Case Study: An Investor Relations Crisis
By Abe Wischnia
President
Abe Wischnia & Associates
An earlier version of this article was originally published in October, 2003 by the National Investor Relations Institute under the Title: Crisis Management Communication
Staying Ahead of the Curve
Does your company have a written crisis communication plan? Over the years, I’ve put together various crisis communication plans preparing for a variety of possibilities. However, I never included a scenario about the company I worked for filing for bankruptcy — but I should have.
A bankruptcy filing is a crisis not only for the company, but also for its shareholders. However, shareholder lawsuits are not inevitable, as you’ll see from this account of how one company handled an investor relations nightmare.
The Situation
Advanced Tissue Sciences, Inc., a biotech company that grew human tissue for wound care and other healing applications, went public in 1988. By the fall of 2002, the company had two products approved by the Food and Drug Administration and a third approval pending.
Yet, ATS was not profitable and had a cumulative loss of about $300 million. The burn rate for 2003 was projected at about $30 million, and the company was running out of money. A convergence of factors — a falling market, declining share price, a sector that was out of favor with investors and bylaws that precluded certain fund-raising avenues — made it impossible to raise capital with acceptable terms.
ATS had tried to sell some of its technology to strategic partners, sparking the interest of one company that insisted the purchase be free and clear of any claims or liabilities. However, the only way this could happen was through a Chapter 11 bankruptcy sale. It was a difficult choice, but because the company needed the money, the board decided to accept the offer.
As the company’s senior director of investor relations, I was aware of the various fund-raising efforts and learned of the decision to file for Chapter 11 reorganization about two weeks in advance of the event. I found that you can get a lot done in two weeks. Below are some tips based on the steps our company followed to see us through the crisis. While they are drawn from this particular case, they have wide applications for almost any crisis.
1 Prepare. Ask as many questions as you need of the key players. Make sure you understand fully what is going on, including the process, timing, roles and responsibilities. Determine who else is “in the know.” Think ahead about anything that could pose potential problems. Map your action plan.
2 Communicate. The initial tendency in a situation like this is for the company to go quiet for fear of saying the wrong thing. Resist the temptation, and realize that even though a crisis is pending, you have to keep communicating with investors. Any sudden change in behavior will make people wonder. Continue to be available to all shareholders, whether individual or institutional, and regardless of the size of their position. Remember, though, to be very deliberate in what you say.
As the main spokesperson for the company, I was determined not to start ducking calls. I worked with our attorneys and created very clear lines around what I would and would not discuss to help avoid inadvertent disclosures that might trigger Reg FD issues or tip the market to what was about to happen.
Drafting the news release and Q&A document was no more difficult than writing any other announcement. What was complex was the review and approval process. This now included our CEO, CFO, key board members, in-house legal department, several external bankruptcy and SEC attorneys, my counterpart at the company that would be acquiring assets through the bankruptcy, their senior management and their attorneys.
As the bankruptcy filing would also involve a large layoff of company employees, I also worked with the head of human resources to draft the employee announcements. We made sure that all communication would be consistent and controlled.
3 Be aware. Even though everyone involved worked hard to maintain confidentiality, many employees sensed something was happening. That may have been because we suddenly changed some of our usual meeting and work patterns. Anticipate ways to avoid raising red flags with employees. You need to be aware of anything that might arouse suspicions and cause rumors that could lead to a marketplace leak.
4 Be ethical. I canceled scheduled presentations at two investor conferences — one for institutional investors that our CEO was to speak at, and the other for retail investors where I was the scheduled presenter. The target date for the bankruptcy filing was just a few days after the second conference, and we believed it would be unethical to give presentations under those circumstances. The hardest part was explaining the short-notice cancellation to conference organizers without lying, yet without revealing anything. All I could do was apologize that a pressing company matter required the CEO and I to be elsewhere and that no suitable substitutes were available.
I was concerned about the ethics of continuing to send out investor kits, so I halted their distribution, telling the person in charge to hold off fulfilling requests while I reconsidered the kit contents.
5 Be ready for the unexpected. One thing did take me by surprise. I had uploaded the bankruptcy news release to the wire service about 5 p.m. Pacific time with instructions to hold it until I called. (I had to wait for our attorney to confirm that the papers had been filed with the court.) But when the distribution service read the reference to bankruptcy, the process jerked to a halt.
Even though we had a long-term relationship with the service and an account that was always current, they now insisted on being paid in advance. I had to charge the cost on my personal credit card after receiving assurance from our controller that he would be able to issue me a check from the new, post-filing bank account.
6 Keep communicating. The news release finally went out after 5:30 p.m. Pacific time, so most of the market didn’t see it until the next morning. Taking the resulting investor calls was the hardest part of what followed.
Many of the company’s investors had been in the stock a long time because they believed in the promise of the technology and its healing potential. They were surprised, confused, angry and upset, and deserved to have someone to talk to. I had to draw on all I had learned over the years in terms of active listening, tact, diplomacy and, of course, crisis communication skills.
7 Don’t stop communicating. About a month later, the board decided to liquidate the company rather than try to emerge from bankruptcy. With the decision to liquidate, pay creditors and return as much of the residual value as possible to shareholders, came further layoffs that eliminated most of the remaining positions, including mine.
At this point, most companies would fall silent. ATS didn’t. Our chief restructuring officer was an attorney who understood the value and interconnection of PR and IR. I persuaded him to give me a contract to continue handling ongoing shareholder communication.
As a result, the communication channels stayed open even as the company shut down. News releases were issued (and still paid for by credit card) as developments warranted. And shareholders still had someone to talk to — me. Most importantly, investors felt they knew what was happening and why, even if they didn’t like it.
After the bankruptcy court approved the Liquidating Plan of Reorganization, the shares ceased trading, but we kept communicating. Using the company’s old URL, we created a new website as an ongoing place to post news, legal filings, financial reports and other information important to the former shareholders, who now held corresponding interests in the ATS Liquidating Trust.
These efforts paid off. No shareholder lawsuits were filed. In fact, shareholders complimented us on the way we kept them informed. I’m convinced that shareholders’ continued access to information throughout the process kept a painful situation from turning worse.
As this experience demonstrates, a corporate crisis provides an opportunity to communicate with audiences that want to hear from you. Remember one of the basics of IR and PR: In troubled times, communicate more, not less.
