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Poor management, not union intransigence, killed Hostess

The company had done almost nothing in the last 10 years to modernize or expand its offerings.

November 25, 2012|Michael Hiltzik

As management experts such as Peter Drucker have observed, the goal of a successful business must be to find and serve customers. Do that, and the numbers take care of themselves. The Hostess approach was entirely backward — meeting the numbers became Job One, and figuring out how to grow the business became Job None.

The post-bankruptcy leadership never executed a growth strategy. It failed to introduce a significant new product or acquire a single new brand. It lagged on bakery automation and product R&D, while rivals such as Bimbo Bakeries USA built research facilities and hired food scientists to keep their product lines fresh. At the time of the 2004 bankruptcy, Hostess was three times the size of Bimbo. Today it's less than half Bimbo's size. (Bimbo, which has been acquiring bakeries such as Sara Lee and Entenmann's right and left, might well end up with Hostess' brands.)

Hostess contended its biggest burden came from the multi-employer pension plans covering its unionized employees. Its contention is that these plans are designed so that when any employer goes out of business or otherwise withdraws, its obligations to its former workers are inherited by the companies that remain.

Consequently, Hostess says, a large portion of its required pension contributions benefit employees of other long-departed firms. This claim has been swallowed whole by Hostess' mourners, but it's fishy.

For one thing, many Hostess competitors contribute to similar plans, some at an even higher rate than Hostess. For another, the real problem is that for years the employers allowed the pension plan to become underfunded, either by skipping required contributions while they were in business or raiding the fund to pocket supposedly excess assets that proved to be not so excess. Hostess is guilty of the same practice.

In any event, the $989 million in pension liabilities Hostess ended up owing various union funds, according to its bankruptcy filing, didn't accumulate in secret, like termite damage. It accrued because Hostess and its sister bakeries judged their retirement obligations to be relatively unimportant in the grand scheme of things. Now that the bill has come due, Hostess blames the workers for demanding what they were promised.

The record shows that Hostess' unions were willing to talk with management at virtually every stage to keep the firm alive. There are plenty of companies and industries in which such talks have been fruitful, including the auto industry. But they can succeed only when everyone is confident that the guys at the other side of the table are committed to the same goals.

In this case, the unions finally realized that the Hostess strategic plan started and ended with extracting yet another round of cutbacks from employees. To argue that capitulating might at least save thousands of jobs is to accept the corrosive mind-set that manufacturing workers should be glad they've got any job at all and take what they're offered.

The union members could see that their supposed management "partners" hoped to rescue their own investments by placing workers on a glide path to life on a minimum-wage existence, without pensions and without healthcare, after they had given and given again. You want to claim that they should have accepted the latest management demands as better than nothing instead of voting it down, OK. But you should ask yourself two questions: Where do you think this trend would have ended, and how much would you take?

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.

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