To hell with Hostess and all the people profiting off this upcoming "IPO".
I feel like this is an example of the failure of unions. It also seems selfish that given that if you know bankruptcy is coming, one union would bankrupt the company when all the others were for it. If you hated the job that much, you can leave. In the end, it didn't save jobs, it didn't protect their livelihood, and I think it's quite possible that it delayed what is obvious now: automation was inevitable and layoffs were necessary. Their workforce of 8000+ is now ~1200 and only now are the becoming profitable again.
Some layoffs may have been necessary, but given how much profit they are making now I'm not sure I believe that all 6800 were. Plus, we aren't given details about how were these layoffs distributed? Were they all at the labor level or was anyone from corporate laid off? Did any executives take pay cuts? Are they all getting bonuses now? How much do they stand to profit from the upcoming public offering?
My point being; the media was fed a narrative about the union being unreasonable and the bankruptcy and layoffs being "unavoidable" and they eat it up uncritically, and then the public does too. I don't think it's that simple.
Unions are human institutions and like any human institution they can have issues, but they have served an important purpose in this country in creating the middle class. It is no coincidence that over the last 40 years unions have been systematically undermined, busted and halted everywhere and at the same time middle class wages have stagnated, with benefits that could have been expected at a middle class job in the 60s now being basically unheard of at a middle class job today.
EDIT: And everything I said is taking the argument that Hostess negotiated in bad faith at face value. I'm not even sure of that, and am willing to accept that the current state of affairs arose in an untainted way.
This is going to be my last response on this thread because I'm tired of explaining reality to you.
Obviously my number would be the number that makes the most sense. You obviously take the view they did that already, but my point (which I've made all along) is that companies rarely cut into executive staffing, pay or benefits the way they cut into labor. Labor tends to pay the price of keeping the executive staff, pay and benefits as is even when times get tough.
Ok enough of this tedious discussion. Have a good night folks.
Current business success would suggest that 1200 is the number that makes the most sense, since it's the number that allowed the company to climb out of bankruptcy into profitability. Employing 8000 workers would leave them with poor competitive positioning compared to other firms that were willing to take advantage of technological advances and automate and shrink their workforce in that area.
Sometimes the advance of technology means that you need fewer people for the same job. Logging today for example is done primarily with machines. They have TV shows about it since what those machines do is pretty crazy. These machines now replace what previously teams of people working at sawmills did.
> companies rarely cut into executive staffing, pay or benefits the way they cut into labor.
Is this a bad thing? Why? Or why do you think it should be otherwise?
Executive staffing is always needed, at least to some extent. You need competent executives to oversee and implement whatever automation strategy Hostess subsequently employed. You need people to negotiate effective contracts with vendors who can provide the robotics and automation and whatever else is necessary, at a good price and on good time, and oversee the project to ensure it succeeds. All sorts of obstacles might come up which require high judgment, out-of-the-box thinking, social connections, etc. to solve. Or you might need the expertise to hire people to do this job in-house. You need the ability to source them, hire them, pitch them on joining the company, and to design an organization and support system that allows them to succeed. You might need to hire a ton of people and managers to replace people previously laid off. This is what executives do.
I'm not sure what you think was wrong with this situation. Hostess was held hostage by unions that inefficiently wanted to do with 8000 people what's now being done with 1200 people plus automation. Automation and technology are the way of the future; technology is the primary engine of economic growth. A company that's being held hostage by its unions against the maximally effective employment of technology is an ineffective, poorly performing company. That's what Hostess appears to have been under the unions.
Sometimes new innovation means that fewer jobs in a certain sector are needed than were before. Sometimes layoffs are necessary when that is so. Of course the bakers union is not going to be happy about bakers being replaced with robots. I'm not sure on what basis you're implying that it's ethically wrong, though. It's regrettable that people lost their jobs and livelihood. It's regrettable that those same people held a company hostage and ran it into the ground.
Why do you think executives at the new company should not be compensated? People who talk about executive pay at troubled companies rarely consider the perspective of an effective executive or company owner. If you're a leader with a good resume who has a track record of success, then you have opportunities at many companies in an industry. You don't need to work at a troubled company. The troubled company is likely to fail, and your reputation might be tarnished for being there, whether you had any responsibility for not.
A company just emerging from bankruptcy needs to hire executives to perform the functions I mentioned above. Imagine that you're an executive, and you could either work at name-brand car company which is doing just fine, and growing nicely, or you could accept a job at Hostess and try to turn it around. The job at Hostess is high risk. You're bailing out a sinking ship. Actually, that's a bad analogy - the ship has already sunk and you're dredging it up. If you manage to pull it off, then perhaps you've accomplished something amazing, and perhaps you rightly deserve amazing compensation for turning things around when others could not. Consider Marissa Mayer at Yahoo. Another executive might have decided, "You know what? Yahoo's end has come. I don't think I can turn it around, so I won't try".
Companies that are troubled cannot afford to stop paying executives well, because they are still competing for talent with other companies. Companies that are troubled and are in deep shit may need to pay executives more, to counterbalance the risk that the executives are taking from working there. And a company in these waters might pay its executives well in an attempt to retain them, since a company that's in deep water that also loses key executives is a company that's in danger of collapsing. It must be understood that executives have other job prospects too and will not remain working for a company with a poor ratio of compensation relative to risk.
(I don't really know anything about Hostess specifically. I am writing based on general principles of economics and competition.)
They lost their jobs and the company's assets were sold off in bankruptcy court.
That's a significant pay cut, I'd say.
They were only two years out of their last bankruptcy, and the reorganized Hostess really has very little connection to the old Hostess. The old CEO resigned at the beginning of the bankruptcy, I'm not sure who from the old company benefited from the restructuring? Maybe investors, but why would they invest in 2009 with the goal of negotiating bad faith contracts and breaking up the business?
One of the reasons the new Hostess is more profitable than the old one is that they only purchased the snack lines, which was the most profitable part of old Hostess, and they also simplified distribution by delivering to warehouses instead of stores.
As to a better way to handle the situation; how about negotiate with the union in good faith instead of pulling shenanigans in order to invalidate the contract for starters? It may not have been possible to keep all the workers on staff, but given that the company came back and is making tremendous profits and expecting to be valued at $2 billion and looking towards an "IPO" that seems unlikely to me. It seems more likely they just saw a potential for greater profits and bonuses for themselves and decided to do whatever it takes no matter how reprehensible and how many lives were ruined.
Re your better way to handle the situ: if a business can operate with larger fixed upfront cost but significantly less operational labor cost, why would you not take this route?
Probabilistic thinking would have you believe the union would not negotiate anywhere near the labor cuts Hostess was able to accomplish with the bankruptcies.
I'm not talking bonuses and profits, their decisions look like sound decisions, albeit sterile and perhaps insensitive.
His point is entirely without merit. Far from "executives getting rich", the investors in the old Hostess lost all of their capital.
The Teamster's union (not exactly noted for being pushovers in negotiation) audited the books and agreed that there was no more money to be had.
The baker's union disagreed.
The baker's union is the one that was negotiating in bad faith (or perhaps "stupid faith" would be a better term).
"given that the company came back"
No, the company did not "come back". The brands were sold off and the stockholders of the original company lost their money. This is a new company that purchased the right to use the brands in the bankruptcy sale.
Maybe so, I'm skeptical.
> No, the company did not "come back". The brands were sold off and the stockholders of the original company lost their money. This is a new company that purchased the right to use the brands in the bankruptcy sale.
It has new owners but how much of the executive staff have been replaced beyond the very top level? I couldn't find any details.
1) You'd have to prove such a dramatic claim. I don't see where you've presented a single shred of evidence. Given the size of the claim, to then not back it up with any proof, more than throws the credibility of the claim into question.
2) You're simultaneously claiming the company was fine as it was (and or at worst needed a mild adjustment perhaps), and that it didn't need to so significantly restructure its labor costs. You also didn't provide any proof of that claim either. How do you know the company could continue to operate with seven times as many employees as it has now? What financial statements is that claim based on?
3) If it was run into the ground on purpose, and that somehow violated the agreements they had with the unions, then there would be a very large recourse for the unions. That clearly wasn't the case given the outcome so far. They clearly found no more evidence for that premise that what you have, which is to say: none. How is it you're in a position to know so much more than what the unions have been able to prove?
4) What makes the workers entitled to anything beyond the contracts they signed via the unions? The workers aren't going to keep going in to work if they don't get paid. Why should the owners keep operating a business if it's in an impaired condition and is going bankrupt?
5) Your premise is that the former owners intentionally ran the company into bankruptcy, so they could sell it for $410 million, all so that somebody else could get vastly richer by rebooting it over just a few years to be worth $2.3 billion. That's wildly illogical. It blows a hole in your theory a mile wide.
You may think my question was a straw-man - it was intentionally leading actually, to set-up these following points. You proclaimed a dramatic and empty theory with nothing backing it up.
Bullshit. I could have just as easily responded with "No." Give me a break.
Of course I can't present any evidence I didn't work for Hostess, where am I supposed to get evidence from short of a whistleblower? My point isn't that I'm saying 100% this is what happened, I'm saying I'm skeptical of the story being sold that the union is at fault and the executives did all they could to save the company, etc.
I'm not interested in any more discussion with you, so this will be my last response.
The OP's theory that the old executives got rich is completely without merit.