The Critical Role of Communications for Employee Retention During Distressed M&A and Chapter 11 Restructurings

In distressed M&A and chapter 11 scenarios, the primary focus is often the financial, legal, and operational aspects of the transaction. Amid this urgency and complexity, one under appreciated factor consistently impacts the success or failure of value realization: employee retention. 

When a business undergoes a financial transaction or restructuring, the stakes of executing an effective human capital strategy become more critical. How a company manages morale and retention during this period – often while under public scrutiny – can significantly influence a company’s reputation and deal execution.

The Hidden Cost of Silence

Whether a company is pursuing a distressed sale, negotiating a prepackaged chapter 11 plan, or evaluating strategic alternatives, uncertainty can become the prevailing theme, drowning out the potential upside of the process. In these situations, silence isn’t golden – it’s destabilizing. Media, competitors, and market speculation inevitably fill the void, fostering confusion and fear across the employee base and key audiences.

More than just a morale booster, a well thought-out and proactive internal communications strategy is essential to preserving enterprise value. A lack of clarity can lead employees and stakeholders to assume that leadership is unprepared to meet the moment or unsure of the business’ future. This perception risks accelerating attrition, damaging productivity, and weakening the company’s ability to execute when it matters most.

Case in Point

In early 2024, an online education provider commenced a chapter 11 case as part of a negotiated restructuring with creditors to reduce its debt and refocus its operations. While the filing itself was positioned as a financial reset, a less visible but equally important part of the process was how the company communicated with its workforce.

Prioritizing employee retention, the company established consistent internal communications that included regular leadership updates, cross-functional alignment of key messages, and frequent touchpoints with employees that provided avenues for two-way communication. By addressing concerns early and emphasizing business continuity, especially for students and staff, the firm was able to maintain operational momentum and reduce disruption, while retaining critical talent. 

Five Imperatives for Communicating Through Uncertainty

1. Provide Employees with Clarity, Direction, and Honesty

In moments of transformation, employees understand that the company will not have every answer, and they aren’t always looking for certainty. However, forthright leadership and a clear articulation of the company’s strategic direction go a long way to reassuring the team about their own future. Employees want to know what is happening, why decisions are being made, and how they will be affected. Sharing information regarding the impact on jobs, roles, and compensation with sincerity will help dispel potential negativity while building trustworthiness with the broader team. 

2. Acknowledge What Is Unknown While Communicating What Is Known with Confidence

Leaders should resist the urge to overexplain or make premature commitments regarding future strategy. Instead, they should focus on openly acknowledging areas of uncertainty while reinforcing what is known and what is being actively evaluated. This approach not only builds credibility, but it also underscores the organization’s commitment to responsible decision-making, while providing room for flexibility as strategies evolve. This allows leaders to set the stage for future communications as the path forward becomes clearer. 

3. Treat Communication as a Sustained Practice, not a Singular Event

A restructuring or transaction is not a static process, and communication must adapt to address evolving needs and perceptions throughout the lifecycle of the transaction. Establishing a reliable cadence of updates, whether through all-hands meetings, written briefings, or small-group conversations, demonstrates continuity, reinforces leadership presence, and reassures employees that they will not be left in the dark.

4. Create Channels for Listening as Well as Speaking

Communication should not be confined to top-down delivery. Organizations that prioritize two-way engagement through skip-level conversations, anonymous surveys, or informal feedback loops are better positioned to detect attrition risks early and mitigate effectively in real time. Moreover, these channels convey respect for employee voices and signal a commitment to shared ownership of the company’s future.

5. Align Messaging Across Leadership, Advisors, and Stakeholders

A consistent narrative across internal and external parties is essential. Misalignment between what employees hear and what is conveyed by legal, financial, or communications advisors can sow confusion and erode trust. Early integration of the communications function into the broader advisory team ensures that messaging is coherent, strategic, and tailored to each audience that matters while remaining faithful to the terms and strategy of the transaction.

Leading Through Communications

In distressed transactions, clear communication becomes a defining leadership act. It can unify teams, calm uncertainty, and retain the talent needed to carry out the restructuring plan. At the end of the day, the most successful restructurings are not only the ones that pass legal muster; they are the ones embraced by the people responsible for putting them into action.