Human Events Blog

Last-ditch effort to save the Twinkie fails

A shiver of hope ran through snack-loving Americans on Tuesday, as Hostess Brands made a last-ditch effort to negotiate with its recalcitrant “partners” in the Bakery, Confectionery, Tobacco Workers, and Grain Millers International Union.  The union only represents 30 percent of the Hostess workforce, and other union workers were willing to make a deal to save the company.  The bankruptcy judge “noted that 18,000 jobs were on the line and urged the company and union to try to resolve their differences,” according to the Associated Press.  Hostess executives said the bakers union had “stopped returning its calls about a month ago,” a detail union apologists tend to leave out of their accounts of the Hostess collapse.

But alas, the union decided it preferred zero jobs with great benefits, as the meeting ended in a round of “no comment” statements from all parties.  The union had already mortally wounded Hostess with a strike, and now it delivered the coup de grace.

Naturally, the union and its sympathizers insist none of this is Big Labor’s fault.  It’s all “the result of years of mismanagement,” according to the AP, and the union says its workers “have already given steep concessions over the years.”  Well, good news, fellas!  No more concessions.  Now you’ll enjoy the uncompromising luxury of Obama-era unemployment benefits.

Plenty of individual workers in the bakers union, plus the workers and management of the much larger Teamsters union, wanted to save Hostess, but the intransigent bakers union management said no dice:

The company reached an agreement with its biggest union, the International Brotherhood of Teamsters, on a contract that dramatically reduced pension contributions, as well as slashing wages and health benefits. But the company said the bakers union stopped returning its calls about a month ago.

The Teamsters urged the smaller union to hold a secret ballot on whether members wanted to continue striking. Many workers in the bakers union decided to cross picket lines last week but Hostess said it wasn’t enough to keep operations at normal levels.

Teamsters General Secretary Ken Hall said the failure of the mediation talks Tuesday and the likely shuttering of the company was a “tragic outcome” for Hostess workers.

[Hostess CEO Gregory] Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The bakers union meanwhile pointed to the steep raises executives were given last year as the company was spiraling down toward bankruptcy.

So we’ll put 18,000 workers on the bread lines because we think the executives got paid too much last year!  That’ll teach ‘em!

This sorry affair illustrates the big problem with the Big Labor model: it takes ownership and management of corporations away from their actual owners and managers.  It is not necessary to give Hostess management a pass from serious criticism of its conduct in order to see the dangers of this line of thinking.  You can see them very clearly from the unemployment line.

Generally speaking, the management of a company serves at the pleasure of its owners and stockholders.  The company then purchases labor from its employees, who are willing participants in the transaction, and are perfectly free to sell their labor elsewhere, if they find a company’s policies unacceptable.

Badly-run companies tend to fail, and critics of Hostess management say that is what we’re seeing right now.  But there is a way to keep the company running, and the bulk of its employees were willing to give it a try – as were the financial backers of Hostess, who would have lost a great deal of their equity under the restructuring.  The management of one union, which represents a small but crucial minority of Hostess employees, said no.  Unions are corporations that sell labor to other corporations.  What you’re seeing here is the management of one company passing a death sentence upon another.  In essence, they are denying the right of Hostess Brands to manage their own affairs.  It will be rough on the workers, but the management of the giant corporation known as the Bakery, Confectionery, Tobacco Workers, and Grain Millers International Union will get along quite nicely, and continue to enjoy their own very comfortable compensation packages.

Clearly, if individual workers were able to reach their own understandings with Hostess management, the company would survive… but labor unions thrive by creating monopoly situations.  The people of the United States and their government generally disapprove of monopolies, except for the ones that make Big Labor rich and powerful.  We understand that monopolies are bad because they allow greedy business interests to manipulate the market to their own benefit and punish recalcitrant customers.  That’s part of what just happened to Hostess Brands.

The other part involves some dubious management decisions, which no one observing the sad demise of the Twinkie should ignore.  These decisions were laid out by the Philadelphia Inquirer on Wednesday, as it watched a factory with 400 employees in northeast Philly slide into liquidation:

Employee unions are not alone in opposing Hostess’ desire to quickly sell pieces of the company, while paying bonuses to top executives.

Creditors and vendors all want to get paid without necessarily preserving the production of tasty morsels or jobs, with legal objections filed by companies ranging from GE Capital to the Blommer Chocolate Co.

Peco and Pennsylvania Electric Co., which together serve much of the state, joined utility companies from a dozen other states in filing a motion that objects to the speed and terms of the “wind-down” of Hostess. The motion noted that Hostess’ “remaining senior management is making sure that they get paid,” as per their preferred terms, without normal assurances for vendors.

[...] In February, a month after Hostess, based in Irving, Texas, filed to reorganize under bankruptcy laws in New York, the company asked the judge to approve a new compensation package for then-chief executive Brian J. Driscoll. That was after the unions had accepted major concessions and were negotiating the next round of concessions.

According to unredacted court filings reviewed by the Wall Street Journal, Driscoll was to receive $1.5 million in salary, up to $2 million more in “long-term compensation,” and $1.95 million if he resigned for any “good reason,” including the liquidation of the company. Driscoll also sought a third-party guarantee that he would be paid regardless of the company’s bankruptcy status.

In March, shortly after the International Brotherhood of Teamsters objected, Driscoll resigned. The company withdrew the motion that would have provided Driscoll with the financial package before it could be ruled on.

Interestingly, a union worker is trying to sue Hostess for sending out too many WARN Act notices of impending layoffs, claiming the company abused them to create panic among the workforce.  The President of the United States just got away with encouraging companies in the defense industry to violate federal law by not sending out WARN Act layoff notices, which would have made him look very bad, right before the election.  The WARN Act is a tricky bit of legislation, isn’t it?

The ultimate irony is that Hostess’ valuable brands, such as the Twinkie, will inevitably return… bought up by other companies who won’t necessarily have to give the bakers union what it wanted, or hire all of its workers.  In fact, they might not hire any of its workers, because at least one major contender for purchasing those valuable Hostess assets is a Mexican company, Grupo Bimbo.  And as international man of mystery Mark Steyn pointed out at National Reviewthe Canadian operation that produces Hostess items, Saputo Inc., is still very much in business.  Maybe they’ll just fill the Twinkie void by expanding distribution into the United States.  Just because Barack Obama’s union-heavy, government-heavy, tax-heavy America has become a lousy place to do business doesn’t mean the rest of the world has to be.  Soon we’ll all be swimming in mandatory benefits, while we live from one unemployment check to the next.

Update: Holman Jenkins at the Wall Street Journal offers a different perspective on the inter-union squabble that contributed to Hostess’ demise, and questions the emerging narrative that the Teamsters have clean hands because they voted to keep the company in business:

As the bakers rightly saw it, they were being asked once more to prop up Teamster jobs that would likely guarantee that any Hostess resurrection would be short-lived.

Start with the fact that Hostess’s bakery operations are relatively efficient, and though the company planned to sell or close some of the plants anyway, the company had the power to do so already under its union contracts.

Under the latest turnaround plan, the sticking point was Hostess’s distribution operations, source of the Hostess horror stories filling the media. Union-imposed work rules stopped drivers from helping to load their trucks. A separate worker, arriving at the store in a separate vehicle, had to be employed to shift goods from a storage area to a retailer’s shelf. Wonder Bread and Twinkies couldn’t ride on the same truck.

As Jenkins tells it, the bakery operations at Hostess were running reasonably well; distribution, where the Teamsters rule, was killing them.  He wonders if the bakers union management “might well prefer to hold back further concessions, let the company liquidate, and try their luck with a new owner or owners who might materialize for its bakery operations.”  Some of the people who lost their jobs due to this inter-corporate warfare were notably less enthusiastic about taking that bet.

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