Sunday, November 18, 2012

Union Not The Bad Guy In Hostess Debacle

By now you've probably heard that Hostess bakeries have asked a bankruptcy judge to let them liquidate their assets and go out of business. The company is trying to frame the argument that the union its workers belong to is the cause of their troubles -- and far too many in the media seem to have accepted that and are spreading it as truth. But it is not true.

This is not the first time that Hostess has been in bankruptcy. They declared it back in 2004. At that time, the union stepped up and accepted huge cuts in pay and benefits -- about $110 million dollars worth of them. If that money had been put back into the business, it might have been saved -- but it wasn't. It went into the pockets of the Wall Street equity and hedge funds that now controlled the company, and those firms continued to make the company borrow money to give themselves even more profits.

By 2011, the company was even worse off (thanks to the Wall Street looting), and they demanded the union give them even more concessions. The union refused, noting that company executives had received huge pay raises at the same time they were demanding more cuts in pay and benefits from union workers (the CEO received a salary increase from $750,000 to $2,550,000 a year, and other executives got equally outrageous raises).

The truth is that the Wall Street equity and hedge funds walk away from this having made millions in profits. Even creditors will probably do OK, because they'll get paid back from proceeds gained by selling the company's secret recipes and physical assets. The real losers in this greed raid from Wall Street are the union workers. They have lost their jobs. All they got was the blame (even though it was not their fault).

1 comment:

  1. In 2004 your piece indicates "money not reinvested in company." At that point company was losing more than $100 million per year and investment was not the issue; offsetting losses was the issue. Cutting costs automatically offsets losses, which is why management reduces wages or makes layoffs. The fact that reductions in wages woer "not reinvested" is a meaningless statement.

    Unions did not kill the company and neither did management. What killed the company was a dramatically declining market for the products it manufactured and sold. The writeups quotes huge numbers of Twinkies and such, but does not put them in context (of course). Sales of their products across the board were plummeting and they were having to cut prices dramatically to keep them from declining even faster.

    Management asked for more wage cuts in order to allow the business to hang on a little longer. Unions said no. Don't blame either side. This was a failed business, with a failure caused by changing times. It had no more chance of continuing than a factory selling steam engines to the railroads.

    Big business is not always the bad guy. Who is going to employ all of those people if the oil companies that you hate so much go out of business? Who is going to pay the health care bills if you do away with insurance companies that you so despise?

    And, once again, I will show you more than a dozen new businesses in San Diego that would never have gotten started, and three new medicines developed by those startups that would never have reached FDA approval, if it were not for those evil and rapacious "vulture capitalists" that you are so quick to blame for every failure.


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