A typical restructure is planned by a small group: the CEO, CFO, COO and the legal team. Communications is often brought in at the end to help prepare the announcement, which is the first everyone else officially hears of it. By then, the media, unions, local and national government and competitors have started telling the story. Middle managers, who are key to the success of the restructure, are caught in between, with no update from senior management and a team full of questions they cannot answer.
For a business already short of cash and close to breaching a covenant, losing control of the story has a direct cost. Key employees and clients start to leave, and revenue and profit go with them. The damage can be avoided. Businesses that plan communication in parallel with the restructure keep control of their narrative, and with it the value they are trying to protect.
To understand where communication goes wrong, we sat down with Matthew Jervois, Senior Counsel in the Financial Advisory and Transactions team at SEC Newgate. We asked him at what point communications advisers usually become involved and what it costs a business to lose control of its narrative. We also asked how new leadership can win it back and what separates the restructures that protect a reputation from those that damage it.
CALLED IN WHEN THE ANNOUNCEMENT IS DUE
Matthew’s first answer was direct. Businesses going through a restructure “typically bring in communications advisers too late”, often in the final stages of the process.
By that point, a great deal has already gone wrong. Cash flow is a serious concern, a covenant breach is often imminent and day-to-day operational focus has started to slip. The problems rarely arrive one at a time, he says. Businesses that bring advisers in this late are often suffering from a decline in their reputation, and their contact with employees, clients and shareholders is already weakening.
The delay comes from how restructures are run. “Leadership teams often work in a vacuum,” Matthew says. Beholden to a business and legal process, they leave communication until last.
That, in his view, is “too little and too late”.
“THE PEOPLE WHO REALLY SUFFER”
When the leadership team says nothing, others set the terms of the discussion. Matthew explains that “businesses typically lose control because employees, the media, governments and unions take over the narrative” and talk about what the restructure means, emphasising its downsides. At the same time, competitors add to the pressure, leaking information to the media and questioning both the merits of the restructure and its chances of success.
Inside the business, Matthew says, the people who really suffer are middle managers. They receive no information or guidance from the leadership team, yet they are the ones answering questions from employees at every level.
His answer is to treat the core narrative as something to be tested. Leadership teams need to decide what the messages should be and then take feedback from across the organisation to find out which are landing with employees and which are not.
WHAT POOR COMMUNICATION COSTS
Communication is often treated as a soft cost in a restructure. Matthew rejects that view. For him, it belongs within the business’ risk management and its growth strategy. Handled that way, communication supports a successful outcome, one that ensures the business survives and thrives.
He is specific about the cost of getting it wrong. “A lot of key personnel and talent in the business will leave,” he explains, and sales and account teams won’t have the answers for clients. Clients then “make assumptions and start to leave in droves”, and the damage reaches the accounts as revenue and profit fall. It is the middle managers’ problem again, this time facing outwards.
NEW LEADERSHIP AS “AN INFLECTION POINT”
Sometimes the trouble runs deeper than cash and covenants, and the strategy itself has stopped working. Part of the problem is persistence. Having invested so much in the original strategy, businesses can feel bound to it, Matthew says, and “will pursue that strategy right to the end, even if it’s the wrong strategy”.
That is the time to bring in a new CEO who can help set a new vision for the business. Outside investors and clients will see that moment as “an inflection point”. New leadership can set out a credible strategy and operational plan “without any of the baggage of the old leadership team”.
It is a situation Valtus sees regularly, particularly in PE-backed businesses, where investors need confidence that a new plan will hold. An interim manager is appointed from outside the existing team, with no stake in the failed strategy, to give the business a new direction and put it into effect.
The plan also has to reach the people expected to deliver it. For Matthew, that comes down to two questions: “Do employees understand what the strategy is? But more importantly, do they understand what their role is in the new strategy and the plan?” An experienced interim CEO can communicate the plan clearly enough that the answer to both is yes.
WHERE RESTRUCTURES PROTECT REPUTATION
The restructures that protect a company’s reputation, Matthew says, treat communication as part of a risk and growth management strategy. The aim is for every audience, from employees and clients to shareholders and the media, to understand and accept the restructure. When communication is done well, everyone sees the restructure as a credible strategy and a growth story they can buy into.
Those that do lasting damage treat communication as an afterthought, “purely an announcement at the end of the restructure”. The most important failing, in his view, is treating communication as a transaction rather than a way of winning acceptance.
For boards and investors, two practical lessons follow. Communication belongs at the start of a restructure, alongside the business and legal process. Where the existing team is too absorbed in that process to carry the message, or too closely tied to a strategy that has failed, new leadership has a role to play. It can provide a credible direction for the turnaround and give the business back its voice.
At Valtus UK, we work with boards, owners and stakeholders to provide experienced interim managers who stabilise businesses quickly, manage complex stakeholder situations and deliver change under pressure, including turnaround CEOs, CROs, CFOs and COOs. If your business is facing the kind of situation Matthew describes, we would be pleased to talk about what earlier, more controlled intervention could look like.
