Fortunoff Bankruptcy...Really Poor Form

Yesterday, Dealscape posted a blog entry, "In bankruptcy, seeing how the other half lives" discussing Fortunoff's rather misguided approach to employee communications during its present turmoil.   It seems that, for reasons unknown (or, unexplained), the Fortunoff's executives or, perhaps, their advisors decided not to keep the employees informed of either Fortunoff's bankruptcy or supposed sale to a private equity firm.  Rather short sighted, in my opinion.

Note...this was AFTER the proposed sale became a matter of public record which was also part of the bankruptcy filing, as early as February 4th of this year.   While it's unclear from information available publicly how widespread - even internally - their troubles really were and thus how quickly they moved into the packaged bankruptcy asset sale to private equity investor NRDC Equity Partners, one thing is perfectly clear...management is going to need the employees on board with any planned turnaround effort.

And, turning around this business is exactly what they intend to do.  Last week, the New York Post reported, "the Fortunoff business is poised to double in size over the next five years, its new owner, NRDC Equity Partners, told The Post."  Clearly, big expectations given the less controllable issues of slowed economy and the resulting reduced discretionary spending from consumers as the primary culprits of its current woes.

Leading turnaround practitioners are quite consistent - and, emphatic - on the point of communicating frequently and honestly during times of crisis.  Steve Miller, one of the most recognized turnaround executives whose credits include Chrysler and Delphi and the author of the forthcoming "The Turnaround Kid: What I Learned Rescuing America's Most Troubled Companies," repeatedly hammers this point home. 

There's good reason for this consistent view: open, timely communication to employees reduces fear (fear of the unknown tends to far outweigh fear of the known even when the latter is not necessarily good news), helps management to establish credibility and thus engender trust, all of which aids in motivating the remaining workforce to help repair, rebuild or revitalize the previously languishing firm.  The management team can't do it alone.

By virtue of their actions - or, rather, inactions - Fortunoff's leadership team and investors have undoubtedly steepened their climb toward a successful turnaround.