In today’s bleak economic climate, many companies are struggling. Sharply increased costs (wages, energy, raw materials, transport, etc.) and pressure on sales due to inflation and diminished consumer confidence require constant adjustment of business processes.
Besides short-term challenges, there are also medium- to long-term global megatrends. They date from well before the pandemic but still need to be thoroughly addressed.
One such megatrend is advancing digitalisation, which is affecting the entire value chain from manufacturing to retail and putting enormous pressure on companies to transform key aspects of their operations. Another is decarbonisation, a megatrend that necessitates significant investments and realignments in sectors such as automotive, energy and real estate. ESG and sustainability are also a major focus, with investors, consumers and employees having high expectations of compliance.
Finally, companies also face the well-known labour shortage.
A new context for restructuring communications
Companies will do everything they can to adapt and survive in the new environment, including through major restructuring. Not only will the number of restructurings increase, we can also expect the course of individual restructurings to be highly unpredictable because of the aforementioned crises and problems. It is likely that we will face adjustments and readjustments of measures during the restructuring process.
Against the backdrop of all these uncertainties, company stakeholders will expect timely and regular reporting from company management. This is exactly where the importance of a well-thought-out restructuring communications strategy comes in. If executed properly, restructuring communications aim to build and maintain stakeholders’ trust in the company and, more specifically, in its leaders – even when there is little clarity on the outcome or timeline of the restructuring process.
Successful restructuring communications demonstrate two specific qualities of the company’s top and senior management that stakeholders care about: competence and commitment to save the company. And the more stakeholders cooperate, the more likely it is that a company can achieve its restructuring plan – even against the wishes of individual stakeholder groups that will be adversely affected by the restructuring. This is important, because sooner or later there will be stakeholders in opposition who feel they will lose out.
Additional challenges
Communicating during a restructuring process is always a challenge because a company has to bridge two aspects that are difficult to reconcile. On the one hand, the need for information is immense: Stakeholders monitor the company’s every move because they have a lot to lose – be it jobs, revenues or investments. On the other hand, exact outcomes and processes are usually uncertain, because in practice it is often impossible to predict how communication actions will play out. The aim of restructuring communication in these circumstances is therefore to convince as many stakeholders as possible – as thoroughly as possible – of how things may ultimately turn out, without being able to give them certainty.
The way to achieve this is to focus on the two qualities of competence and commitment:
Competence is the ability to deal with issues. A majority of key stakeholders must be convinced that management has the business and financial expertise to lead the company out of the current situation into a better future. Essential to demonstrating competence is transparently outlining not only the overall short-term and long-term challenges that led the company to restructure, but also the risks of temporary disruptions that could complicate the turnaround.
Commitment is the determined willingness of management to do everything possible to save the company. Once a majority of stakeholders realise that management will give its all, it becomes easier to create understanding and acceptance for difficult and unpopular decisions. To show commitment, it is essential to outline both the need for restructuring and a broad action plan for it and keep all stakeholders informed of progress in saving the company.
For management, it is vital to be consistently visible and available to stakeholders and to deliver the same messages all the time. Depending on the measures taken and the stakeholder group, middle management and team leaders should also be available.
Communication actions should include:
- Accurately outlining the challenges and risk factors posed to the company by the current environment, as well as goals and a clear action plan to reach stakeholders, even when adverse conditions are present.
- Regularly informing key stakeholder groups about actions affecting them (e.g. informing financiers about debt restructurings or employees about job cuts) while reiterating goals and a broad action plan. However, this does not mean that all information should be shared the moment it becomes available. Rather, it is about striking a balance between maintaining stakeholder buy-in by letting them know where they stand and releasing information prematurely that could actually jeopardise trust.
- Deal with uncertainty in the process by being there for all stakeholders. This includes showing up when there are pressing questions, even if there are no clear answers yet.
Conclusion
In this turbulent macroeconomic and geopolitical environment, we can expect an increase in the number of restructurings. Moreover, we can foresee that these will have a high degree of uncertainty, with a correspondingly high need from stakeholders for information and communication. Now more than ever, a sound restructuring communications strategy – with competence and commitment at its core – is essential to maintaining stakeholder buy-in and confidence in the company’s leadership to execute the plan.
This article is based on the article “Restructuring communications in a multi-crisis environment”, by Hans Nagl and Florian Bamberg / FTI Consulting (May 2023).