25 Nov LA Times: Poor management, not union intransigence, killed Hostess
Below is an exerpt of the November 25th article written by Michael Hiltzik of the Los Angeles Times. Click here to read the full article.
…The true recent history of Hostess can be excavated from piles of public filings from its two bankruptcy cases. To start with, the company has had six CEOs in the last 10 years, which is not exactly a precondition for consistent and effective corporate strategizing.
The most recent and presumably final incumbent, Gregory Rayburn, had been with the company all of nine days before taking over in March when Driscoll, who earlier had been described in court papers as “key to … the future well-being” of the company, departed suddenly and without explanation.
Hostess first entered bankruptcy in 2004, when it was known as Interstate Bakeries. During its five years in Chapter 11, the firm obtained concessions from its unions worth $110 million a year. The unions accepted layoffs that brought the workforce down to about 19,000 from more than 30,000. There were cuts in wages, pension and health benefits. The Teamsters committed to negotiations over changes in antiquated work rules. The givebacks helped reduce Hostess’ labor costs to the point where they were roughly equal to or even lower than some of its major competitors’.
But the firm emerged from bankruptcy with more debt than when it went in — in with $575 million, out with $774 million, all secured by company assets. That’s pretty much the opposite of what’s supposed to happen in bankruptcy. By the end, there was barely a spare distributor cap in the motor pool that wasn’t mortgaged to the private equity firms and hedge funds holding the notes (and also appointing management).
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…