Hostess Closes Shop: Some Blame Unions, Some Blame Management
November 21, 2012
By Michael Malpass
Hostess Brands Inc. announced Tuesday that it is shutting down all operations and selling all assets after mediation between the company and the Bakery, Confectionary, Tobacco and Grain Millers Union (BCTGM) failed. The company’s second-largest union, BCTGM, went on strike on Nov. 9 after U.S. Bankruptcy Judge Robert Drain imposed concessions that were opposed by 92 percent of the union’s members. Blaming the strike, Hostess closed three plants on Nov. 12, and closed its remaining 33 plants on Nov. 16.
Blame for the death of Hostess is being thrown in both directions. Some point to the Baker’s Union, whose strike is undeniably the most direct cause of the company’s closure. The union’s proximity to the scene of the crime made it the most obvious culprit for some. Judge Drain suggested as much when he said on Nov. 19 at a hearing in White Plaines, New York, that there are “serious questions as to the logic behind the decision to strike.” Other, more union-minded individuals blame the private equity firm, Ripplewood Holdings, which took control of Hostess after the company filed for Chapter 11 bankruptcy in 2009. Robert Drain, the president of the A.F.L-C.I.O., said: “What’s happening with Hostess Brands is a microcosm of what’s wrong with America, as Bain-style Wall Street vultures make themselves rich by making America poor.” He added: “Crony capitalism and consistently poor management drove Hostess into the ground, but its workers are paying the price.”
While Mr. Trumka may be right that the deeper cause of Hostess’ troubles was poor management, this management was not headed by the archetypal “Bain-style Wall Street Vultures.” As the New York Times reported, Ripplewood was founded by Timothy C. Collins, a major Democratic donor and, at least nominally, a friend of unions. However, despite the founder’s political leanings, Ripplewood still increased management’s compensations while at the same time cutting employee compensation. As the BCTGM pointed out, the company’s new CEO earned $2,550,000, up from the previous CEO’s salary of $750,000.
As a result of Hostess’ liquidation, 18,500 people will lose their jobs and the company will be forced to sell popular brands like Drakes® and Dolly Madison®, which make iconic cake products such as Twinkies®, CupCakes, Ding Dongs®, Ho Ho’s®, Sno Balls® and Donettes®, and bread brands such as Wonder®, Nature’s Pride®, Merita®, Home Pride®, Butternut®, and Beefsteak®.