In 2009, the Dr Pepper Snapple Group (DPS) reported a net income of $555 million, compared with a loss of $312 million in 2008, with sales down 3 percent at $5.5 billion. The beverage conglomerate owns 50 brands including 7UP, A&W Root Beer, and Hawaiian Punch, but in 2010 it was receiving the most media attention for its Mott’s apple juice plant in the Rochester area of upstate New York. The 305 hourly workers at the plant went on strike on Monday, May 24, 2010, in response to a new contract offer by the plant’s senior management that reduced production wages by $1.50 per hour, froze pension benefits, ended pension benefits for new hires, reduced employer contributions to the 401(k) plan, and increased employee copays in the health care plan. The rationale for the pay decrease was that the Mott’s workers—all members of the Retail, Wholesale, and Department Store Union (RWDSU)—were overpaid in relation to the other blue-collar production workers in the Rochester area, where companies such as Xerox and Kodak have made large layoffs resulting in high unemployment. This negotiation, in line with “local industry norms,” had been quite transparent. The parent company had confirmed that its finances were very healthy and that there were no plans to close the plant or move production operations overseas. When the company was spun off as a separate entity from UK conglomerate Cadbury Schweppes in 2007, the stock stood at $25 a share—it was then in the high 30s. DPS’s three highest paid executives, including CEO Larry Young, all saw pay increases of more than 100 percent in 2009. The average hourly production wage in the area, according to a U.S. Bureau of Labor Statistics National Compensation Survey conducted in 2009, was just over $14 an hour. Union officials estimated that 70 percent of Mott’s production workers earned less than $19 an hour under the contract that expired in mid-April 2010. Many had reached that level after more than a decade of service. Chris Barnes, a spokesman for the Plano, Texas-based DPS, insisted that the company approached the contract negotiations in good faith: “We offered to keep wages unchanged after three years of salary increases and, unfortunately, the union rejected this offer. . . . We have to manage our costs the same as everyone else and ensure that they remain sustainable over the long term.” RWDSU President Stuart Appelbaum had a different perspective. He had seen financially strapped companies needing to cut costs and had agreed to concessions in some dire situations, but to have a profitable company with strong prospects seeking to leverage high local unemployment rates to reduce wage costs was a first for him. The striking workers saw this as more than just a strike over money. They didn’t begrudge the company profits or high executive salaries, or even the 67 percent increase in the dividend paid to shareholders in April 2010. What they saw was an attitude of unfettered corporate greed. “When you get down to it, this situation is much bigger than just some unhappy workers at a Mott’s apple juice plant in upstate New York,” Applebaum said. “This is about a large company doing extraordinarily well demonstrating outrageously greedy behavior. It’s beyond outrageous. It’s un-American.” The strike ended after 16 weeks in mid-September. In a three-year deal, the union agreed to a wage freeze, but not the cuts in hourly rates that the company had demanded. Pensions for current workers were preserved (the company had wanted to freeze them), in return for a concession from the union that new workers would be offered 401(k) plans instead of pensions. Mike LeBerth, president of the local branch of the RWDSU, admitted, “Nobody wins in a strike . . . neither side is happy with what we got. Was it worth it? Yes, because we stood strong and the company knows we’re a force to be reckoned with.” In March 2013, the RWDSU announced that Mott’s workers had ratified a new three-year contract without any need for industrial action (strikes). The new contract increased wage rates by $1.60 per hour, introduced signing bonuses of over $3,000, and secured health care benefits for all 300 employees. Representatives of the Local 220 chapter of the RWDSU commented that the show of strength in the 2010 strikes exhibited a “resolve [that produced] a good contract that recognizes their [members’] contributions to making [Mott’s] a successful, profitable facility.”
1. When you consider Milton Friedman’s position on corporate responsibility in Chapter 4, is it possible to defend DPS’s demand for lower hourly wages?
2. Was DPS considering the interests of all stakeholders in this battle? Explain why or why not.
3. How could senior executives have approached this situation differently?
4. Both sides claimed in media interviews that they had won their case. Was there a victory here? Explain why or why not.