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The Twinkie Syndrome

Was it corporate greed or union standoffs that brought the mighty Hostess empire to its knees, and should you care? You bet your Bippy you should! (Damn, I just dated myself there, didn’t I?)

Prepare to be shocked, awed … and disgusted.

When we first heard about the standoff between the bakers union and the Hostess management, many of us rooted for the workers. And while we are generally untrusting of unions, we certainly didn’t want to see 18,000 employees get laid off.

As time went on, it began to appear that the workers and their union were clearly striking themselves out of a job. If they were that stupid they deserved what they got. Not so fast.

While Hostess filed its first bankruptcy filing in 2004, it never quite got its act together. This recent closure ends a decade of financial debauchery and corporate chaos for a company that has had six CEO’s in the past eight years.

Hostess has been plagued with bad management, intricate labor agreements, price shifts, a strong trend towards healthier foods and an inability (or unwillingness) to grow with the times. It also suffered from some pretty goofy rules that management never took the time to assess and reorganize. Rules like requiring that bread and cakes be delivered in separate trucks to the same location. Crazy! A five year old could have done better.

It was 1930 when Hostess was the first guy on the block to offer pre-sliced bread on a large scale; Wonder bread. Yup, Hostess was indeed an innovator in its time.

Most of you are way too young to remember a 1950’s television show called “Howdy Doody” (I am obviously among you … cough-cough). Hostess sponsored that show with its commercial featuring their little cowboy-hat-wearing snack cake called “Twinkie the Kid”.  Their advertising hasn’t changed a lick (pun intended) since 1947.

So, what were the CEO’s doing? Why was no one analyzing, updating marketing and strategizing new innovations and figuring cost effective methods? In short … why weren’t the big managers managing?

A close look shows us that Hostess was owned by Wall Street investors and third tier managers, from non baking companies. These owners and investors have spent the last eight years padding their own pockets while forcing workers to take huge wage and benefit reductions.  There is something very wrong with this picture.

Is it possible that this the new American way of doing business? Maybe.

By the time the doors closed, Hostess was 860 billion dollars in debt and had a net loss of 1.1 billion dollars in fiscal year 2012. Wow!

Even more revolting is the news last week that Hostess approved payments totaling 1.8 million in bonuses to 19 managers who will oversee the dismantling of the company. Can we say “Bloodsuckers”?

These bonuses do not include payment to the CEO of Hostess, Mr. Rayburn (who tripled his salary), and who was brought on as a restructuring expert earlier this year. He is being paid $125,000 a month. Yes … a month! That adds up to $1.5 million a year. Not bad for a company that didn’t have enough money to pay its workers a decent wage or offer them decent benefits.

Corporate vulture capitalists are to blame for a lot of what is happening in America as well as in our political arena. We have large corporations making policies to only hire part time people so that they can pay them less and get away with offering them little or no benefits. Wal-Mart and Microsoft come to mind.

It’s not about being fair and equitable anymore. It’s about getting more and giving less. It’s not about personal responsibility; it’s about what you can get away with.

I call bullcrap! There is nowhere to go on this slippery slope but down. We need to stop trying to screw each other out of money, product or time.

I am sickened by this entire Hostess cupcake affair and know in my heart that it is does not stand alone in the depiction of the American way of doing business.

What really scares me is that it might not be very far from the new American way of thinking.

If that’s a reality … then God help us all.

 

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mercyn - Great summary of the Hostess debacle…My claim to fame is that I was in the audience of the Howdy Doody show once!

Tammy - Hi Mercyn, what?! You were? That is awesome!!! Color me jealous. I bet you had Twinkies in your house! Thanks for the read and the post!

Mel Glenn - I fear you are Don Quixote whose Twinkie is at the end of the lance. Though not a fan of these treats, I applaud your effort to right the terrible wrong. We still live in a culture where “greed is good,” and am mired in the philosophy of “I-got-mine-screw- you.” A pity. I will go into the corner and eat a cupcake.

Joan Cooper - You are better than the News!

Yes, we are in decline – fater and faster.

Not only have morals decayed and boundaries disappeared, our wonderful American business world has collapsed and that is the cornerstone of our whole country – along with home ownership.

As you indicate – people taking enormous salaries (Wash. DC for example) really could not run a peanut stand.

How very sad. Every nation that has ever existed, died when its’ money ran out. They could not pay off the hostile forces any longer. Sound familiar? Why or why do we give away billions to dollars to other countries? I heard one report of the US payoff to both Israel and Hamas in the recent ‘cease fire’. Only one.

What can we do?

Joan Cooper

Tammy - Hi Mel, I’m afraid it will take much more than this to right this wrong. Sad. It seems to have become a rampant pattern. Not awesome. I agree that we live in a greed culture society, but I’m still holding on to the hope that it is present in the minority. As we both know…the majority always wins. So appreciate you being here and thank you for the post!

Rick Gualtieri - Agreed on a lot of this. Saw it happen first hand not too long ago. A company I worked for, which had a long history within its industry, was bought out by a capital management firm. Within a few months the family environment was gone, replaced by a bunch of corporate suits who cared for nothing but squeezing pennies from the bottom line. I finally decided to leave before they could show me the door.

Tammy - Hi Joan, I do believe that we have run up against the wall with our greed as a nation. Interesting outlook you have; that nations cease to exist when they no longer have the funds to keep hostile forces at bay. Let us hope not. I’m not sure what we can do, other than to stand and speak for what is right. And not stand for the things we know to be corrupt and wrong. It sounds so simplistic and cutesy, but I think it is everything but that. Thanks for sharing with me today…and always.

Tammy - Hi Rick, wow, that’s quite a sad testament. Do you think it is what our future holds as a country? Or do you think things can be turned around? It is such a death trap to the American way of life. It saddens me to no end that corporations/companies care pity little about the people whose backs they break to earn a profit. I’m happy that you saw the writing on the wall and made your escape. Surely it would not have ended well for you otherwise. I’m such a sassy broad and usually have an answer for everything (not necessarily the right one), but this time I am simply in a pissed off state and nothing comes to mind. Very grateful for your sharing and always wonderful to have you here! Thanks for that!

Rick Gualtieri - Nature and business abhors a vacuum. This crap usually happens during buyouts and such. There will always be new players entering the ecomomy to take over from those who have failed. Those are where the future lies, assuming the mega corps don’t drive the economy totally into the toilet first.

Jeffrey Davidson - Well, this is one time where I both agree and disagree with you on some points. Perhaps it is the way in which interpret the information available.

Without a doubt, the “management team,” (if you can call it that), has made a royal mess of things using archaic systems, generally poor management, paying themselves too much, etc.

On the other hand, where most unions had a necessary place in the industrial revolution, they also caused the demise of many well run companies by unfairly demanding too much.

Let’s stick with Hostess.

In a court filing, the snack maker estimated that as of June 2, it had assets of $1 billion and liabilities of $2.5 billion, “which figure includes over $1 billion in pension and MEPP liabilities.”
Hostess is no stranger to debt. Interstate left bankruptcy in early 2009 with more debt than when it went in. Its exit strategy included long-term debt totaling about $670 million.
With interest and additional borrowings, that figure swelled to $861 million by the time Hostess landed in bankruptcy court this year.
Another source shows $50-$60 million outstanding to trade creditors; $36 million in lease obligations; $180 million in accrued workers’ compensation liabilities; $75 million in debtor-in-possession loan; $850 million of secured debt outstanding.

But even General Motors, Ford Motor, and others that are significantly larger did not have debt anywhere near $860 billion which is shy of one trillion dollars.

Rather than developing new products which would be more marketable, priced for higher margin and provide growth that covered all costs, Hostess leadership kept trying to financial engineer a solution to make their horse and buggy competitive with automobiles.
And when they failed, management decided to scapegoat someone else. Maybe eating too many Twinkies made them do it. It’s a Wonder the Ding Dongs running the company kept this Honey Bun alive by convincing HoHos to loan it money! Blaming the unions is simply an inability of management to take responsibility for a complete failure to understand the marketplace, trends and the absolute requirement for new products.
Businesses can adapt to trends. It is possible to stop the never-ending chase for lower costs and better efficiency, and instead invest in new products that meet emerging needs at higher margins. Like the famous turnarounds at IBM and Apple, it is possible for leadership to change the company.

But for too many leadership teams, it’s a lot easier to blame it on the Twinkies. Unfortunately, when that happens everyone loses.

As for the unions, over the recent years, it appears they have made far more concessions than have the poor management teams at Hostess. However, there are so many examples of the unions demanding so much that R&D suffers, investment into infrastructure suffers and in many cases, in a last ditch effort, they say go ahead and shut down so that we will all be out of work rather than take less and make something.

Granted, that in the Hostess debacle there would need to be some guarantees regarding change in management and having their salaries tied closely to the profitability of the company.

I am quick to state that I have neither the background nor expertise to offer a solution but there needs to be “accountability” compromise on both sides.

You are absolutely correct with your criticism of the greed and waste of management and what may be and unfortunate trend. Thanks for pointing it out again to help make more people aware.

Now, with regards to Howdy Doody and the kids in the Peanut Gallery, with Phinius T. Bluster, Flub-A-Dub, Chief Thunderthud, Clarabel (Bob Keeshan – Captain Kangaroo), Princess Summer Fall Winter Spring and Buffalo Bob Smith, I don’t remember any of that!

As always you present your views in a manner which invites debate and promotes thought, and, agree or disagree, I enjoy reading your blog and would never discontinue reading it because you and I may have some difference of opinion or a complete difference of opinion on any given topic.

Keep up the great work!

Charity Kountz - When the 2008 recession came, I thought at the time, we simply have to get our acts together in business, ethics and as a country. I’m sad to say I realized at the time our Constitution was put together, it was put together by passionate, ethical men looking out for the greater good. Sadly, those days of insight, drive and service to others seems to have disappeared almost entirely. While there are still many who attempt and even succeed to do the right thing, greed seems to be winning the day(s) and the many battles. I haven’t given up hope yet in humanity but it’s sure dwindling fast. This is just one more example that makes me wonder how those people manage to sleep at night. Very sad.

Jack Twinkie - What really happened was the greedy unions were trying to call the shots when Hostess Inc has shareholders to respond to not spread wealth.

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