08/21/2009 05:12 am ET | Updated May 25, 2011

Stella D'Oro's No-Win Solution

I'm disgusted with everybody involved in the Stella D'Oro fiasco. No one gets a gold star (stella d'oro) unless it's for incompetence. The union negotiators gang planked the 136 workers in their care right into a watery grave. The private equity firm that owns the company allowed a semi-literate cabal of chest thumpers to box them into a corner that practically mandated they shutter the bakery.

A Battle of Midgets

Stella D'Oro's collapse was a battle of midgets, and it didn't have to happen. Each side overplayed its hand.

Brynwood Partners clearly anticipated leveraging its experience owning food companies when it bought the struggling bakery. The principals knew that once the existing union agreement expired they would impose substantial constraints on wages and benefits to boost profitability, and after a few years of skillful management they expected to sell it at a premium valuation.

Standing in their way was an activist work force that felt entitled, and who became incensed when management tried to impose a plan for renewal that contradicted the evolution of nest feathering previous owners had tolerated. The union representatives were particularly outraged by the introduction of a restructured pay scale in which new workers would no longer be paid almost as much as seasoned workers. In that, they were wildly successful; now everyone is paid exactly the same.

A Pox on Both Their Houses

The errors in judgment and procedure by Brynwood Partners seem to belie a lack of sophistication that is surprising. They should have wrapped up the negotiations quickly, but because of their intransigence they instigated a strike that dragged on for almost a year.

From a reading of the ruling by an administrative judge of the National Labor Relations Board it looks as though Brynwood Partners was naive when it told the union reps it had to cut wages and benefits in order to operate profitably, while steadfastly refusing to let the union copy confidential financial documents that supported its claim.

Brynwood should have known there are clearly articulated guidelines of the NLRB that compel a company which cries poor mouth to turn over financial documents to the union so its accountants can parse the information. But, even worse than that lapse in judgment were the misplaced citations made by their attorneys, the Weil, Gotshal & Manges law firm, in citing the wrong cases in order to justify Brynwood's refusal to provide copies. The administrative judge nailed them on it then cited the company for unfair labor practices; a public relations nightmare. Here is the entire ruling.

Finding a Balance

Certainly workers must be allowed to use their best leverage -- the walkout -- to protect themselves from unbridled greed. And, they have a right to expect a safe and clean workplace, and humane working conditions. They also should expect to be paid a competitive wage and should assume kindness in return for loyalty, dedication and excellence.

But, the mind-numbing arrogance of the negotiators for the Bakery Workers Union Local 50 is particularly disturbing because it sealed the fate of the workers whose jobs they were supposed to be protecting. Obviously they thought they could arm wrestle management into caving in. What a mistake.

Evidence of their changing world is everywhere. Earlier this year Wal-Mart closed a lube shop in Quebec, Canada because the costs associated with a new union contract made it unprofitable; it's not the first time they have done that. IBM is on a company-wide tear to reduce costs. It expects to save $2bn this year, according to The Financial Times, by "workforce rebalancing", which eliminates employees in more expensive countries and adds back a smaller number elsewhere. My guess is the Stella D'Oro union reps don't read The Financial Times.

Rallying Cries

Upon learning of the administrative judge's ruling that Brynwood Partners had to fork over back pay and reinstate the workers a great "Huzzah" arose from the rank and file. It was as though all cautionary comments by the firm's lawyers had gone right over their heads. All those months of admonitions that if the terms of the expired contract could not be constrained to the point at which the company was earning a profit, Brynwood withheld the option of closing the company's doors.

Around and around the workers marched outside the bakery door on the morning after the ruling. Self-congratulatory shouts filled the air. For the union reps the ruling of the administrative judge seemed to turn back time. Here's an excerpt from a union published summary of that moment: "It was a great sight this morning under the El in the Bronx: workers' power had won a VICTORY! Cheers, chants of "We Are Stella!" and "¡Obreros, unidos, jamás serán vencidos!" and "Same Enemy, Same Fight, Workers of the World Unite!" A strike leader and two supporters spoke. The air was thick with the blaring horns of drivers giving us a cheer."

It was as though the economic realities carried no resonance with these workers of the world. They failed to comprehend the most basic linkage between management's needs and their lives: No Return on Invested Capital, no innovation. No innovation, no products. No products, no sales. No sales, no taxes. No taxes, no emergency room, no public schools, no police, fire, diabetes testing, or maternal education for teenage girls. No fireworks on the Fourth of July. No ROIC, no jobs. No jobs, no better life.

Go rally around that.