Communicating with stakeholders in a crisis : it's not enough to formulate a plan for survival when a crisis comes. A company needs to communicate often, and effectively, about how it is executing that plan.

Successful business turnarounds depend largely on two elements (and perhaps a bit of luck): Dramatic change in the operating economics of the business and communicating, through every phase of the turnaround, how these changes will improve the position of all constituencies.

In good times, a company owes its primary responsibility to its shareholders. However, in troubled and potentially insolvent times, management's primary responsibility shifts to the interests of all stakeholders, including banks, bondholders, trade vendors, employees, customers and sometimes even government agencies. Management will need the support of all of these constituencies to make a turnaround successful.

In bad times, stakeholder communication becomes a critical step on the road to a company's continued survival. However, the company must first develop a coherent and comprehensive plan to fix its problems, including all operational, strategic, financial and transactional elements. This plan is the blueprint for survival, and management must go to the mountaintop and tell the world--"We have a plan, we're going to share it with you and we're going to show you how it works for you." The communications aspects of this plan are a means to an end--the end being a resolution to the crisis. The following suggestions offer proven ways to help navigate:

Open up the lines of communication to include all stakeholders, stick close to the truth and be consistent. In a crisis, the natural reaction of most executives is to hunker down and limit contact with the outside world. Yet this is usually counterproductive, since limiting information confirms the worst suspicions of creditors, lenders and investors.

The first step is to communicate proactively to limit surprises and build credibility and trust. The second step is to develop a consistent story line for all stakeholders that eliminates variations from one group to another. Sticking close to the truth is critical. This does not necessarily mean disclosing every detail, but the generalities must be credible and consistent. These points are critical, as they govern all actions in every phase of stakeholder communication.

Involve employees and customers in the communications effort. There are few limits to what you can share when in the midst of a turnaround and are fighting for one's corporate life. Your employees, as representatives of the company, are an important first line of defense with customers. A well thought-out and executed communication plan helps convey the notion that a company in crisis is not necessarily in a death spiral. Give employees a succinct portrait of the situation, let them know you have a plan and that they are part of the solution.

In virtually every business, and particularly in retail and service businesses, most employees serve as the customer service staff as well. They work with customers to locate merchandise, determine the optimum configuration for an application or modify engineering drawings for subsequent development issues.

If employees sense financial problems, concerns over careers and benefits may understandably hurt their ability to effectively and enthusiastically do their jobs. In fact, those employees most sensitive to financial stress are the ones most likely to speak to the competition.

Employee communications should include a frank outline of the company's situation, the steps being taken to address financial and operational issues, and a positive view of the company's potential, if possible. Answer some of their personal concerns in advance to help them focus on their jobs and eliminate inaccurate rumors or bankruptcy-mongering. The goal is to address specific issues that affect the employees' personal interest, as well as to answer questions that customers are most likely to ask.

Let your employees disseminate information that would normally be read between the lines of a press release. Give them enough information to deal with customer service issues, vendor non-payment and sales declines. While they cannot and should not answer every inquiry, they can be your first line of defense. Give them a clear story line, and provide a corporate contact for customers seeking greater detail.

Share financial data with senior lenders. Clear and regular communications with senior lenders is critical in a crisis. They can be allies, and they usually have first-order priority in an insolvency. While you can't give up your rights and must protect all stakeholder interests, senior lenders' decisions will most often dictate a company's primary actions in a crisis. Give them information that helps them analyze your position and come to a consensual conclusion.

This doesn't mean the company has to roll over and beg. On the contrary, a management team that takes charge, develops proactive solutions and moves to implement them has nothing to fear from senior lenders. Senior creditors will always view a going-concern solution more favorably. Providing lenders with current, accurate and detailed financial data will engender support, even if the data doesn't paint a rosy picture in the short term.

This is not the time to take loan documents literally. Withholding information because the loan documents don't require its disclosure can be fatal: Lenders perceive this as hiding something or worse. Don't assume they will hold off foreclosure efforts. A workout officer will not be criticized for liquidating your company, even if you are forced to file for bankruptcy in order to defend against such actions. He will be criticized for not being informed or for not making decisions based on timely information. Providing data can alleviate concern and suggests that management is on top of the situation.

Treat creditors with similar rights consistently. Similar types of creditors would likely be in the same class if a bankruptcy ensued, so treat them that way now. Creditors will remember everything you told them and the order in which you told them, and they will compare that with what you told their peers. Always assume that creditors will talk to each other; whatever you tell one will be known by all. Industry groups and the Internet provide an open forum and make information ubiquitous.

Provide financial transparency. In public companies, there may appear to be limits on disclosure without confidentiality agreements. Keep in mind that the company is fighting for its life, and disclosure to all constituencies is paramount in building credibility with one's stakeholders. Remember that while in the zone of insolvency, management's responsibility is first to the creditors.

You must offer sufficient information to let stakeholders validate your current operating troubles, rather than feel they are being "stared down" with press releases and statements. Release of certain financial data, such as cash flow projections with sufficient detail (keeping an eye on SEC regulations), will help eliminate the isolationism many companies practice in a crisis.

In addition, certain large creditors who are vital to consensus-building should be let into the tent after they have signed confidentiality agreements. Involving creditors in the process is the best way to build consensus, establish credibility and develop a solution without judicial intervention.

Share the bad news along with the good. Managing expectations is probably the most difficult component of the communication process. Human nature is to make hay of good news, using it as a marketing opportunity. In tough times, however, rumors are rife, and even good news is subject to skepticism. When the company fails to address the kernel of truth within a rumor, stakeholders will often assume the worst--while competitors and others will try to take advantage.

Confronting negative rumors with key suppliers--and creditors in general--is a top priority. Establish a credible line of defense, and don't be afraid to go beyond the prepared press release. If the trend is negative, provide an early warning and outline your plans to mitigate its effect.

Use communications to manage vendor relationships. When a company is in trauma, executives will avoid vendors because their accounts are past due and they don't know what to tell them. Return every call from all stakeholders, especially trade creditors.

Begin by outlining the actions taken to address the financial and operational issues and the status of the planning process. Tell them you expect to provide an outline of a plan in two to four weeks and that, in the interim, their situation will not worsen. Such a statement will, of course, require you to have validated the state of the company's operating cash flow. Reassure them that the company will become a stronger, better customer.

Maintain regular communications throughout the turnaround. Convene periodic meetings and prepare communications to keep stakeholders current on company progress. The first phase of any process is to gain acceptance of a solution for the current crisis and time to fix operational problems. Once support has been received, keep communicating progress until every group is satisfied and the company is on more solid financial footing.

Let them know if the company is on schedule or ahead of its financial forecasts. Provide regular reporting and variance analysis to reinforce the stakeholders' decision to allow the company time to restructure. Look for reasons to talk with the creditors, reiterating that they are part of the solution. Ultimately, the company belongs to all stakeholders in order of priority at a time of crisis; management must earn back the right to run the company for its shareholders.

Retain people with crisis experience. Finally, consider turning to people who have experience in dealing with stakeholders of companies under siege. Get help in developing a plan focused on stakeholders' needs. Find resources that can help management advocate the turnaround plan to the world and act as an "'honest broker," eliciting the cooperation of private equity sponsors and lenders simultaneously.

You cannot go it alone. While management may be capable of managing the company's daily operating dynamics, the skills needed to manage a crisis are quite different. These issues are a full-time job and require experience in developing consensus, working diligently and purposefully in the face of adversity, as well as having operating insight into potential options, including bankruptcy (and how to avoid it). Rumors and innuendo appeal to the most basic of human concerns--fear of the unknown. Clear, concise and calculated communication helps take the guesswork out of managing financial distress.

Michael J. Epstein is a Director of TRG (www.trgusa.com), a turnaround and crisis management firm based in Boston, with offices in New York, Charlotte and Cleveland. He has served as Crisis COO, CFO and Chief Restructuring Officer, and as a financial advisor to bank syndicates and creditors' committees.