Hostess Brands versus Labor Union - Case Study Example

Hostess Brands vs. Labour Union Name Course Name and Code Instructor’s Name Date Introduction Industrial disputes have become a common occurrence in current economic and financial environment. Misunderstandings among employers, employees and labour unions are resulted in numerous strikes, closure of businesses and restricting in some of the businesses (Addision and Schnabel, 2003). Some of the consequences of industrial relations include improvement in working conditions for the employees and ensuring achievement of employees’ requirements. However, some organisations complain these unions do not factor into consideration the impact of their directives to other stakeholders. For example, British Airways’ labour unions championing for airlines staff strikes does not factor into consideration the impact to the customers who utilise the airlines. Therefore, the aim of this paper is to address a food industry dispute, which resulted in closure of the business. The paper discusses Hostess Brand, contribution of management towards its misfortunes, contribution of employees and contribution of labour unions in making the organisation to be closed. Background Hostess Brands was a company that was located in United States. The company that was established in 1930 as Interstate Bakeries Corporation was a distributor and wholesale baker of Wonder Bread, Dolly Madison, Hostess, Butternut Breads, Nature’s pride and Drake’s brands (Hsu, 2012). The company was renamed after emerging from a 2004 bankruptcy in 2009 and the headquarters moved to Texas from Missouri (Rappeport, 2012). The company sought for bankruptcy protection under Chapter 11 in January 2012 and on November 2012, the company sought permission to close its business and on November 21 2012 the motion was accepted by United States Bankruptcy Court and the business close business and sold its assets. The management of Hostess Brand has been extensively contributed to declining business and also the first bankruptcy. The company was on high demand for a new investor because the company had a debt of $800 million from two hedge funds and a private equity firm. The strategy utilised by the company to entrench itself to the consumers was not viable at current market requirement since they championed the methodology that “bigger is better” philosophy resulting in the company acquiring additional employees and facilities (Hsu, 2012). The company at its pick had more than eighteen thousand employees while the business was not performing well. These more facilities and employees were acquired in late 1990s and in early 2000s, the company started buying back huge amounts of its own stock even though market analysts were against the idea (Rappeport, 2012). This generally means, Hostess Brand was a poorly run organisation since they had gone through six CEOs without a specific plan rather a cohesive market strategy. Industrial Issue: Reasons According to the Hostess Brand, the company was not doing well, which resulted in closure of 21 facilities resulting in reduction of employees from 35,000 to 18,500 (Hsu, 2012). The decrease of employees occurred in early 2000s just before the first bankruptcy filling (Rappeport, 2012). This also resulted in the company losing market share that may be attributed to continued accruing debt, obsolete technology and lack of codified plan of accomplishing tasks. For example, rather than focusing on ensuring viability of the business, the executives were rewarded generously, salaries tripled or doubled while the company believed it was still successful and healthy. In understanding the organisation was in trouble after the 2004 bankruptcy, Bakery, Confectionery Tobacco and Grain Millers International Union assisted the company through provision of concessions of $110 million (Hsu, 2012). Bakery, Confectionery Tobacco and Grain Millers International Union is responsible for the 5000 employees out off 18,500 employed by Hostess Brands (Rappeport, 2012). The aim of the union was a self-preservation move, prudent and that was felt necessary by the union officials. According to the directives of the union to update and make the company to operate effectively, it did not materialise since the “owners” of the company utilised the concessions to their own benefits (Addision and Schnabel, 2003). Hostess Brand’s management blamed the labour unions for their problems stating that the union did not deliberate on new strategies formulated by Hostess Brand and also on their relationship with labour unions. The company claims labour unions were not willing to accept pay cuts ranging between 27-32%, with 25% of the company being transferred to the employees and also a position created for them in the company board (Hsu, 2012). Even though goodies in terms of ownership were sold to the employees, the labour unions and employees understood the company was not viable for long since numerous companies had refused to invest in the company (Rappeport, 2012). The issue degenerated from managing the organisation to managing the relationship of employees with outside world. Critics argue that rather than the organisation maximising their concentration on operations and running of Hostess Brand, the company started working with complains and suggestions from labour unions (Hsu, 2012). Transferring of concentration from a poorly managed company to fighting wars with employees who were on strike and these employees at the same time were supported by the law indicates that the “war ” could result in consequences (Rappeport, 2012). Only a few employees were on strike and since twelve labour unions addressed concerns of five thousand employees resulted in different directives from the labour unions and hence completely stressed Hostess Brand’s operations (Addision and Schnabel, 2003). From Hostess Brand View From the organisation view, the major industrial dispute is because the employees are refusing to accept pay cuts. They attribute their requests on economic and financial factors resulting in some employees paralysing the operations of the company (Rappeport, 2012). The organisation states that if the employees accepts proposed restructuring strategy of reducing salary while employees been part owners of the organisation, the organisation may be viable for the long run (Addision and Schnabel, 2003). However, these proposals are against the requirements of labour unions and employees. From Labour Union View The labour unions argue that the Hostess Brand management are not ready to accept their management shortcomings in championing the requirements of the employees (Rappeport, 2012). The labour unions presents an example of the concession that they had provided to the organisation but the organisation did not maximise on this concession and rather utilised it for their own gains. The labour unions also argue that the organisation payed well managerial employees while paying peanuts to other employees. In the court proceedings, the labour unions were against closure of Hostess Brand and rather were championing for liquidation to ensure concerns of different parties have accounted. Outcome of the industrial issue The major outcome of the dispute between the employees and the organisation was filling for both bankruptcy and liquidation (Addision and Schnabel, 2003). Three hundred employees had requested for salary increase but Hostess Brand complained that they business was not financial stable meaning that they organisation rather wanted salary cuts (Hsu, 2012). Persistence from both the labour unions and employees, especially associated with a six day strike, meant that the company was not operating optimally and hence disruption of business. The result of the misunderstanding between the labour union and Hostess Brand resulted in closure of the business, and more than 18,500 lost their employments (Rappeport, 2012). Therefore, the major concern was for these employees who were unemployed within one week. The closure of the business resulted in massive socioeconomic problems. For example, closing the businesses resulted in closure of thirty three bakeries, 570 bakery outlet stores, 5,500 delivery routes and 565 distribution centres (Rappeport, 2012). This was only what was presented in ensuring that an appropriate investor is found and ready to invest and ensure that the business could again be viable (Hsu, 2012). The company has a brand has been viable for a long time but analysing the balance sheet of the organisation meant the organisation may not be viable for long term and hence it is not a viable business that can be invested into. Therefore, no organisation was ready to invest into the business (Addision and Schnabel, 2003). Another outcome of the industrial dispute in unemployment because originally the company had more than thirty five thousand employees and were reduced to around eighteen thousand after the first bankruptcy filling (Hsu, 2012). This was a huge human resource and misunderstanding on salary cuts and other managerial requirements could have meant that the company might have continued to operate profitable (Palokangas, 2000). Hostess Brand is a strong company name in United States because of the period that it has operated and thus if appropriate management strategies and operation strategies could have been in place meant that the business could still be viable (Rappeport, 2012). Success of the organisation was an important issue for the labour unions since they had tried to institute measures that could have made the organisation operate seamlessly (Harcourt and Wood, 2006). One of such a strategy was providing a $110 million concession in advising the organisation to modernise the organisation and also to introduce management measures to ensure that tastes and presences of the consumers are met (Hsu, 2012). However, the organisation did not invest the concession well meaning the Bakery, Confectionery Tobacco and Grain Millers International Union was not happy which resulted in them refusing to accept the proposals of the organisation. In fact during the bankruptcy and liquidation proceedings, questions were asked on why the labour unions did not counter or replied to the suggestions of Hostess Brand. During voting for the suggestions of salary cut suggested by Hostess Brand, the vote was 92% against the idea meaning that the labour union were completely against the idea (Rappeport, 2012). Another major outcome of the industrial dispute was loss of income to both the investors and employees. The employees of Hostess Brand depended on the organisation for income and closure of the business meant that they could start looking for employment from other organisations. This translates in loose of human working hours and thus income loss. Another loss was from the angle of investor and the government (Hsu, 2012). The original aim of the investor was to get income for the investment but due to management problems translating to closure of the business also mean that these investors were not able to access their investments. Therefore, closure and liquidation of Hostess Brand affected a private equity fund and two edge funds (Rappeport, 2012). The third organisation that lost income was the government through taxations and other benefits associated with its citizen being employed. Therefore, it was a big loss for the government. From another angle, the consumers were also affected by the closure of the business (Gall, Wilkinson and Hurd, 2011). Even some sections of the business were transferred and other was bought out, the idea of Hostess Brand being the producer of the bakeries may affect the consumers in terms of consumer behaviour (Hsu, 2012). Usually, products are directly associated with the producer and it is easier for consumer to decide not to purchase a certain product because the ownership of the company has changed (Rappeport, 2012). Some consumers may have appreciated the company since it has been in existence for around 80 years and the closure of the business meant lack of their favourite products by their favourite producer – Hostess Brand. Conclusion Hostess Brand was an organisation that was established in 1930 and dealt mostly with bakery related businesses. Due to mismanagement and other business related complications resulted in the company going through two bankruptcy applications and loss of employment. The industrial dispute that was witnessed was because of salary increase requests and was supported by labour union. The outcome of the dispute was closure/liquidation of the business resulting in thousands of people unemployed and also loss of income for both the investors and employees. References Addision, J., and Schnabel, C. 2003. International Handbook of Trade Unions. London: Edward Elgar Publishing. Palokangas, T. 2000. Labour Unions, Public Policy and Economic Growth. Cambridge: Cambridge University Press Gall, G., Wilkinson, A., and Hurd, R. 2011. The International Handbook of Labour Unions: Responses to Neo-Liberalism. London: Edward Elgar Publishing. Harcourt, M., and Wood, G. 2006. Trade Unions and Democracy: Strategies And Perspectives. New York: Transaction Publishers Hsu, T. (April 18, 2012). Hostess Brands labour dispute could lead to liquidation. Los Angles Times. Available at http://articles.latimes.com/2012/apr/18/business/la-fi-hostess-twinkies-20120418 (March 14, 2013) Rappeport, A. (November 16, 2012). Hostess Brands to liquidate business. Financial Times. Available at http://www.ft.com/cms/s/0/954c5b8c-2ff0-11e2-ae7d-00144feabdc0.html#axzz2NZtqHbJa (March 13, 2013) Read More