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The Twinkie Defense

January 12, 2012

Yesterday the maker of Wonder Bread, Twinkies and other bakery products, Hostess Brands, announced that they would be filing for bankruptcy (for a second time). Hostess was a major household name when I was growing up. Although, not so much in my household as my mother did not believe their pastry products were healthy.

Many years ago, during the trial of a murder suspect, a defense attorney used the now infamous “Twinkie defense,” wherein the defense argued that the suspect was not guilty because their client ate too many Twinkies and that is what caused him to act out violently. Today, the maker of Twinkies has a ‘Twinkie defense’ for their bankruptcy that I hear way too often. They, like so many other major corporations, are blaming the cost of their employees’ pensions and healthcare for their financial demise. I have heard this argument way too often. In fact, I once debated a professor from Stanford who argued that the reason the airline industry was in so much trouble was because the union that represented airline pilots had demanded too much over the years.

This is a common argument I hear often these days and usually ends in: “It is the fault of those greedy unions!”

As I pointed out to my professor friend, I do not see where it is the union’s role to operate the company for which their members work; that is the role of executive management and that is why they get the big bucks. I would agree it would be nice for the union and management to form a partnership that allowed both sides to fairly assess the future financial viability of the company, but that would be a rare occurrence because it would require executives to lead by example. Hence, if the CEO of the company made the claim that the company could not afford to give the employees a 3 percent pay raise, then he shouldn’t turn around and give himself a 10 percent pay raise. It is not easy to think long-term and fund pensions appropriately when the single most important item you are concerned with is your own compensation, stock options and year-end profits in order to maximize your bonus. 

The biggest problem with pensions, and in particular the long-term funding of pensions, is the inability to be fiscally disciplined and responsible to those who depend on their pensions being well managed. Instead, these long-term, dedicated employees find themselves being blamed for the failure of the decision makers they worked for. It is the new “Twinkie Defense.” But it is incredibly hypocritical for corporate executives to blame the benefits of their employees (active or retired) for the demise of the corporations they run, all while sometimes making tens of millions of dollars themselves. In support of my argument that the focus of some CEOs has been on their short-term gain over the long-term viability of the companies they ran, we see that the pay ratio of CEO to line workers has changed dramatically over the past few decades. In 1980, the ratio of CEO to average worker pay was 42:1. In 2009 it was 263:1, and climbed to 343:1 in 2010.

 

 

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