It was Romney Vulture Capitalist Style Management that Killed Hostess, Not Unions

Last updated on February 8th, 2013 at 12:16 pm

A scapegoat is a person or group made to bear the blame for another’s actions, and usually they are easy targets to assign blame for something they had nothing to do with. Republicans have attempted to blame union labor for much of the nation’s economic woes in recent years and, yesterday, the Hostess Brands took a page right out of Republicans’ playbook and blamed a union strike as the reason they were shutting their doors and liquidating their assets costing 18,500 employees their jobs. However, much of the responsibility for Hostess shutting down lies with the company’s management and the private equity firm behind them, and yet  union workers are the ones bearing the blame and subsequently will suffer the consequences of the shutdown.

Hostess Brands’ demise is a recurring story that should be well-known after Americans learned the predatory private equity tactics of Bain Capital during Willard Romney’s failed run for the White House. In fact, union president Richard Trumka pointed out that Wall Street investors that own Hostess were disinterested in the company’s success and cited similarities to the situation of Bain Capital and KB Toys in 2000. As a reminder, 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, often more than once.  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. There was no plan for Hostess to succeed and it appears that was the objective all along.

Hostess’s failure was compounded by having six CEO’s in 8 years who had no experience in the bread or cake baking industry, and despite their financial woes, the company’s CEO got a 300%  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. Instead of acknowledging the lack of competent leadership and exorbitant executive salaries as contributing to the company’s decision to close its doors, CEO Gregory Rayburn issued a statement saying, “We deeply regret the necessity of today’s decision, but we do not have the financial resources to weather an extended nationwide strike.” However, Rayburn and Hostess management claimed the strike would be responsible for closing  plants even before there was a strike, and they had made plans to close plants whether or not workers accepted the Draconian wage and benefit  cuts the company offered, or if they went on strike.

Hostess workers previously made numerous concessions to keep the company afloat, but they were not enough for the company’s management so they stopped making contractually-obligated contributions to employee’s pensions to save money. The employees stayed on the job until management offered a new contract cutting wages and benefits an extra 27 – 32 percent that prompted employees to strike and thus become scapegoats for Hostess’s demise. What Hostess failed to tell the public is that plans were in the works to close plants months before offering to slash workers’  wages. According to the company’s 1113 bankruptcy court filing earlier this year, they planned to close at least nine bakeries as part of its reorganization plan in addition to the three bakeries that were to be closed as a result of the company’s planned sale of its Merita division. In a November article, St. Louis Mayor Francis Slay said, “I was told months ago they were planning on closing the site in St. Louis,  and there was no indication at that time it had anything to do with the strike the workers were waging.”

The ideal 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.

There is a saying that imitation is the highest form of flattery, and the Hostess story should make Romney proud because the vulture capital tactics Wall Street investors used to destroy the Twinkie manufacturer follow Romney’s creative destruction model explicitly, and it includes eliminating union representation. The idea that union labor is responsible for any company or state’s financial difficulties is fallacious because throughout the Great 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’ problem with unions is two-fold; first, union representation prohibits their corporate donors  from paying Chinese-style wages, and second, unions contribute to Democratic candidates. It was little reported in the media that during the presidential campaign, Willard Romney said he thought it was blatantly unfair that unions contributed to Democratic causes, and he wanted it to end, and yet he fiercely 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. Besides being blamed for something they had nothing to do with, 18,500 employees have lost their jobs while the company’s CEO and executives earned higher salaries for destroying the struggling company. Hostess did have problems, but they did not come from union labor 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 that will only end when unions go the way of the Twinkie.



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