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article imageOp-Ed: Vulture Capitalism and CEO pay caused Hostess’ demise, not unions

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By Sadiq Green     Nov 18, 2012 in Politics
Last week Hostess Brands Inc. announced they would be shutting down operations after more than eighty years of production. While headlines have been quick to blame unions for the downfall of the company, a closer look reveals there’s more to the story.
Hostess Brands, the maker of such iconic baked goods as Twinkies and Wonder Bread announced Friday that it is asking a federal bankruptcy court for permission to close its operations, blaming a strike by bakers protesting a new contract imposed on them. Nearly 18,500 workers will lose their jobs as the company shuts 33 bakeries and 565 distribution centers nationwide, as well as 570 outlet stores.
Hostess’ demise is an all too familiar story that should be well-known after Americans learned the predatory private equity tactics of Bain Capital during Willard Mitt Romney’s failed run for the White House. Bain Capital’s scheme was leveraging companies with crushing debt, cutting workers’ wages and benefits, and when the company can no longer repay their loans they go into bankruptcy.
Hostess is in bankruptcy for the second time since 2009 and a major factor in their inability to succeed is that over the past eight years, they were owned by Wall Street investors that were restructuring experts, managers from other non-baking food companies, and now a liquidation specialist.
“We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike.” – Hostess Brands CEO Gregory Rayburn
Hostess’s failure was exacerbated by having six CEO’s in 8 years who had no experience in the bread or cake baking industry. While the company was filing for bankruptcy, for the second time, earlier this year, it actually tripled its CEO’s pay, and increased other executives’ compensation. They awarded the CEO a salary increase from $750,000 to $2,250,000, and other top executives received raises worth hundreds-of-thousands of dollars; all while the company was struggling. It follows a trend of rising CEO pay in times of economic difficulty. Some examples: At the manufacturing company Caterpillar, they froze workers’ pay while boosting their CEO’s pay to $17 million; and at Citigroup, CEO Vikram Pandit received $6.7 million for crashing the company, and walked off with $260 million after the business lost 88 percent of its value.
Instead of acknowledging the lack of competent leadership and exorbitant executive salaries as contributing to the company’s decision to close its doors, Hostess management blamed the closing on a potential strike. The company had made plans to close plants whether or not workers accepted the severe wage and benefit cuts the company offered, or if they went on strike. Hostess workers reportedly made numerous concessions to keep the company afloat, but they were not enough for the company’s management who stopped making obligatory contributions to employee’s pensions to save money.
The idea of blaming unions for Hostess’s bankruptcy and subsequent shutdown is one that transcends corporations and is being used by Republicans in states and at the federal level to garner public support for eliminating unions. Hostess Wall Street investors were not interested in the company’s success or they would have appointed competent managers and a CEO with experience in the baking industry as well as reining in salaries the way they cut worker wages. Using Romney’s tactics of loading up the company with debt it could not possible repay is a proven death-knell for any business, and as usual the losers in the Hostess affair are 18,500 workers who lost not only their pensions, but their jobs. It is the private equity blueprint for enriching a few at the expense of shareholders, lenders, creditors and especially workers.
The Hostess story should make Romney proud because the vulture capital tactics Wall Street investors used to destroy the Wonder Bread manufacturer follow Romney’s creative destruction model explicitly, which includes eliminating union representation. The idea that union labor is responsible for any company or state’s financial difficulties is fallacious because throughout this recession, union workers in every industry have made concessions. But until all unions are disbanded, conservatives will continue blaming them for America’s economic troubles.
Republicans’ have two problems with unions; first, union representation prohibits their corporate donors from paying Chinese-style wages, and second, unions contribute to Democratic candidates. During the presidential campaign, Romney said he thought it was blatantly unfair that unions contributed to Democratic causes, and he talked about wanting it to end. Yet Romney defended the right of corporations to donate unlimited campaign cash to Republican candidates and causes. It is why Republicans attack union labor at every opportunity, and Hostess blaming union representation as the cause for its closure is part of an ongoing propaganda campaign to incite the public against unions. Union labor had nothing to do with Hostess closing its doors, but they are the scapegoats for the company’s mismanagement and Wall Street investor’s incompetence.
Hostess did have problems but they did not come from union labor. The decision to pay executives more while scorning employee contracts during a bankruptcy reflects a lack of good managerial judgment, and as 18,500 employees lose their jobs and pensions, Wall Street investors and company executives are counting their ill-gotten riches and looking for the next company to leverage with debt, raid their assets, and blame union workers in what is a continuing war on organized labor.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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