People do need to know what is going on, especially if theres something afoot that could affect them personally. And once the rumour or gossip mill starts grinding its very difficult to stop - and even harder to correct any misinformation once it has gained currency.
The grapevine shows what can happen when people suspect the worst and start to make up things for themselves. One of the largest customers of a fictional company has called in the receivers; the MD has made contingency plans and is confident that new contracts will forestall the need for compulsory redundancies.
The message that managers were to pass on was one of reassurance but the production head doesnt brief his team properly and their fears mount, fuelled by the fact that people in other departments seem to know more than they do.
Only when a key member of staff hands in his notice does he realize his mistake and the importance of structured communication.