Tastykake’s Demise

"Nobody bakes a cake as tasty as a Tastykake."

While that jingle can be hummed by most Philadelphians, odds are that another company will soon be baking Tastykakes (if they are still baked at all), and the company’s products will be manufactured somewhere other than Philly.

Will it be a shame if that happens? Absolutely. The financially ailing company has been synonymous with Philadelphia for decades, a unique part of the cultural landscape. More important, should the bakery shut down its new facility at the Philadelphia Shipyard (a plant subsidized by the taxpayers to the tune of $31 million, where Tasty enjoys local and state tax abatements through 2018), many will lose their jobs.

No matter how you bake it, the outlook for Tastykake isn’t peachy. The company sees its stock trading at a 28-year low, has delayed payments to creditors (including the state), and has yet to file its (now overdue) annual report to the Securities and Exchange Commission.

Sure, there are the company-line reasons for Tastykake’s demise: increased ingredient costs, a large customer (A & P) filed for bankruptcy, and the new factory was meeting neither targets nor anticipated cost savings.

All true, but also, quite possibly, symptoms of a much greater illness: a chief executive’s vision more rooted in government solutions than the free market.
Despite all his rhetorical fluff in past years that Tastykake was on the right track, embattled President and CEO Charles Pizzi, boss since 2002, has presided over the once-vaunted company’s precipitous decline. Were some things out of his control? Can some of Tastykake’s problems be blamed on the recession? Yes, but welcome to the club. There’s not another CEO who isn’t facing similar issues.

A recent article in the Inquirer by Joe DiStefano discussed Tastykake’s dire situation, with some of Pizzi’s former associates circling the wagons in his defense. Of particular note is the common theme: Pizzi’s "relationships" with government officials was the cornerstone of his leadership.

DiStefano put it best in outlining the issue: "Tasty’s troubles – and Pizzi’s – are a test of Philadelphia’s industrial policy: The long campaign by city and business leaders to use taxpayer subsidies and personal connections to rebuild a shrunken industrial base."

And therein lies the problem. Despite getting away with that flawed policy for years, it’s time to pay the piper. For far too long, government officials have been in bed with business leaders who, for some reason, think they are entitled to taxpayer money whenever a financial need arises, from pet projects to shipyard bailouts to yes, a "state-of-the-art" new bakery.

That practice has led municipalities, states, the nation — and pension funds — to the brink of collapse, as countless billions have been squandered on projects having nothing to do with the core functions of government. It didn’t matter that many of these initiatives were so risky that the private sector wouldn’t touch them, because there is "no risk" when taxpayer dollars — Other People’s Money (OPM) — are involved.

It’s a No-Lose Proposition: People pay ever-increasing taxes, re-filling government coffers, and the money supply for outlandish "investments" continues unabated.

That is, until the economy tanks. And the house of cards comes crashing down.

As a result, there is no money left for basic government services, such as education, infrastructure and pension payments, let alone bailouts and loans to private companies. (Unless, of course, you are Governor Corbett, who, like Ed Rendell, threw a bone to the unions by bailing out the Aker Shipyard in Philadelphia to build two ships with NO buyers).

As DiStefano noted, "Before the Tasty board hired Pizzi in 2002, bankers suggested selling the company," but the company "…gambled on Pizzi and his connections. If his wasn’t a typical CEO resumé, his exposure to then-Gov. Ed Rendell, then-State Sen. Vince Fumo, and other key politicians was useful in arranging taxpayer financing for a state-of-the-art bakery that would fit in South Philadelphia, a neighborhood also home to taxpayer-subsidized private projects such as the Eagles and Phillies stadiums and the ailing Aker Philadelphia Shipyard."

Being politically-connected is smart corporate policy, but when that becomes a centerpiece of business strategy, you have problems.

Just look at some comments in the Inquirer referencing Pizzi’s "success:"
– "Charlie’s M.O. is, ‘There’s no problem that’s too big that I can’t use my relationships, nontraditional ways, to solve a problem,’ " said Chris Cashman, who worked with Pizzi in prior jobs. "If he hadn’t taken bold, risky, flamboyant steps, four years ago we’d have been talking about what a great company Tastykake was."

In other words, taxpayers staved off the company closing its doors, when the free market dictated otherwise. And how is taking OPM in any way risky? The risk wasn’t in getting the money, but thinking that the company could still operate profitably. Cashman added that Pizzi’s only ideology was that, "he has a deep respect for the fact this (Tastykake) is a Philadelphia treasure." If only that ideology wasn’t predicated on government intervention, perhaps that "treasure" wouldn’t be the doughnut that it is — high in fat and with little substance.

– "Even if Pizzi loses control of Tasty Baking, even if shareholders, taxpayers, and the bank lose millions, Pizzi has accomplished a key mission, his friends say," DiStefano wrote.

It’s nice being loyal to a friend, but that’s a head-scratcher. So you preside over a company which is run into the ground — despite the taxpayers’ generosity — and that’s "accomplishing a key mission?" If that’s "success," one has to shudder as to what "failure" might be.

"Like Aker (the shipyard that Corbett bailed out), the new Tasty bakery is competitive, once you get past the debt, says William Hankowsky," another former colleague of Pizzi’s.

What does that even mean? Subsidize ships that no one will buy, for a shipyard that can’t make it on its own, because it’s only taxpayer money at stake? Bail out Tastykake so it can keep the doors open just a bit longer, even though it can’t make the grade?

It’s classic Bury-Your-Head-In-The-Sand 101.

Hey, William, here’s a thought. Perhaps the millions of Americans who have foreclosed on their homes wouldn’t have done so if only they didn’t have that pesky thing called a mortgage. And the Inquirer wouldn’t have filed for bankruptcy if it hadn’t had that darn $400 million debt. And America would be competitive if it didn’t owe $14 trillion.

And, yes, Butler could have been the NCAA Champion if it hadn’t missed 80 percent of its shots.

But this isn’t Fantasy Land. In the real world, these things exist. What separates innovative leaders from the also-rans is what they do with the challenges they face.

In Pizzi’s case, his background should have been a harbinger of things to come. He had virtually no experience running private sector companies, but just the opposite. He presided over the Philadelphia Chamber of Commerce, a sell-out and wholly impotent organization whose only action is throwing events patting itself on the back for maintaining the status quo. The result of the Chamber’s Business As Usual approach? Philadelphia remains the highest taxed city in America. Nice track record.

For two decades, Pizzi worked in city government positions, including Commerce Director, an executive of the Philadelphia Industrial Development Corporation (a City-Chamber entity which later loaned money to Tastykake), the Mayor’s Development Cabinet, and served on transition teams of two governors; he now sits on the board of the Federal Reserve Bank Of Philadelphia. The only thing Pizzi knows is government, so expectations that he would turn around Tasty were simply naïve.

While some will certainly criticize this column as a "hit piece" on Pizzi, it is nothing of the kind. It merely points out the flawed thinking of those who believe government can and should be the answer to private sector challenges. Career politicians and business leaders who have grown accustomed to raiding the people’s Treasury have now been slammed with the harsh reality that the free ride is over. Companies and governments that adapt, becoming more efficient with fewer resources, will survive and eventually prosper. Those that can’t will fade away, just as they should. Sadly, Tastykake is in the latter category.

Perhaps if Tasty’s leadership had concentrated more on free market solutions and less on feeding at the public trough, it would have weathered the storm and its profits would be icing on the cake.

Instead, a Philadelphia institution will soon be cooked, another inevitable casualty of corporate reliance on Big Government.
Twinkies, anyone?

Chris Freind is an independent columnist, television commentator, and investigative
reporter who operates his own news bureau, www.FreindlyFireZone.com

Readers of his column, "Freindly Fire," hail from six continents, thirty countries
and all fifty states. His work has been referenced in numerous publications including
The Wall Street Journal, National Review Online, foreign newspapers, and in Dick
Morris’ recent bestseller "Catastrophe."

Freind, whose column appears regularly in Philadelphia Magazine and nationally in
Newsmax, also serves as a frequent guest commentator on talk radio and state/national
television, most notably on FOX Philadelphia. He can be reached at [email protected]