Associated Press
For conservatives, the demise of Hostess Brands, perhaps best known for making Twinkies, is a story about union workers going on strike and forcing a business to close its doors forever.
For those concerned with the facts, a very different picture emerges. Forbes' Helaine Olen had a good piece on this the other day.
Hostess has been sold at least three times since the 1980s, racking up debt and shedding profitable assets along the way with each successive merger. The company filed for bankruptcy in 2004, and again in 2011. Little thought was given to the line of products, which, frankly, began to seem a bit dated in the age of the gourmet cupcake. (100 calorie Twinkie Bites? When was the last time you entered Magnolia Bakery and asked about the calorie count?)
As if all this were not enough, Hostess Brands' management gave themselves several raises, all the while complaining that the workers who actually produced the products that made the firm what money it did earn were grossly overpaid relative to the company's increasingly dismal financial position.
By all accounts, Hostess just wasn't a well-run company. After its executives made a series of poor decisions, then rewarded themselves with generous raises, Hostess demanded that its workforce accept far less pay and fewer retirement benefits. Not surprisingly, the workers weren't fond of the idea -- why should they alone feel brunt of the executives' mismanagement? -- and Hostess collapsed.
But to hold the union responsible for this series of events is absurd.
Matt Yglesias flagged this story from July about Brian Driscoll, the Hostess CEO who led the company into bankruptcy in the first place.
Even as it played the numbers game, Hostess had to face chaos in the corner office at the worst possible time. Driscoll, the CEO, departed suddenly and without explanation in March. It may have been that the Teamsters no longer felt it could trust him. In early February, Hostess had asked the bankruptcy judge to approve a sweet new employment deal for Driscoll. Its terms guaranteed him a base annual salary of $1.5 million, plus cash incentives and "long-term incentive" compensation of up to $2 million. If Hostess liquidated or Driscoll were fired without cause, he'd still get severance pay of $1.95 million as long as he honored a noncompete agreement.
To blame the union, which had already accepted compensation concessions, is to overlook what actually happened.
Update: James Suroweicki has more on this, including noting the steps that led to the strike: Hostess planned to use the bankruptcy process to undercut workers' compensation even more. The piece added, "[W]hile the strike may well have sent Hostess over the edge, the hard truth is that it probably should have gone out of business a long time ago. The company has been steadily losing money, and market share, for years. And its core problem has not been excessively high compensation costs or pension contributions. Its core problem has been that the market for its products changed, but it did not."
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Unions are why we had a middle class.
Not really. They are a tribal structure that emerged from the guild system and led to the growth of the middle class because it concerned itself with the goal of enhancing the purchasing power of the common people. Unions are one way of achieving that important goal, but they need not be the only way. Besides supporting Unions we must support a system wide protection of consumer purchasing power as the key to insuring long term economic health and stability.
Market fundamentalists will claim that the way we got out of the stagflation of the 1970s required an assault on unions. They were demanding higher wages, therefore prices had to go up. Reaganomics was bought into by blue collar workers, and Reagan won the support of Union leadership, claiming that membership in a Union was a solemn right.
Sure, but he equally believed it was the prerogative of employers to smash the unions, which he proceeded to demonstrate in his negotiation with the Air Traffic Controllers.
And we go along with it. We don't want high taxes, so we don't want the local politician to cave into labor union demands- the same labor unions who mobilize votes for sympathetic politicians.
Isn't it time for us to establish that it was not the Union busting, but the increase of capital in the hands of US consumers that led to dramatic growth of the consumer economy? After recognizing this historical fact, isn't it time we recognize that protecting the Purchasing power of the US consumer is central to our economic challenge? During the Bush years, purchasing power was artificially magnified by a credit market speculation that temporarily pumped up values of real estate. We cannot resort to such three-card-monte financial games.
We need to re- envision what keeps the economy safe. When the Henry Fords of America no longer pay workers enough to buy their products, the economy collectively spirals down. When companies have no constraint that keeps them from minimizing their payroll in order to gain a competitive advantage, they will. It is an accepted rule of the game.
The interesting thing that Henry Ford pointed out was that increased payroll does not mean a less efficient economy. It means a more robust consumer economy. Purchasing Power is increased rather than drained away by accountants looking to squeeze workers for the last drop possible in wage concessions.
Some call for an increase in minumum wage. What we need is an increase in the concept of the minimum wage. We need to understand that each company must devote to payroll a minimum amount of the wealth it extracts from the consumer economy. This does not tell companies where or how to allocate that payroll. So long as they are devoting this payroll to middle class salaries, the US Consumer Purchasing power is protected.
Does this proposal deny market principles? No. What this expansion of the notion of the minimum wage does is establish a common constraint that all businesses must compete within. They may not cannibalize US Purchasing power because that process will lead to the collapse of the middle class, a slow process we have witnessed in declining middle class wealth for the past 40 years. Since this is a cost of business that all competitors equally must bear, it is a level playing field and those who innovate and allocate their work forces best will be rewarded, and those who don't will die.
This is not a simplistic proposal, because the payroll content of products must be measured along a global standard for it to be compatible with free trade principles. But it is compatible and delivers on the unfilled promise that Nafta was greeted with. The idea was that global free trade would elevate third world economies leading to a rise in their middle class. This rise of a global middle class is desirable and this proposal would not be protectionist of US consumer purchasing power, but protective of global consumer purchasing power. By insuring that third world workers get a fair percentage of the profits of their company's profits, their purchasing power is increased more rapidly, and with it, their ability to buy US products, or allocate their new wealth to political donations within their countries.
This uses market dynamics to power a global liberalization. But would require radical changes to make global purchasing power the central concern of economic and trade policy.
My intro statement was a bit too jarring. Unions did lead to our middle class. My meaning was that it is important to focus on the essential activity of the revolution- what the increase of wages did to the economy. Unions perhaps were the only practical means given our historical context for that goal to be achieved. Must every company of even modest size be unionized in order to get company owners to recognize the Henry Ford principle? The union solution is not universally applicable- either globally or in the case of small businesses.
What I am pointing out is that there are additional ways to incent companies to pay fair wages, and that workers need additional mechanisms beyond collective bargaining rights.
The concept of the "minimum wage" as the "minimum living wage" needs to be brought back. 45 years ago, when I first came to California, I got a job at the minimum wage, $1.25 hour. On that wage, I could live in my own small 1-bedroom apartment (in West Hollywood!), have a car, eat nicely, go out socially a few times a month, and generally live a nice if not great life. On the minimum wage in California today (which is higher than the federal minimum wage), I could not even pay rent for the same apartment, let alone anything else listed above. If the minimum wage today had the buying power of the minimum wage of 45 years ago, it would be about $15/hour. Consider how many "normal" jobs now are really "sub minimum wage" if one considers "minimum wage" to be a "minimum living wage."
A great statement on the economic context within which labor policy should be formulated. Unfortunately, bringing this approach to fruition will require a much higher political awareness from the electorate that sharply defines their economic position and attendant goals to adequately protect consumer/worker purchasing power.
In the absence of unions, which delegate authority to pursue labor goals on behalf of its constituency, workers would need to directly voice their desires to government organically in order to counter the efficient, organized efforts of industry, who systematically manage government as part of acquiring "market share" and associated profits. Too many people have bought into the conservative meme that workers should STFU and just be glad they have a job at all, which has at its root the emasculation of worker value BY THE WORKER. Hence, the failure of workers to rebel against declining working conditions and to actually attack unions as having a negative impact on the economy.
Similarly, the attack on global trade policies results from the fact that they address only the access to cheap labor and do not require higher working wages/standards and environmental protections. Those omissions were done at the behest of global industry and were not effectively countered by labor organizations, due in large part to voter apathy.
I'm not saying this argument shouldn't be put forward for debate. Voters need to see themselves as active participants with "skin in the game." I just think we have a long row to hoe to get to that point.
TCinLA,
As a fellow Angeleno, I can attest to what you're saying. The fastest path towards economic recovery would be to set a minimum wage floor of $10/hour. Given the cost of living in LA, that would roughly translate to $15/hour in order for a single person to live in relative comfort.
I've wanted Congress to pass a law that raised the minimum wage enough to make a full-time employee ineligible for any government subsidy, then $0.25 on top of THAT which would pay a minimum federal income tax.
If conservatives are serious about everyone paying taxes, they should agree to this. It also gets rid of the freeloaders problem for them.
But then, they aren't really serious about having poor people made enough money to be independent, are they. That would mean their health and food and shelter would be paid for with private wages which their campaign donors provide.
JohnMesserly - well said. Although truly conflicting with those values I hold dear, everyone of us that wants our 401s to grow are part of the "problem" in this equation because we expect astronomical profits from those entities in which we invest.
TCinLA , when I got my 1st job in 1978 in iowa , it was minimum wage $3.25 an hour , working 40 hours a week , for 4 weeks , you would come up with enough to pay rent for the month, and have nothing left over , that is how fast america changed , of course costs differ across the nation
Barney Frank expressed his disappointment at not tackling a real housing program for american workers , instead he had to take the lead in fixing what wall st Hostess ruined once again , and again ....The working class always get the short stick , while the romney class do nothing but complain all day from ivory tower central
America has to be done with looking to wall st for our economy , period
Why does the right find such an easy target in our unions? Aren't they made up of the workers they protect? Is there anything more democratic than a union?
The ethical and moral standards of our CEO class tend to blow strongest into the sails of profits, and they tend to be stuck in the Sargasso Sea when the strain of our real life struggle comes before them!
It has been the CEO corporate class here in America that has shown itself to be wreckless, self-indulgent, and narcissistic!
The CEO Twinkie Defense:
I make unhealthy food stuffs, I run a company not healthy for its consumers and its workers. I am a CEO, and all those people owe me! I will cash out and leave the livelihoods of all others to be damaged, and not look back save to blame those I have nothing but disdain for!
Anyone pushing an alternative narrative is not fit to be called an American! -Kevo
But to hold the union responsible for this series of events is absurd.
Steve, you say that as if absurdity and the GOP are only mere acquaintances instead of obsessive lovers.
80sGirl- sure sums up many things! Hope you don't mind but I'm gonna use that line in the future!
Quote away! :-)
There are two lessons to this story. One is that the private equity model, like that which made Mitt Romney wealthy, is a bad model for business. Hostess has been loaded with debt primarily through private equity deals that did nothing to improve the company.
The second issue is related to the first, which is that there are companies, especially those that are part of private equity deals, that will do anything to kill unions. I suspect that a large part of the announcement that Hostess will shut down is just a way for them to reorganize by selling their assets not as a going enterprise as a way to kill the unions.
"loaded with debt primarily through private equity deals"
The real puzzler is who lends money to the people?
(A 'conspiracy theorist' might say there is a quid pro quo for the lender- perhaps a pension fund, managed by a less than honest individual.)
There is a third lesson to be learned here also. Our MSM has become Pravda - more willing to represent the "corporate" side of the story than to investigate and find the truth.
When this story first broke, EVERY SINGLE major "news" source was reporting how the "Unions broke Hostess". Now a few are coming out with the truth WAY AFTER the fact and NOT as their top story - so what do most people believe out there? That Unions destroyed WonderBread!!
One of the things that MUST be done is to break the MSM's hold on what the American people hear and get a free press back!!
We the PEOPLE must take back THE FREE PRESS from the corporations , thank god for msnbc and the few others for now
kinda reminds you of another story the media decided to "run-with" until the facts started to come forth???
What happened to Hostess is ultimately what the upper management at Hostess planned to have happened - another bankruptcy and a financial collapse that they in upper management would never feel. What the unions did by refusing to negotiate is make it happen sooner, so upper management would have to pillage less from the company and be exposed for what they're doing at the exact time contempt for 1% venture capitalists is palpable.
Ultimately it won't matter, as certain elements of the media are only too happy to paint it as a management-said-unions-said argument and either claim "who knows what could've happened if both sides agreed to negotiate?" or "this happened BECAUSE the unions failed to negotiate."
While it is a fact that the union "holdout" was the excuse the company gave for closing/liquidating, it can be found with very very little research that
a) the company was already in bankruptcy prior to this "event"
b) the company had been mismanaged for more than a decade
At best you might conjecture than the union negotiations were the proverbial straw.
Neither a or b are part of the discussion in the pro-business, neo-con, libertarian circles...because it doesn't fit their worldview. But these are the same people that don't even view labor as human beings, they are a liability that goes in the "cost" column of a ledger sheet. So it's not surprising that they want to "blame" labor.
This is the correct real story. Most importantly, a lot of people lost a lot of money, keeping the company afloat all these years along with the jobs bakers just tossed away. http://www.zerohedge.com/news/2012-11-16/hostess-liquidation-curious-cast-characters-twinkie-tumbles
Blankman, why am I not surprised by you popping up from under the bridge. As for your "link" the story is dubious at best....
That story got at least one thing right, everyone loses except the secured investors. What the story doesn't say is that those investors don't care if the company goes under, and probably invested knowing it would back in 09, after the last bankruptcy.
Secured investors can still lose money. Depending on the bond indenture, their claims just take priorty. Stock holders lose all. And, unions lose all except what the govt will pick up. Putting aside the tawry details, copanies need to adapt to changing consumer tastes and workers need to adapt to changing global economics.
I work in food ingredient sales. I've found this "discussion" interesting.
If you check your local coverage of the issue, and if it representative of mine, you'll see the vast majority of the comments blaming the unions. The right has done a spectacular job at demonizing the unions. The unions better start combating this, or they are going to find themselves out of existence. They particularly need to start doing a public relations job.
Anyone who has ever run a business and worked with the costs associated with selling a product, understands the difference between any product that is driven by material costs versus labor costs. ie. Twinkies versus hand dipped chocolates. I've been through the Twinkie factory in St. Louis. You are impressed by the LACK of workers. I don't know the exact cost, but I'd find it hard to believe that the labor cost for Twinkies is more than $0.01/Twinkie.
Finally. How would you feel if you were a flour supplier to Hostess? Let's say you've got a million dollars outstanding. With the bankruptcy, you know that you're going to get cents on the dollar. NOW you look at the fact that the executives have been taking HUGE salaries out of this company. This is legalized theft! The bankruptcy laws need to be changed to make this illegal. A company goes bankrupt, the executives of the company have to give back ALL pay and benefits for the preceding year. Then watch how easily these folks do this.
Unions have known they have dealing with the Devil now for too long. But people need to wake up to the fact that they have been listening to the Devil's lies.
Three times Hostess was bought and sold by corporate rapists to the likes of Romney and than you have the typical idiot upper management where these people who absolutely know nothing and are con people that get promoted. Yea sure it was the workers fault all right who were really the ones who kept the company going my arse. This is the typical load of crap these corrupt bums always use as an excuse to keep screwing workers and customers. These bums will manipulate and deceive people constantly just to keep stealing companies, workers, and customer’s blind, when in fact with these bums heads up their butts are even lucky if they can pull their heads out. These people only like a few things crave power, corruption, being hypocrites, greed, arrogance, and deceiving as they care about nothing else.
So how are we going to get people to stop buying this nonsensical argument that unions are solely to blame for business failures? I post articles like this, yet people completely ignore the facts and believe the confection that's being fed to them in the media. It's very frustrating.
Also, I do not understand the love for Twinkies. But I supposed that is another matter.
The bankruptcy court had found that while employees were being told that they had to accept cuts in wages and benefits, Hostess executives were receiving raises of up to 80%.
And who owns Hostess? Ripplewood Holdings has a 50 percent equity stake with loans by GE Capital, Silver Point Finance and Monarch Master Funding. Ripplewood Holdings is an American private equity firm based in New York that focuses on leveraged buyouts, late stage venture, growth capital, management buyouts, leveraged recapitalizations and other illiquid investments.
Hostess got Bained, plain and simple.
I think its important to note that most likely the company will be sold to another business overseas or in mexico and twinkies will still be made, just not in the US. Its also important to note the this was the worst time for them to go out of business because two states have decriminalized pot and I think their stock was just about to hit record highs!
The product sucked, it was out of step with health-aware public, management sucked even more, and bankruptcy laws allowed them to plunder the company. I'm just suprised this didn't happen ten years ago. The equipment can be repurposed, but the workers will suffer the most. It is an All American story, let's make the cheapest crap possible, the cheapest way possible, and then act shocked that the companie fails. It's the ultimate play-out of the "Wal-Mart" mentality in American business models. I'm not a huge fan of unions, but they are not to blame on this one.
You can't build a house on greed.. I really couldn't give two squirts about non-nutritive "food" from a company that profited from and promoted gluttony and sloth however, the top down idea has shown it's true colors again! How many times do we have to learn this lesson?
Speaking of Twinkies. You know there is just something that just keeps going through my mind that I do want to know about. First NBC and MSNBC have increased in their ratings, but it was attributable to the very fact that they needed the way to do it. As I see it, many of us bloggers have definitely majorly contributed to changing NBC and MSNBC for the better. And I want to know what is in it for us bloggers who have really contributed majorly to the improvement of NBC and MSNBC, especially financially. Your terms and conditions in my frame of mind suck so if you could explain how it can really benefit us contributing bloggers who have stimulated NBC and MSNBC to change in the right direction? It would be appreciated if you didn’t use the typical business bull crap and pony out something substantial. How much do you really value your bloggers?
It's a shame that high school and college history teachers don't have a better understanding of--and therefore don't emphasize--labor history in this country.
Average citizens are ignorant about the actual war laborers and their organizations had to fight in order for us to have decent wages, benefits, and working conditions. If they understood the continuing contributions of the labor movement, they would make better decisions as voters.
Your state must have actual teachers. My state has run-down, exhausted, underpaid, handcuffed, overworked babysitters.
Their white-wheat bread was the only way I could trick my kids into eating wheat bread; it was that good. But really glad it wasn't TastyKake who shut down. Needs my peanutbutter kakes, every now and then. Tons of them. Then I'm off the stuff for at least three months because that's how long it takes me to lose the 10 pounds it puts on my butt alone. I've no doubt Tastykake is happy about the problems whatstheirface is having.
I've heard reports that Hostess machinery was also antiquated and unsafe. This nostalgia for the twinkie and the old ways of doing things is overrated and entirely unsafe for our economy and our people. Hostess must give their workers the pensions and benefits they earned and let everyone move on.
More than likely, the Vulture Capitalists that have been running Hostess for the last couple of years have raided the employees' retirement funds and there won't be enough there to meet the pension obligations, meaning they raiders will dump THAT on the Pension Benefit Guarantee Corporation, a government agency set up solely because of unfunded and underfunded corporate pension plans.
This link is to a post from someone that is in the Bakers union.
I've read the Forbes article - which is pretty good. But this post really makes it clear why the union did what it did. What it boils down to is that the company was offering them jobs that would have turned the bakers into the working poor. He goes through the numbers.
Why did the Teamsters ratify their contract? It was a different contract than the Bakers were offered.
Anyway here is the link:
http://www.dailykos.com/story/2012/11/18/1162786/-Inside-the-Hostess-Bankery
The judge should take a very close look at the execs and capital company and force the payment of the back debts to the employees...Then maybe these employees could buy their own company back from these maggot....This is exactly the same tactics that Bain used on Delco-Remy when the auto industry went down.....Judge wake up to the fact that you are being bamboozled by a bunch of cut throats....who will and already have cheated the employees of an American Icon...But you have the chance to rectify this situation and a really good chance to use your gavel on some real crooks !!!!!!!!!!!!!!!!!!
While I believe unions are necessary when an employer is mistreating employees... I have indeed seen real cases where wounded companies (due to economy, etc.) have had unions demands and a strike against a company that TRULY could not afford what the union was demanding sink a company, costing all the union members their jobs.
SO, there are times when union members are marched off a cliff by union leaders in an attempt to grab raises and benefits from a company that really can't do it.
This story, however, changed my perception of the Hostess situation. I really thought the union killed the company from other media coverage. Well done.
Richard, I appreciate your post, I have been a Union worker for 20 yr's (const.) and 99% of the Time WE get the Blame for everything, As you see the way this was reported, It Made the Union out to be bad guy's. And that is not the case. If there is one point I would like to pass on is WE Union guy's and gal's are not the Baseball bat wielding thug's as they make us out to be!! Thank's
The private equity firm that acquired Hostess out of bankruptcy in 2004 and their "management team" left too much debt on the Company after the acquisition and took too much for themselves with each division sale as they downsized the Company from $3,5bil. in revenues and $100MM in profit to $2.5bil in revenues and a $350MM annual loss. They needed to transition away from unhealthy convenience store and gas station crap, but had no flexibility ti do so because of their debt load. They went all in on crap and got craps. The union just didn't want its workers to keep getting shafted as management and owners took their "management" fees and huge end of times salary increases (vulture payments as the beast lay dying) and I don't blame them. They said no to massive cuts, they weren't trying to get more, just trying not to lose what they had.
Hostess Brands' market share shrunk, their capacity utilization took a dive down and margins were reduced drastically as a result. Instead of reacting to the market's direction for healthier foods, they stuck it to their workforce in order to improve their bottom line. What they should've done is to offer healthier alternatives and gourmet-type products, along side the oldies but not-so-goodies. Therefore, complete incompetence of the Hostess management team - that's what being conservative does - and that's why there's a real need to be progressive and forward-thinking - even in the junkfood industry. And now the incompetent management team wants bonuses....for what may I ask? They ran the company into the ground, because they failed to see where the majority of the market has and is going....away from unhealthy foods.
Gotta wonder how you can fail to profit from selling corn sugar and flour, two of the cheapest resources you can find. Someone really didn't know what the hell they were doing here...
There needs to be legislation -- a Jobs/Recovery Act -- that prevents management from increasing executive compensation while cutting workers' wages. It's simple homeostasis -- ensuring that these great American companies stay afloat and are not sabotaged by top-heavy profiteering.