Is Corporation's Demise Due To Its Striking Union... or To Greed?Submitted by Katherine on Sun, 11/18/2012 - 12:10
Hostess's latest woes took hold when thousands of employees in its bakers union went on strike Nov. 9 in protest of a court-imposed labor contract that cut wages, commissions, and health care benefits and changed the structure of pension plans in a way that could reduce payouts to retirees.
The company's burdensome debt traces back to Hostess's first trip through bankruptcy in 2004. Missteps by a private-equity firm, hedge funds and managers since burdened the company, despite its more than $2 billion in annual sales.
As a powerful company, Hostess evidently did not believe that it should voluntarily share some of its profits with its rank-and-file workers or pay them more than it absolutely had to. Hostess felt, as many businesses do these days, that they were entitled to make as much money as they could possibly make and that the financial well-being of their employees was not something that they should be concerned with. In short, while viewing "shareholders" and "customers" as the only two corporate constituencies that matter, Hostess neglected the idea that great companies should also serve a third constituency: their own "employees".
Hostess evidently didn't understand that one company's employees are another company's customers. Instead of spreading the country's wealth to more citizens and expand the purchasing power of the country as a whole, and in so doing, helping the overall economy, Hostess's decision only expands our faltering economy.
Specifically, Hostess's move helps to usher in an age in which the middle class is shrinking while our country's overall poverty expands. This lack of spending power in the middle class crimps overall economic growth, while corporate profits as a percent of the economy are at an all-time high and wages as a percent of the economy are at an all-time low.
In a letter posted on a new site set up to communicate with employees and suppliers through the liquidation process, CEO Gregory F. Rayburn instead pinned the blame on its striking union.
Edit: In a surprise move Monday in Federal Bankruptcy Court, the presiding Judge did not approve the liquidation that Hostess wanted and instead postponed consideration and ordered the company and the union to go to mediation. The presiding Judge will be the mediator.
Judge Robert Drain asked Hostess and the Bakery Confectionary and Tobacco Workers Union to join him Tuesday for a mediation session where he will try to broker a new contract. If Tuesday's session fails, then the company will be able to return to court Wednesday to try to move ahead with its plans to close down.
"Many people, myself included, have serious questions as to the logic behind this strike," said Judge Drain. "Not to have gone through that step leaves a huge question mark in this case."
One thing that bothers the unions is that while the company maintains it can not afford to continue funding the pensions of its workers, it is asking the court’s permission to pay its executives $1.75 million in bonuses. Hostess is following the practice of failed Wall Street Banks that when they were on the verge of collapse in 2007 due to bad management and business practices, they still paid obscene bonuses to the executives that bankrupted them.
The workers will bear the brunt of this situation however it turns out. If the long-shot mediation works and a new contract is negotiated, workers will pay for those bonuses through wage and benefit concessions. If a new buyer comes forward, it is a certainty that concessions from workers will be part of the deal.