When all else fails, blame the union

Hostess gives the Twinkie Defense a whole new meaning

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I can't remember the last time I ate a Twinkie -- probably decades ago -- but I'm pretty sure it's still sitting in my stomach, undigested.

The spongy yellow cake-like substance with the cream-like filling has the half life of a 1968 Volkswagen gear shift knob, so all those people grabbing them up last week before they disappear needn't have bothered. Every Twinkie they've consumed over a lifetime will be with them into eternity. A Twinkie on the store shelf might be an endangered snack-species, but a Twinkie in the tummy is forever.

Forever times two if it's fried.

For the record, the Hostess company always disputed that Twinkies last forever, putting their official shelf life at 28 days. But there was that famous experiment by a high school science teacher in Maine who kept an unwrapped Twinkie perched on the blackboard for 30 years with no sign of snack decay. Then again, the same thing happened with a Fig Newton, so draw your own conclusions.

Also for the record, Twinkies are not really endangered, nor are Ho Hos, Ding Dongs, Cup Cakes or Sno Balls. Even if twice-bankrupt Hostess Brands Inc. liquidates and lays off its 18,500 employees, other food manufacturers are waiting in the wings, just itching to get their hands on the company's iconic brands. They may wind up being made in China, but so is a lot of what Americans consume. Such is the global race to the bottom, and more's the pity.

For a few days it seemed the suitors might not get the chance. A bankruptcy judge urged Hostess and its striking bakers' union to enter mediation, which they did. But the talks broke down, and now the 83-year-old company is looking to close and sell off its assets. Hostess also owns Dolly Madison and Drakes.

When announcing its liquidation, Hostess blamed the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union for rejecting wage and benefit cuts.

Of course it did. The problem couldn't be financial shenanigans, bad corporate decisions, inept management, outdated business strategy or the worst economic climate since the Great Depression. It couldn't possibly be the rising price of ingredients, old and inefficient factories, more competition in the marketplace or changing American tastes moving toward organic products and away from petroleum-based food.

It could only be the bakers trying to hold onto a living wage.

Certainly the 12 unions, including the Teamsters, played their part, with antiquated work rules, 40 separate pension plans and $2 billion in unfunded pension liabilities. That's no small factor, to be sure. But Hostess' problems were much bigger.

The company was subjected to so much irrational, convoluted financial dealing by private equity firms, hedge funds and other investors that it sends the mind reeling. In the end, Hostess had piled up an astonishing debt of $1 billion-plus.

In a long piece in Fortune about these baffling, if not downright insane, machinations, David A. Kaplan wrote: "Abbott and Costello couldn't have made this stuff up if they'd gone to Wharton" (the article is available at management.fortune.cnn.com/2012/07/26/hostess-twinkies-bankrupt).

When companies spend years headed toward the fiscal cliff as Hostesss did -- often continuing to pay inflated executive salaries -- eventually there's no place left to turn but the workers. By that point it's often a case of mutually assured destruction, but only the unions are made out to be suicidal.

It's true that the bakers went on strike rather than accept big cuts in wages and benefits. But they could have agreed to twice the sacrifice and the company would have been back in a year or two looking for more. That's because, in the words of David Weidner of the Wall Street Journal's MarketWatch, Hostess was suffering from "too many interests trying to milk the dwindling profits of a brand that had it too easy for too long."

Hostess coasted for many years on the soft, fuzzy memories of baby boomers who used to sit cross-legged in front of the TV watching "Bonanza" and devouring Velveeta sandwiches on Wonder Bread with a Twinkie chaser. But nostalgia goes only so far.

"Hostess Brands is a story of what happens when businesses focus too much on financial engineering to the detriment of innovation," wrote Daniel Gross of The Daily Beast.

So a company with $2.5 billion in revenues went careening toward the precipice. Hostess entered bankruptcy in 2004, pared down its operation and emerged in 2009, only to take on even more debt. This sowed the seeds of a second bankruptcy filing in January. The unions, which had made huge concessions after the first bankruptcy in exchange for a 25 percent ownership stake, were said to be furious, believing management had lied to them.

Not the best atmosphere in which to seek another round of givebacks. Also not helping matters: the CEO was getting $1.2 million a year.

AFL-CIO President Richard Trumka called it a "Bain-style killing" with workers paying the price. But it remains to be seen if anyone will make a financial killing this time.

And so the Twinkie Defense takes on a whole new meaning. The phrase was coined by incredulous reporters covering the 1979 double murder trial of Dan White, who said a sugar-fueled diet led him to kill San Francisco supervisor and gay activist Harvey Milk and Mayor George Moscone. In 2012, the Twinkie Defense shrugs off corporate responsibility for a company's disintegration by shifting all the blame downstream.

Hostess might as well blame you and me for not buying more Twinkies when we had the chance. But they'd never get away with it because the customer is always right. How much easier to insist that the union is always wrong.

sallykalson

Sally Kalson is a columnist for the Post-Gazette (skalson@post-gazette.com, 412-263-1610).


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