Poor management, not union intransigence, killed Hostess.

Los Angeles Times ^ | 11/25/2012 | Michael Hiltzik

[SeekAndFind]

Let's get a few things clear. Hostess didn't fail for any of the reasons you've been fed. It didn't fail because Americans demanded more healthful food than its Twinkies and Ho-Hos snack cakes. It didn't fail because its unions wanted it to die.

It failed because the people that ran it had no idea what they were doing. Every other excuse is just an attempt by the guilty to blame someone else.

Take the notion that Hostess was out of step with America's healthful-food craze. You'd almost think that Hostess failed because it didn't convert its product line into one based on green vegetables. Yet you only have to amble down the cookie aisle at your supermarket or stroll past the Cinnabon kiosk at the airport to know that there are still handsome profits to be made from the sale of highly refined sugary garbage.

It's true that the company had done almost nothing in the last 10 years to modernize or expand its offerings. But as any of the millions of Americans who have succumbed to Twinkie cravings can attest, there has always been something about their greasy denseness and peculiar aftertaste that place them high among the ranks of foodstuffs that can be perfectly satisfying without actually being any good.

Hostess management's efforts to blame union intransigence for the company's collapse persisted right through to the Thanksgiving eve press release announcing Hostess' liquidation, when it cited a nationwide strike by bakery workers that "crippled its operations."

That overlooks the years of union givebacks and management bad faith. Example: Just before declaring bankruptcy for the second time in eight years Jan. 11, Hostess trebled the compensation of then-Chief Executive Brian Driscoll and raised other executives' pay up to twofold.

[Erik Latranyi]

Unions, like our brainless President, think automation in a factory hurts our economy.

[pieceofthepuzzle]

“Hmmm, and - of course - those modernization funds would have come from where?”

Precisely. In the end, there are probably a ton of reasons why Hostess is calling it quits, but striking while your company is struggling is not a legitimate approach to saving it.

I believe strongly in incentives, like profit sharing. I think these incentives should also be applied to CEOs. If your company struggles, no matter what your position, you shouldn't do as well. If your company does well, then all should share in the fruits of their efforts.

[jospehm20]

First people have to realize that the purpose of running a business is to turn a profiit for owners/investors. It appears that a lot of people don’t get that.

[Jeff Chandler]

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[CommieCutter]

Notice how in one sentence it tries to say that the desire for healthy alternatives was not to blame. But then turns around and pairs this needed modernization along with expanding their offerings.

I’ve heard this same code lingo from liberal friends who used to criticize McDonald’s. I guess Hostess should have made a Vegetable brick available and McDonald’s should make the McVeggie. With McDonad’s and Hostess you DO have a choice; it’s called the gas pedal.

What expanded offerings did they need? They had everything from Twinkies to Ho-Hos to powdered donuts? Were they supposed to make processors for intel?

[Leaning Right]

I am so sick of the CEO getting a raise argument.

I have no problem with the founder of a company paying himself whatever he wants. After all, the founder took all the risks, and should get all the rewards.

But I do have a problem with the CEO's who stuff the company's board with lackeys. The CEO makes sure the lackeys get paid $100,000 each to meet a couple of times a year, and the lackeys make sure the CEO's get obscene raises.

Union mindless greed can destroy a company. But so can CEO mindless greed. Sure, the union greed costs more. But the CEO greed tends to destroy the morale of the company.

[Chode]

modernization=automation, like the unions would ever stand for that...

[GreenLanternCorps]

It was a joint effort, bad management and bad unions killed Hostess, a company, that with even mediocre management, should have been making money hand over fist.

But it was a union that administered the killing blow.

[YankeeReb]

Same crap we had to listen to about Detroit.... it wasn’t the unions but bad management. That should be the union motto.

True for Detroit and most big cities. How many of these failing governments routinely elect small government conservatives to leadership positions (and I don't mean just Republicans but conservatives)?

[SeekAndFind]

THE FULL STORY HERE :

Hostess, which had been contributing $100 million a year in pension costs for workers, offered workers a new contract that would've slashed that to $25 million a year, in addition to wage cuts and a 17 percent reduction in health benefits. The baker's union rejected the offer and decided to strike.

Rayburn said that Hostess was already operating on razor thin margins and that the strike was the final blow. The baker's union said the company's demise was the result of mismanagement, not the strike. It pointed to the steep raises executives were given last year as the company was spiraling down toward bankruptcy.

One of the pieces of information circulated to support the latter point of view was the claim that several Hostess executives received hefty pay raises even as the company was preparing a Chapter 11 bankruptcy filing, raises which included a tripling of then-Hostess CEO Brian Driscoll's salary. Court filings and company statements indicate that Hostess did approve large salary increases for its top executives, but how much additional pay those executives may actually have received is unclear, as many of them subsequently left the company, renounced some or all of their raises, or agreed to steep pay cuts.

According to an April 2012 report by the Wall Street Journal, Hostess' creditors claimed that in July 2011 the company had manipulated executive pay by approving large salary increases for top executives (in place of performance-based bonuses) in order to skirt bankruptcy rules:

Creditors of Hostess Brands Inc. said in court papers the company may have "manipulated" its executives' salaries higher in the months leading up to its Chapter 11 filing, in what the creditors called a possible effort by Hostess to "sidestep" Bankruptcy Code compensation provisions.

The committee representing Hostess's unsecured creditors alleges that information it has gathered suggests "the possibility" that the company converted a chunk of its top executives' pay from performance-based bonuses to salary, "at least in part to sidestep" rules designed to ensure that companies in bankruptcy aren't enticing their employees to stay on board with the promise of cash, according to documents filed with the U.S. Bankruptcy Court in White Plains, N.Y.

A Hostess spokesman asserted that the raises in question were routine ones based on merit rather than manipulation:

According to the creditors' court papers, lawyers for Hostess maintain that modifications to compensation before a filing aren't subject to the bankruptcy provision regarding incentive compensation.

A spokesman for Hostess said the company doesn't believe the creditors' "theory has any basis in law." He said the executives' salaries were increased at a routine compensation review "to align them with industry standards and because the executives were being asked to take on significant additional responsibilities associated with trying to restructure the company outside of bankruptcy proceedings."

That article also provided a chart of Hostess executive salary raises which had been approved the previous July, while noting that court documents stated CEO Brian Driscoll had "renounced a portion of the increase":

Salary Increases at Hostess

Brian Driscoll, CEO, around $750,000 to $2,550,000
Gary Wandschneider, EVP, $500,000 to $900,000
John Stewart, EVP, $400,000 to $700,000
David Loeser, EVP, $375,000 to $656,256
Kent Magill, EVP, $375,000 to $656,256
Richard Seban, EVP, $375,000 to $656,256
John Akeson, SVP, $300,000 to $480,000
Steven Birgfeld, SVP, $240,000 to $360,000
Martha Ross, SVP, $240,000 to $360,000
Rob Kissick, SVP, $182,000 to $273,008

 

Five days after that article was published, the Wall Street Journal reported that Hostess' new CEO, Gregory F. Rayburn, had announced he was slashing executive compensation, and that the company's top four executives had temporarily agreed to cut their annual salaries to $1 while four other executives had agreed to return to their previous salary levels:

The chief executive of Hostess Brands Inc. said he is slashing executive compensation in the aftermath of creditor allegations that the company may have pushed management's salaries higher in the months leading up to its Chapter 11 bankruptcy filing in an effort to skirt bankruptcy rules.

Gregory F. Rayburn, a restructuring expert who took the helm at Hostess last month, said in an interview that the top four executives working under him had agreed to cut their annual salaries to $1 until the company emerges from bankruptcy or Dec. 31, whichever comes first. The executives — Gary Wandschneider, John Stewart, David Loeser and Richard Seban — had seen their salaries increase by 75% to 80% last July, at a time when the baking company had already hired restructuring lawyers, according to creditors.

Further down the totem pole at the Twinkie maker, four additional executives agreed to return to the salaries they were receiving before the July increase.

CLICK ABOVE LINK FOR THE REST...

[edcoil]

“(No Modernization for Past 10 Years)”

Any modernization was automation removing more workers and the unions fought it. They would be like teachers sitting in rooms all day doing nothing.

[Tallguy]

“It failed because the people that ran it had no idea what they were doing. Every other excuse is just an attempt by the guilty to blame someone else.”

What was it that Hillary said about “I can’t be held responsib for every undercapitalized business...”

Hostess may have been poorly run but corporate taxes and various regulations distort the choices made by company managers. A common theme is the lack of reinvesting in plant & equipment.

[ScottinVA]

Well,then.. a struggling company is dead, 18,500 employees are without jobs and the union made its point... so I guess it`s a win-win for everyone....somehow.

[Tallguy]

It failed because the people that ran it had no idea what they were doing. Every other excuse is just an attempt by the guilty to blame someone else.
So you’re saying that this was a “Goodfellas” style bust out?

[yldstrk]

I believe the headline states the truth but only by accident. The idiot union members need to learn a bird in the hand is better than two in the bush, but the retard “managers” who pulled out 100K a month ought to be banned from corporate leadership for life

[G Larry]

The Bankruptcy court, told the unions to take the deal or leave it.
Company management had no say in that part of the matter.

The number of unions and insurance companies, combined with the wide array of contracts involved, made comprehensive, economical management, impossible.

The unions got what the deserved.

I hope the businesses buying the assets only operate in right to work states.

[SeekAndFind]

RE: a bird in the hand is better than two in the bush

Why not cage the bird in hand first, and at the same time pursue the other two in the bush?

[californian by choice]

This article is complete garbage.

[yldstrk]

exactly, instead, the union killed them all

[trebb]

But management AGREED to every one of those ridiculous conditions. They’ve got to take some responsibility for that.

Yes - like GM which cannot fail but to head back down the path to failure due to it's letting Uncle SugarBama into it's business. Got some new life, but the unions still wield too much power.