining the plusses and minuses of each,” I said. “The meetings will be on the record, but we will reserve the right to go off the record at times. We will do this only with reporters and editors I know.”
“As part of this process,” I added, “we will explain that one of the options we are considering is a Chapter 11 filing and how taking this action, if we determine it is the best course, will actually strengthen the company and its future.” After further discussion that included our agreeing on the particulars of what we would say under each scenario, the airline chief signed on to the idea.
A week or so later, we flew to New York and met with key editors and reporters from various media companies. Rather than reporting on rumors or leaks, they wrote about the meeting and the paths the CEO laid out. When the company did file under Chapter 11, the move was positioned as what it truly was: a positive step to rid the company of its debt, strengthen its balance sheet, cut costs, and allow the airline to invest in and grow its business. The airline is still operating successfully today.
In another instance, a mid-sized retail client of mine had been the subject of numerous articles asserting that it was running out of cash and might not survive. When we announced the move into Chapter 11, we included an announcement that the company had budgeted $50 million for a new advertising campaign. “A company wouldn’t spend $50 million on advertising if it was going out of business,” one columnist wrote.
A Picnic. . .with Reporters
A week later, we invited reporters from a major newspaper in the company’s headquarters city to an employee picnic. You could see the direction of the coverage change. After the picnic, another columnist in our client’s hometown paper expressed similar sentiment. No company in a death spiral would hold an employee picnic.
At times I have been asked to give speeches to executive teams about to enter the Chapter 11 process, and I almost always emphasize that they have to exhibit a positive view. If they don’t, their pessimism will affect the whole organization, and fear of dissolution could end up becoming a reality.
We also put in place communications programs for other key audiences, often including a script for the receptionists to make sure the right points are emphasized. The last thing you need is a key vendor or customer calling your office and asking the receptionist how things are, only for her to say, “It’s really scary here. None of us knows if he’ll have a job tomorrow.” Also critical is an all-hands meeting of senior managers, in which they learn what’s going on so they can forward the right message to their teams.
The impressions and images a company’s people convey at a fragile time like this are critical to its chances for survival. The message you put out anchors the turnaround effort. Say the wrong thing, or say the right thing in the wrong way, and you can breed anxiety, alarm, and panic. Say the right thing in the right way, and you can instill calm, patience, and hope, which produce support and cooperation.
That’s one reason I emphasize to clients that we use the filing as an opportunity to get out the message of a new beginning in all our communications, starting with a strong news release and more often than not granting interviews with key media, simultaneously addressing employees, customers, and vendors.
Some years after the bankruptcy proceedings I have described, Hostess filed under Chapter 11 for a second time. Strapped for cash, the company told the Teamsters and bakers it needed a new round of concessions. But the unions were unmoved. Something had to give. Eventually, the Teamsters granted the concessions that Hostess had sought and urged other unions to go along. Ten of the eleven other unions did, but more than 90 percent of the bakers’ union members voted against the deal, and its 5,600 members at Hostess went on strike. Efforts to resuscitate the talks failed, and one week later, Hostess filed a motion with the bankruptcy court to begin winding down operations.
The biggest piece, Hostess’s Twinkies and Dolly Madison brands, went to buyout firms Apollo and Metropoulos, which revived the Twinkie after a nine-month absence. In 2016, the business sold a controlling stake to a new owner, the Beverly Hills billionaire Alec Gores of the private-equity firm Gores Group, through his publicly traded Gores Holdings. Thus Hostess would set plans to go public yet again, coming full circle, in a way: Alec Gores and Gores Group are longtime clients of Sitrick And Company.
Chapter 11 was designed to help companies live on, mending themselves under court protection so they can get back to business. The obstacles to recovery are legal and financial but also emotional and psychological. Crafting the right message and delivering it to the right audiences becomes a key component of any tumble into Chapter 11 and the centerpiece of working your way out of it. Get it right, and you can secure the livelihoods of the thousands of people your company employs and help ensure a recovery that will result in creditors’ getting all or part of their money back.
For companies in almost any kind of crisis, in fact, getting out the right message to the right audience is essential to survival. It is a key asset for business in general. Business is a relationship, and a relationship requires open, clear communications. Sometimes, what you say can be as important as what you do. Do the right thing but say it in the wrong way, and you are sunk. Do the wrong thing, but then say the right things afterward, and you have a chance.
And if everyone did both things right, all the time, I’d go out of business, along with a lot of my lawyer and restructuring advisor friends. Until then, we at Sitrick And Company will continue to counsel companies and CEOs, startups and their founders, celebrities and billionaires, and businesses in Chapter 11 when a company’s future hangs in the balance and the jobs of thousands of workers can be saved. When crisis descends or opportunity calls, we will advise them on what to do and what to say. These people have a story to tell, although they might not always know it, and it is my job, my nearly lifelong pursuit, to help them tell it.