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.”