Oh NO! We’re in the same boat with the Twinkie and Ding Dong eaters

25 Nov

I saw an interesting letter in the ER today – “Mismanagement doomed Hostess”.

I know, why would we care, those cakes are horrible. Studies have shown the high-fructose corn syrup they build those things out of literally tricks your mind into thinking you’re still hungry – off to Obesity!

But, as usual, we find, this enterprise was a giant pillar of the economy – go figure. To think, something that is unhealthy for human beings is good for the economy – you know, like cigarettes and alcohol!

Apparently there were almost 20,000 jobs lost. According to letter writer Paul Ellcessor,  “19,000 good jobs that pay a liveable wage have been eliminated because of mismanagement and vulture capitalism.”

I would challenge Mr. Ellcessor’s idea of a “good job” and a “liveable wage.” I don’t have the specifics on the wages or benefits or working conditions offered by Hostess, but I do know they operate in states where the unemployment level is such that most people aren’t going to question anything resembling a job.  They’re unionized, which means, some guy in a suit makes more than any of the actual workers, driving around from one shop to the other, telling employees to take it or leave it.

But yes, what Ellcessor describes in his letter is all too common in America today.  He calls it “corporate vulture capitalism,” but I would say it’s alive and well in the public sector too. 

A bunch of suits come around and buy a company, whether or not it’s doing well, doesn’t seem to matter.  They can use the company to leverage themselves some outrageous salaries, and as Michael Scott would remind us, “perks!” 

Ellcessor describes how they did it at Hostess: “In September 2004, Hostess filed for Chapter 11 bankruptcy. They demanded and got over $100 million in concessions from their workers’ unions, claiming they could not compete under their labor contracts, even though their competitors operated under nearly identical contracts and were profitable.

At the city of Chico, management used the threat of bankruptcy to eliminate most lower-wage workers, leaving more money to pay management salaries, benefits, and pensions. 

When they emerged from bankruptcy in 2009 they somehow had nearly $670 million in debt, almost double the $450 million owed entering bankruptcy. Most companies shed debt, not increase it, when they seek Chapter 11 protection.

In Chico, finance director Jennifer Hennessy has made one report after another showing we are in deficit, but the city keeps signing contracts that offer pay raises and allow employees to get away without paying their full “share” of their own benefits and pensions. 

What did they do after emerging from Chapter 11? They continued the same business model and products. Plus, like all good corporate leaders, they gave themselves a raise — the CEO to $2.25 million and other top executives got raises of 35-80 percent.

Chico City Council are currently signing contracts that still offer raises and payment of the employees’ share of benefits and pensions. 

Guess what happened, in January? Now loaded down with over $1 billion in debt, from hedge funds Monarch Alternative Capital and Silver Point Capital, they filed bankruptcy again. Incredibly, CEO Brian Driscoll asked the bankruptcy judge to approve a salary increase and severance pay guaranteeing his compensation if liquidation occurred.

Despite Mayor Ann Schwab’s dire warnings that the city would fall into ruin unless voters approved the cell phone tax, she went ahead and hired a new city manager at a $50,000 pay raise over the previous city manager.   I don’t know what kind of severance package Brian Nakamura was promised, but I’m guessing it’s there in his contract, which you can see by appointment and at 10 cents a page. 

Nakamura is no different than the fly-by-night suits that buy and sell these big companies into the gutter. He has worked in cities all over California, staying for an average of just over a year, then moving along to the next town that promises him more money. He’s made his way up to a salary of $217,000 a year, of which he will be eligible for 70 percent a year in pension, on his 50th birthday, which I believe, is less than one year from now. My bet is, he will not make it in Chico more than 18 months, and he’ll leave us in the same quandary he left Hemet.  

How is this different from Ellcessor’s scenario? Well, the Twinkie and Ding Dong eaters pay the suits over at Hostess – Brian Nakamura is paid out of our property taxes. 

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