Scorched Earth: Hostess Bankruptcy


More than 18,000 workers face unemployment and the future of the famous Twinkie is in jeopardy largely because Hostess executives and employee unions couldn’t find common ground in negotiations last month.


The company’s announcement that it would shut its doors and liquidate assets was a bitter, no-win ending to a long fight punctuated by two bankruptcy filings, deep paycheck and benefits cuts to workers, months of heated union talks, a strike and an emergency arbitration.


Labor relations and negotiation experts said Hostess’ final labor discussions were marked by mistrust and entrenched positions on both sides. Management blamed labor-related costs for the company’s downward spiral, while workers faulted management for failing to right the ship after earlier cost reduction measures and ignoring Americans’ shifting preferences for healthier food.


Hostess’ circumstances were unique, but experts told The Financialist that there is a set of principles companies can follow to avoid similar lose-lose outcomes.


A History of Good Relations


The first step to reaching a consensus comes long before the parties arrive at the bargaining table. Ideally, management and labor should have a history of shared goals and mutual trust. In the midst of a crisis, the memory of previous promises fulfilled can be the most effective bargaining tool.


“When you have a management (team) with a history of engaging the workforce directly, investing in workers and incorporating their ideas…historically we’ve seen that it hasn’t hurt anyone’s ability to engage successfully in hard bargaining on things like wage concessions,” Susan J. Schurman, dean of Rutgers University’s School of Management and Labor Relations, tells The Financialist.


Identify Potential Common Ground


Early on, both sides should flag the issues on which they believe there is a good chance of reaching a reasonable compromise to set a starting point for negotiations.


“We call it the contract zone — a range of outcomes that both sides could potentially agree on,” Alex Colvin, professor of labor relations and conflict resolution at Cornell University. “That’s where you want to work.”


Active Communication


Candid updates and a frank assessment of the company’s prospects during hard times can help build trust, said Robert Millman, a partner at Littler Mendelson, a large Los Angeles employment and labor law firm that exclusively represents management.


“You’ve got to talk to people, communicate with people, be direct with people,” Millman said. “A lack of information leads to mistrust – always.”


Shared Sacrifice


Millman said that workers who are being asked to give up pay and benefits want to know they aren’t the only ones making concessions.


“The first thing unions are going to ask for is shared sacrifice,” he said. “What are the non-union people taking by way of cuts? What are the management people taking in terms of cuts?”


Last Chance


When talks reach an impasse, negotiators often employ emergency tactics to keep the parties talking.


Replacing professional arbitrators is one way to set a new tone. Appealing to investors for a cash infusion can also buy time to hash out an agreement. Finally, kick-starting a search for an unconventional or overseas buyer can help shake up the process.


Drive Home the Upside


Experts said Hostess, which weathered plant closures and a string of chief executives in recent years, entered its latest crisis with a frustrated labor force that saw only more losses and the inevitable closure of the company if they gave in.


Union heads said they did not believe even major givebacks would guarantee Hostess’ survival because a succession of company leaders failed to get the company on firm ground after previous cost reductions.


“This union has simply decided the owners at Hostess are relying entirely on cutting labor costs…and using the profits to put in their pockets,” Schurman said. “If I’m a worker at Hostess and that’s what I think, this action makes perfect sense.”


In the end, difficult labor negotiations are sometimes inevitable. But in order to avoid a situation in which both sides walk away empty-handed, both workers and management have to believe that they have something to gain by meeting in the middle. Building the best possible relationships before negotiations, communicating frequently and honestly during talks and making sure that concessions are not one-sided can help to prevent a worst-case scenario from becoming reality.


Photo courtesy of Christian Cable (Flickr)