General Question

Yetanotheruser's avatar

Is the Hostess bankruptcy the fault of labor or management?

Asked by Yetanotheruser (14826 points ) November 19th, 2012

According to an article on the Businessweek website, Hostess is asking the bankruptcy court for $17.5 million for bonuses for senior management. According to the article:
…The baker estimated that shutting the plants will cost $17.6 million in the next three months. The plants have about $29 million worth of excess product ingredients, Hostess said. About $6.9 million will be spent to close depots, while $8.8 million will be used to idle retail stores and $8.1 million will go to shutting corporate offices…

By my calculation, that adds up to a cost of $58.9 million over the next three months to close the company, plus the costs of rewarding the senior management for incompetence.

The company management claims that rising labor costs, as well as the latest strikes, are to blame for the company’s demise. However, in an article on Forbes website, the possibility is raised that the financial problems are due to a lack of foresight over the past 10 years, involving marketing and financial management.

Is labor being scapegoated here, or is it acceptable to reward executives for killing a company?

—As an aside, I don’t think Twinkies will disappear. I think the brands will be sold to a major buyer, like Grupo Bimbo.

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37 Answers

dabbler's avatar

Typical corporate malfeasance.
The top brass have been focused on quarterly reports and their own perks and compensation.
Any company with brands that famous and sales that big should be able to compensate labor just fine.

Judi's avatar

It’s the business climate we’re in. It’s how Romney got rich. Raid a company for all it’s worth and leave the employees high and dry while blaming them for wanting a living wage.

JLeslie's avatar

I would need more information to gjve a full opinion. Like I want to know how much the workers actually made. Were they making $40 an hour? Free health care coverage? Sometimes the union is unreasonable. For sure I assume management was being paid too much, and the senior bonuses are ridiculous. But, the bonuses were to be retention bonuses which are not uncommon so good executives don’t bail ship during a difficult time, assuming they were also letting go of unnecessary executives and management.

I think most likely both are to blame, greed is to blame.

Interesting that one of the articles blames a strike and factory shut down as a problem when it seems like Hostess needs some shut down because they had too much inventory. That didn’t make sense to me.

blueiiznh's avatar

There is no fault to blame here.
Each side is responsible for doing what they feel is best for their side of the relation.
The millions of dollars that is quoted above is nothing compaired to the billions that an old or poorly managed Labor contract create.
In either case, Management has a responsibility of watching the bottom line while labor has a responsibility to do things to the letter of the contract.
Think of it as a box theyeach live in and each party has a certain space. Each party trys to push the line to get more.
If it is not being acted on with the bigger picture of the good of the company, then the company can fail. If it is a large Union that is bigger than just this one company then the Union typically does not care about the company, but the principle and legal of the contract.

Without being on the inside, do we know the reality of the differences and struggles of the business.

majorrich's avatar

It was the bakers union that was the tipping point. Hostess was apparently already in chapter 11 and was working with all the unions to get back to a neutral operating position. The Bakers union (3000 workers). Held out and went on strike. The other unions would not cross the picket lines so Hostess closed their doors. That was the story that was on the news last night. Of course there are probably some smaller details that flesh out the story, but those are the main points as they reported. In my mind for the sake of the 3000, many thousands of jobs were lost. No problemo, Obama Magics will come up with some bucket and shovel jobs for all those workers.

wundayatta's avatar

It’s always management’s fault. They are the leaders. They are responsible for leading the company. Part of leadership is negotiating with labor. If they can’t do that successfully, then they don’t belong in business. And as we see, they are going out of business.

Now they want to collect as much money as possible on the way out the door because that’s what motivates them. They don’t care about other people, just their own pocketbooks. That is a generalization, and not all management is like that, but the majority are, and Hostess, in particular, seems to be an egregious example of that.

Companies have trouble with labor because management has created a climate of mistrust. And yes, it is always management. Unless the union is corrupt. But we usually get corrupt unions where management is pretty sleazy in the first place. These things come from a long history. There are many companies with really bad labor relations. Plenty have good relations. It’s not the industry; it’s the company and in particular. the management.

jca's avatar

It would be helpful to read the contract and what the union was asking for.

In the meantime, management never suffers – they get huge bonuses, get perks like company vehicles, drivers, planes, etc. All the union wants is for the contract to be followed (after all, it is a contract) and for their members to get a living wage.

This Hostess thing will be a case of finger pointing and two sides of the story as these things often are. I googled it yesterday and read that the management agreed to take $1 salaries until the end of the year, but I can bet you that they are still getting huge bonuses to compensate. They make it look like they’re very sacrificial, meantime they’re not suffering.

Adirondackwannabe's avatar

This company was a corpse waiting for something to push it into it’s grave. Look at it’s product mix. When was the last time you bought anything they make. That’s all on management. Labor is just a tool.

jonsblond's avatar

You can blame yogurt.

zenvelo's avatar

This is not something new- before Hostess emerged from bankruptcy in 2009, it was in receivership for 5 years as Interstate Bakeries. But they has failed to adapt for many years, as people realized the crap they sold was unhealthy. Who eats Wonder Bread or Butternut, or even Twinkies these days?

In essence, it has been poorly managed for years, no innovation, no adaptation to the market place, management trying to fleece the company.

jca's avatar

I like @jonsblond‘s link’s comments where one blamed Obama Care and one blamed the management. Finger-pointing at it’s best.

Linda_Owl's avatar

Well, the union employees had already made concessions to the Hostess Company in the form of agreeing to work for less money several years ago. But the Hostess Company hired 6 CEOs over several years & spent the money that the employees had given up in their concessions, on the salaries & bonuses for these CEOs. So, to me it appears that Management is to blame for the circumstance of the Hostess company in finding itself in receivership.

jerv's avatar

Everything I’ve seen so far points to management. Cutting workers wages while tripling CEO salaries in the middle of bankruptcy isn’t something any union would do. And the fact that they even still had workers says that the union was flexible and open to negotiations. Plus, I’m pretty sure that increasing CEO pay cost them more than Obamacare. Lastly, it’s management’s job to prevent this sort of thing, so they failed in their responsibilities.

Jaxk's avatar

A monumental game of Chicken. the business of Hostess was a commodity business. Low margins and frankly a dwindling business based on sugary sweets. The country has been turning away from these and Hostess was a victim in this change.

The teamsters were faced with same decision but choose to accept it to save the jobs. The Baker’s Union choose not to. Once the strike started, there was little that could be done. The union had effectively shut down the business. Each side used the shut down to force the otherside to give in. Basically give in or shut down. Both sides lost.

Now having lost the blame game escalates in force. Unfortunately it doesn’t matter, the game is over and it unlikely that any of these jobs will survive regardless of the bankruptcy proceedings. Not the management jobs nor the workers jobs. Both sides refused to swerve and they both went off the cliff. All I know for sure is, it wasn’t MY fault.

jerv's avatar

@Jaxk A rare moment of agreement between us, and lesson in what failure to compromise can do. The only point I think we may not agree on is that some people got a Golden Parachute despite failure to perform. I don’t care how high you are on the ladder, your personal fortune should follow that of your company, just like it does for regular workers, and investors.

ETpro's avatar

I find myself in rare agreement with @Jaxk. Management tried to keep milking a cash cow that ran dry years ago. Labor unions acted like management should be able to perform that miracle and more. The whole bunch acted like Ding-Dongs and Ho Hos. And it wasn’t my fault either.

SpatzieLover's avatar

Personally, I think it has more to do with chemicals posing as food.
This isn’t the 1950’s any longer.
People read food labels.

YARNLADY's avatar

MIS-management

phaedryx's avatar

Management steered them toward the cliff, labor helped press on the gas.

Tropical_Willie's avatar

The management team did little to change the way they managed the company from ten years ago when they declared bankruptcy. Same badly run company, just hiding behind bankruptcy, until it had nothing left.

zenvelo's avatar

As of 3:30 ET it will be the mediator’s fault.

filmfann's avatar

How can a snack food company go out of business in the fattest country in the world, ever?
It is managements fault. They should be the last to receive cash coming from the closure.

ETpro's avatar

Even after asking for and receiving a major round of concessions from their union, they wanted even moe major concessions, Meanwhile their unions the CEO was drawing a $2.75 million salary. They wanted even to essentially kill their union and push through a second round of widespread layoffs, but planned to give 19 top managers $1.75 million in bonuses for bankrupting the company. For dozens of years they have innovated NOTHING. Management has the lion’s share of the blame. Vulture capitalism. Kill R&D. Slash wages and workforce. Raid the pension fund. Put all that cash in the pockets of a tiny handful of clearly incompetent managers, then declare bankruptcy—twice!

Brian1946's avatar

@ETpro

Meanwhile their unions the CEO was drawing a $2.75 million salary.

The CEO of Hostess was drawing a $2.75 million salary?

jca's avatar

@Brian1946: Not an unheard of number for a CEO, actually it’s low. Don’t forget that would be before bonuses and other perks (like car and driver, plane, meals paid for, travel expenses, etc.)

Response moderated (Spam)
Brian1946's avatar

@jca

I realize that and I thought @ETpro was referring to the Hostess CEO. I was implicitly asking him to verify that because the statement I quoted said, “Meanwhile their unions the CEO….” instead of what I think he meant: “Meanwhile the CEO…”.

ETpro's avatar

The CEO of Hostess. Darn laptop. My hand keeps hitting the built-in mousepad while I type and munging pre-typed text all around. Sorry for the confusion.

jerv's avatar

@jca That number may be well and good for the CEO of a non-struggling company, but for one in bankruptcy that is trying to cut costs to get back on their feet, it’s a bit much.

jca's avatar

@jerv: You’re preaching to the choir! I agree with you!

WillWorkForChocolate's avatar

It appears to be mainly the fault of the management.

Linda_Owl's avatar

You might find this Link to be very interesting !

http://front.moveon.org/four-short-sentences-explain-who-killed-the-twinkie/?rc=daily.share

This link seems to support that it was the Management that was responsible for the Hostess Company going out of business!

Brian1946's avatar

@jca @jerv I’m part of that choir too.

IIRC: Michael Ovitz got a $90 million golden parachute from Disney over a decade ago, and that was after the BoD decided the work that he’d done for them during his year of employment was less than satisfactory.

The CFO (Chief Failure Officer) that helped crash Shearson-Lehman Bros. was given a $480 million GP in 2009.

Jaxk's avatar

Just a final comment on Hostess. Anytime a large corporation goes bankrupt, the first place you look is management. And you’ll usually be right. Hostess revenues have been declining for 9 years now. They had two routes to take, either reinvent themselves with new products or treat it as a ‘cash cow’ and mange the decline. Treating it as a ‘cash cow’ is not a bad strategy but very difficult with a unionized labor force. They apparently took the middle road and drove the company out of business.

Executive salaries didn’t kill the business but they certainly made them selves look bad. It also likely spurred the union to reject the deal. Truth is Hostess was on it’s way out regardless, it was only a matter of time. Many of us will mourn the loss of Twinkies even though we don’t really buy them much anymore. And many will mourn the loss of thier jobs. Blaming management for this only highlights the need for good management and what it is worth. Not many have the ability to manage a company with revenues in the billions and even fewer have the ability to grow that business. As we’ve seen this is an example of management without that ability but think they should be paid as if they do. Unfortunate.

jerv's avatar

@Jaxk Just a side note; not many people complain about the CEOs of wildly successful companies pulling in big salaries. Jobs and Gates grew their companies from garage operations into companies whose budgets rival those of sovereign nations, a talent which justifies vast rewards. It doesn’t matter how much you make, so long as you actually earn it.Hostess management definitely didn’t earn what they got, hence the uproar.

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