The intangible asset that can make or break a turnaround

Before HMV went into administration in January 2013 following a protracted turnaround attempt, the moment that defined the collapse was not a financial filing or a press statement. It was a sequence of unplanned tweets from inside the company's marketing department, broadcasting in real time the chaos of the redundancies that were being announced. The financial story had been carefully curated for months in the trade press. However, the real story was written in seven minutes by stakeholders whom the management team had stopped paying attention to.

And yet, when an audience of turnaround professionals at a recent Institute for Turnaround (IFT) conference were asked whether their last engagement had a formal stakeholder communications plan, fewer than a third said yes. It is a striking admission from the group of practitioners most likely to overstate their preparedness, and yet it points to a real gap between how seriously stakeholder communications is taken in principle and how systematically it is managed in practice.

The challenge is that trust and confidence rarely start from zero - they start in a deficit. Lenders, employees, customers and suppliers almost always know something is wrong before management has said anything formal. The vacuum is filled quickly - by rumour, by trade press, by hushed conversations between advisers.

Four instincts make this worse, and all of them feel right at the time. The first is waiting for perfect information before communicating because, while management waits, the narrative forms without them. 

The second is treating stakeholders as a single audience. A message designed for a lender will land very differently with an employee, and management should assume that whatever is said to one group will reach the others. A single coherent narrative, expressed differently for different audiences, is non-negotiable. 

The third is over-reassurance: sophisticated stakeholders see through a bluff, and credibility lost in a crisis is extraordinarily difficult to recover. The fourth is assuming silence is neutral. It is not. In a distress situation, the baseline assumption is always negative, and silence becomes speculation.

The instinct to start with the numbers is hard to shake. When the conference attendees were asked what their first move would be on being instructed to turn around a business, a fifth would start by getting the financial story straight. Only a small minority would begin by asking what stakeholders already know and believe, which, in practice, is where stakeholder communications should always start.

The discipline that follows is uncomfortable but consistent. Map stakeholders before acting; know who holds influence, whose confidence is wavering, where the business is most exposed. Build one narrative on four critical ingredients: an honest diagnosis, a clear turning point, a credible outcome, and evidence of capability. Then, communicate actively on a cadence stakeholders can rely on.

When asked which stakeholder group was hardest to handle in a distress situation, the same audience pointed clearly to employees and the media, with lenders ranked easiest by some distance. This is unsurprising as lenders are familiar territory, considered sophisticated, contractually engaged and used to bad news delivered in structured forums. Employees and media are messier audiences, with less predictable channels and more public consequences when communications fail. They are also the audiences where behaviour, not language, does most of the work.

Behaviour is the most powerful form of communication available to a business in distress. In low-trust environments, what management does will carry far more weight than what it says. Confidence cannot be bought, but it can be defended, and the turnarounds that succeed treat it as the asset it is.