Poor management, not union intransigence, killed Hostess

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

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.

…It failed because the people that ran it had no idea what they were doing. Every other excuse is just an attempt by the guilty to blame someone else.

There is a lot to read in this excellent expose in the Los Angeles Times,  We have only excerpted a small amount–and you should be interested in reading about the long history of mismanagement and worker concessions which simply lined the pockets of the owners.  As if people should be rewarded to doing their job so pathetically.  Please click hereto read the entire article. .