I found this brilliant summary of the Hostess situation on Reddit. All credit goes to KingofKona.
I know I am going to get in trouble for posting this because there is a thing called confirmation bias in psychology that causes people to only want to hear what they already believe - it is why you see racists skip over stories that portray minorities in positive ways or why the religious will often hurry up and click to another channel if a special talking about Darwinism is on television. But I'm going to write it anyway. Why? Because it is the right thing to do.As someone with a very deep economics, financial, and business background, this entire conversation is painful to read. There are so many misconceptions about pension accounting and the bankruptcy process that I feel like reading this thread is the equivalent of seeing those videos where people at Glenn Beck rallies are interviewed spouting off about Obama's secret muslim plot to make us all gay married communists who have interracial children and cross dress while burning flags.Instead of writing a thirty-page explanation, I am going to explain this like I would to my five-year-old niece. I am not trying to be condescending, so I apologize for the tone. I am trying to remain sane.For more than eleven years, Hostess was horribly run, including by a CEO who left earlier this year after awarding himself huge pay increases and demanding union concessions.The new CEO came into office back in March or April and, after discovering these large pay hikes, ordered the top four executive salaries to $1 for the remainder of the year to make up for it, before being restored next year, evening things out.This new CEO, with the backing of the bailout investors, went to the unions and offered them a package that included:
- A twenty-five percent (25%) ownership stake in the business, which would transform Hostess into one of the largest partially employee-owned firms on the planet.
- A package of bonds in the company to go to the employees with a face value of $100,000,000 that would generate interest and be repaid in the future
- Two seats on the board of the directors, providing influence and power to shape the future of the enterprise
In exchange, the unions had to agree to:
- Cut existing pay levels to fall in line with other major bakeries
- Do like the other 90% of American manufacturing firms have and "freeze" pension plans, meaning that any new employees will have to use a 401(k) instead.
- Pay more out of pocket for some other expenses such as insurance
If all of this happened, the employees of Hostess would not only get to keep their job, but they would be working for themselves. It was the best possible solution to a terrible situation caused by years of mismanagement, none of which was the fault of the current CEO who has only had the job for 8 months or so.The Teamsters union wisely signed up. They acknowledged that the situation was bad. They talked about how terrible former management had been. They focused on the future and knew that this could work out well and, among all the potential choices, was the best that could be expected.Then, a smaller union - the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union - said no.They (the BCTWGMIU) were warned that if the company shut down in a strike, the finances were so weak the doors would have to be closed. Everyone would lose their job. There would be no ownership. There would be no bonds. There would be no seats on the board of directors. There would be no new employees let alone pensions for new employees. It was a complete thermonuclear scenario that would destroy the lives of 18,500 hardworking families.The BCTWGMIU struck anyway and the Teamsters, to their credit, crossed picket lines and remained reasonable because their actions were based on facts and analysis of what was economically feasible. The company begged the BCTWGMIU to return to the table, but they refused, talking about the litany of abuses of past managements.For anyone who is successful, well educated, and familiar with strategy such as game theory, the choice is clear. When faced with a total wipeout, you take the option that gives you the greatest long-term chance of survival. Even if the new deal had resulted in only an extra six-months of paychecks, that is six months of income for 18,500 families that relied on that cash. When you represent others, like union leaders do, their welfare is your sole concern.That is precisely what the Teamsters did. However, the BCTWGMIU behaved like a father who commits a murder-suicide of himself and the children when a spouse leaves, convinced he is in the moral right and that he had no other choice because of his evil ex-wife. He writes a long note detailing all the past mistakes she made and how she drove him to take this action. BCTWGMIU drove Hostess straight into liquidation. The murder-suicide analogy is appropriate because that is exactly what this was: An economic murder-suicide. A vast majority of those 18,500 workers were innocent, behaved the best they could, and did the right thing in a terrible situation. Their entire lives have been destroyed by a handful of their foolish coworkers who were more interested in making a point and detailing past grievances than working with the new team that had come in and offered them a partnership stake in the firm. They were so stuck in the owner vs. employee mindset they ignored the chance to become owners.The BCTWGMIU just struck a major blow to the little workers' rights power remaining in the United States and hurt the labor movement incalculably. Even worse, they are too foolish to see it. The ramifications have already begun. If a new factory wants to raise money, don't you think investors are going to demand that it locate in a right to work state like Texas, so if this had happened, all of the workers can be summarily fired? The legacy cost of this will be with us for decades.TL;DR: The Teamsters Union behaved reasonably. The new CEO behaved reasonably. The BCTWGMIU decided it couldn't get what it wanted - which was not economically possible based on the numbers - and turned down the chance to own 25% of the business, collect $100 million in bonds, and get seats on the board of directors. Now they get nothing, everyone loses their jobs, the owners get wiped out, and other corporations get to come in and pick up the assets for pennies on the dollar.
Another user "Time_Loop" also wisely pointed out that this might not actually be murder-suicide for BCTWGMIU, as their union will now have a reputation of not backing down no matter what with other companies.
http://www.reddit.com/r/politics/comments/13eufq/hostess_took_union_members_self_funded_pensions/c73j4sa
