Holding back bankruptcy: the very survival of a troubled company that is approaching—or in—bankruptcy can depend on how well HR gathers information, trims costs, retains key people and communicates with stakeholders - Cover Story

HR Magazine, May, 2003 by Robert J. Grossman

US Airways, in contrast, opted not to offer its top executives bonuses or enhanced severance. "We wanted them to stay because they believed in what we were trying to accomplish," Glass says. Attrition at the middle-manager level has been a problem as US Airways has taken actions to stay in business, but all 30 members of the executive team that came in to lead the turnaround are still in place.

At Integrated Health Services, Phillips' retention plan included "pay to stay" arrangements, severance and bonus packages for managers and other essential personnel. Creditors approved it without comment. "They understand that they can best protect their assets by preserving key management," she says.

Still, experts such as Donald Biskin, partner at the Heidrick & Struggles executive recruitment firm in Great Falls, Va., warn that retaining some executives maybe more trouble than they're worth. "Massive denial is the biggest problem in financial distress cases," he says. "The CEO and other senior managers don't accept the need to make changes and do so quickly."

Another critical goal besides retention is developing and implementing a communications plan once a Chapter 11 filing becomes public. Counting customers, suppliers, investors, retirees and employees, "we'd be telling our story to as many as a million people," says Kimberly Welch, vice president of corporate communications at Federal-Mogul. "We had letters, telephone scripts, supplier lines all ready to go. A lot of the Q&A dealt with benefits. HR was critical in crafting the answers. We wanted it to be the biggest nonevent, and it was. Employees were fine; they saw the lights were on, suppliers were still delivering."

Two Ways Out

There is no guarantee that a company will emerge from Chapter 11. No company can survive for long--even with court protection--if the business is not sound. Often, as with LTV the Chapter 11 reorganization ends in liquidation.

After LTV entered bankruptcy, Filipovitz soldiered on. "We went through significant reductions in force, consolidated our health plans and scaled back benefits where we could." But, in the end, no plan could stop the free-fall. Finally, with nervous creditors breathing down its back, LTV abandoned hopes for reorganization and filed for liquidation in December 2002.

Now Filipovitz's depressing descent from HR executive with responsibility for thousands to manager without portfolio is almost over. Today, he's a human capital manager with no one to manage--one of 37 employees waiting to turn out the lights after the company's assets are sold off.

As US Airways struggles for life, Glass hopes for a better outcome. The airline emerged from Chapter 11 on March 31, but--citing a drop in bookings during the Iraq war--immediately imposed a 5 percent wage deferral for all employees.

"We're trying to save as many jobs as we can in a situation where we've been given up for dead," said Glass. "The situations are gut-wrenching, but you have to do it. My happiest day will be when I'm sending out recall notices, telling people they can come back to work."