Monday, November 19, 2012

Market Rates & Corporate Pigs: Who Killed The Twinkie?

As we head into this shorter than usual Thanksgiving week, our thoughts are with a few of our friends across the country who are the latest victims of corporate mismanagement, greed, and stupidity.

In case you missed the news at the end of last week, Hostess - the corporate owner of such iconic snack cakes as Twinkies, Ho-Hos, Dolly Madison, as well as comparatively healthier product lines like Nature's Pride and Wonder Breads - is going out of business, as of Friday.

Contrary to the hype you may have heard, most of the brands currently owned by Hostess will likely be back on store shelves within a couple of months. The shelf space on America's supermarkets and convenience stores is worth many, many millions per year, not to mention the brand names. There are already other companies looking to swoop in, and bring those brands back to life. Unfortunately, that business resurrection won't likely come before the end of the year - which means 18,500 American families are now facing the holiday season without jobs, thanks to the mismanagement of corporate America.

Whatever lies you've heard about the death of this company, we assure you - the facts surrounding the murder of Hostess this time are clear: The piggish, greedy corporate executives killed the company, not the unions.

Fortune magazine's David Kaplan had a brilliant and relatively thorough deconstruction of the whole sad Hostess tale back in July. Like Kaplan, we'd first noticed the troubling news coming out of Hostess several years ago.

It was the news coming out of Hostess over the past year that was the most troubling. According to the ever conservative Wall Street Journal, both the creditors and the unions began having serious problems with Hostess management after its executives boosted their own salaries, by as much 300% just before the company entered its latest bankruptcy filing - the company's second in less than a decade.

Multiple sources from inside the company, and across the country confirmed to us that over the past eight years different unions within Hostess had given back pay, benefits, and other concessions totaling hundreds of millions. Yet the corporate executives bleated and screamed this weekend it was the pension obligations to the unions that brought down the company.

Let's make something clear: Pensions are not "gifts" of the kind Mitt Romney whined about, and that smart Republicans are rebuking. Pensions - as well as health insurance, life insurance, and many other so-called benefits - are a legacy of corporate America trying to skip out on its obligations to pay workers a fair wage for a fair day's work.

As Forbes magazine's Adam Hartung points out perfectly, the biggest problem in corporate America today is the ignorance of the fact that, "Labor, like other suppliers, has a 'market rate.'" If Hostess' CEO had gone to their grain suppliers and demanded to pay 2/3 the market price for the same amount of grain, the suppliers would have laughed him out of their offices. Yet, by trying to get out of their responsibility to pay workers less than a fair rate of pay - a rate of pay, benefits, and pension olbigations that Hostess' management had agreed to not long ago - the corporate executives of Hostess were asking their workers to do the same work for only 2/3 of their market rate.

No one is saying pension obligations aren't a heavy lift for corporate America these days. Just as other business costs that can't be outsourced to China have gone up, the market rate of skilled labor in America has also gone up. Whether they like it or not, those costs are still part of the responsibilities of corporate executives, and of any stockholder who owns part of that company. If the standard operating procedures of corporate executives are to shirk their responsibilities to their workers whenever possible, how responsible have they ever been?

No matter how they want to cut the issue, if a company can't afford to pay its workers a fair wage, those workers will never buy its products - even if those products are just Twinkies.

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