Monday, November 19, 2012

Hoisted from the comments

A rather nice point from commenter Bill Trudo that I thought was worth emphasizing:
The problems at Hostess have been decades in the making. The company went into bankruptcy in 2004 and left in 2009 with numerous labor concessions, but without major reform to the pension system. Some people liked to blame that on the unions, but it is up to management to decide what is profitable or unprofitable. Now three years later, management has deemed their old agreements aren't profitable and that would be correct given how much money Hostess has been bleeding. And people still wonder why some union leaders were skeptical of management.
Skepticism is warranted, especially in light of Hostess having left bankruptcy in 2009 with more debt than it had in 2004 with falling sales. 2011 sales were down 28% from 2004. Of course, this is the union's fault that sales have dropped and not a failure of the company's leadership.
On top of that, management comes to the labor unions demanding 8% pay cuts and slashes to the pension, while the top executives increase their own pay--what a nice goodwill gesture. Some unsecured creditors actually filed suit over the pay raises.
Yes, pensions and work issues needed to be addressed. The unions had to make concessions, but it's difficult in light of what has happened for anyone to have any faith in what management has been doing at Hostess.
Now, enter two hedge funds, who hold the majority of secured debt, and they're likely looking to get out. After all, the business model isn't working; it's time for a showdown.
The Teamsters actually finally agreed to the wage and benefit concessions. Some of the other unions, including the Bakers' Union, didn't. Of course, I have a suspicion that some of the unions were acting in the best interest of all their union workers and not the union workers who were working at Hostess. Though, I also have suspicions that even if the unions capitulated to the hedge fund demands (they're the ones driving the show), Hostess would have likely been sold or have been back in bankruptcy in a few years.

This really gets to the core of the union/management dilemma -- it is hard to take things on faith.  I remember many of my co-workers (including myself) putting in huge amounts of work for promises that never materialized.  The classic "if you take a hit now we will remember you once this bad period is over".  Curiously, it almost never works that way.

I also note that the narrative is "bad union wouldn't accept huge cuts" and not incompetent management was unable to make a top brand into a successful business.  This is especially true of pension cuts.  Underfunded pensions happen for a lot of reasons but they are usually much more of a management decision than a union decision.  Maybe it was a bad decision for management to agree to the pension plan in the first place -- that is certainly possible.  But it is always concerning to see no ethical qualms about removing obligations to workers (breaking agreements for work already done) while increasing your own wages.  


  1. To add more to the narrative (this is from Craig Jung, the head of Ripplewood, the firm that bought and brought Hostess, formerly IBC, out of bankruptcy in 2009):

    “I want to thank IBC’s employees for the sacrifices they have made and our union leaders for their commitment to our company and saving jobs,” Jung said in the release. “Their actions made possible the financing required to execute a business plan that will build competitive advantage and secure our company’s future.”

  2. One of the things which bugs me about the right wing now is how it preaches personal responsibility, but then it doesn't apply that standard of accountability to business leaders, owners, and corporations.