Rochester’s soft landing

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Major milestones on Kodak’s pathway to restructuring triggered visits to Rochester by the national press. The nature of their assignment was clear: These reporters were on the “disaster” beat. Just as some are sent to document the effects of war or hurricanes on the innocent, these correspondents were expected to chronicle a different kind of devastation. Consider this piece of lazy journalism, penned just over two years ago: 

“(Kodak’s 2012 bankruptcy) was not only an economic tragedy for one of the great companies of the last century, it was devastating for the city of Rochester, New York. … It employed over 60,000 citizens of Rochester, the majority of whom became unemployed when the company collapsed.” Tendayi Viki, Forbes 2017

This makes an eye-catching statistic—but it just wasn’t true. The company didn’t “collapse” and workers didn’t walk straight from the factory gate to the food pantry. While individual and family impacts were consequential, communitywide trauma was less apparent.

Throughout the 1990s Kodak was actively outsourcing a range of tasks from information technology to food service. Thus, while actual Kodak employment and employment labeled “manufacturing” was rapidly falling, a number of Kodak workers continued in the same jobs, but with a different employer. The category labeled “business services” was growing, partly offsetting manufacturing’s losses. Total Kodak-related job loss (both within the firm and through suppliers) accelerated after 2002.

Through much of the company’s downsizing, employees who were either let go or encouraged to retire early were given generous severance packages, including support for retraining or academic study (thus nurturing Rochester’s higher education sector). These packages provided a financial cushion that enabled many to avoid uprooting their families and seek new employment in the area. As documented earlier in this series, some became entrepreneurs, starting new ventures. Many more “seeded” the ranks of established firms. Thus the “devastation” anticipated (or even reported) by the national media was softened by the continued presence of ex-Kodakers and the purchasing power of their families. 

Impact of bankruptcy on retirees

The purchasing power of Kodak retirees and their families has long been part of Rochester’s economic story. Even as the company’s problems deepened, both retired and laid-off ex-Kodakers continued to support the economy. The impact of the bankruptcy on retirees was thus of community interest. I recently interviewed Art Roberts, current president of the Eastman Kodak Retirees Association, and Robert Volpe, one member of the Official Committee of Retirees of the Eastman Kodak Company, which was recognized by the bankruptcy court. 

The role of the bankruptcy court was to determine how the firm’s assets could be apportioned among the various stakeholders. As the Kodak bankruptcy was a Chapter 11 reorganization, not a liquidation, one goal of the reorganization was to preserve the firm’s ability to generate income going forward. The emerging firm was considered another stakeholder, along with others who held some form of financial promise from the firm. This included shareholders, bondholders, lenders and employees who had been promised benefits. 

Fortunately, the pensions of most Kodak retirees were governed by the Employee Retirement Income Security Act of 1974. ERISA plans are intended to be funded on throughout a worker’s career through contributions to a trust fund that is protected for its original purpose in a bankruptcy. Unlike at many firms, Kodak’s ERISA retirement plan had been faithfully funded and all obligations of the ERISA pensions, current and future, are supported by the fund. The assets of the fund total about $4 billion currently. Payouts from the trust fund are monitored and regulated by the federal Pension Benefit Guaranty Corp. 

That’s not the whole story, however. Pensions covered by ERISA have an upper limit. Kodak promised pensions to its higher-paid employees that exceeded the ERISA cap. These additional individuals (1,200 to 1,400 retirees, according to Roberts and Volpe) were paid out of current earnings. These payments and payments for such future retirees ceased at the time of bankruptcy. The loss of this benefit forced a change in lifestyle for many of these families.

Many Kodak retirees also had enjoyed health care coverage paid by the firm. Covered by operational revenue, these obligations also were eliminated in the reorganization. Life insurance for retirees, long a retirement benefit, had been eliminated a few years before the reorganization.

Finally, the Survivor Income Benefit was eliminated as a result of the bankruptcy as it was also funded by operations. It allowed the survivors of retirees to receive 30 percent of the pension benefit that was going to or would go to retirees and employees who were eligible for this plan prior to 1996. Many survivors were receiving this benefit at the time of the reorganization; in addition, many qualified retirees were still alive at the time, so their survivors are not yet in benefit. The retirees’ committee, with the approval of the court, was able to preserve some funding for the survivors, although the benefits amount was capped at $400 for a duration of 27 months. The loss of this revenue, promised by Kodak to survivors, upended the financial plans of many, forcing some to make significant changes in lifestyle.

Difficult as the bankruptcy has been for former employees, one purpose of the reorganization was to release Kodak from promises made when the company was much larger and much more profitable. This is a problem that has bedeviled nearly every industrial firm that, for whatever reason, found itself attempting to support prior obligations with a much-reduced base of operations. In bankruptcy, the court must choose to either liquidate the firm’s assets or, as a way of making continued operation possible, eliminate obligations that the emerging firm will find unaffordable.

That leaves us to ask whether the pain and loss entailed by Kodak’s bankruptcy was inevitable. At its peak, Kodak’s managers controlled significant assets—plant and equipment, a deep reservoir of intellectual property, a large group of highly skilled workers and researchers, and one of the world’s most recognizable brands. The firm that emerged from the bankruptcy is but a shadow of its former self. Could this have been avoided? That will be the subject of the final post in this series.

Kent Gardner is Rochester Beacon opinion editor.

2 thoughts on “Rochester’s soft landing

  1. I think this article is great and dispels a lot of stories about Kodak that simply were not true, however, it did not address how the company was terribly mismanaged in the 70’s, 80’s and 90’s. They had the digital camera before anyone else and they moth balled it because there core business was film. What? Had they developed that camera they could have grown there business to a firm that was bigger than they ever were before.

    I relate this mismanagement similar to that of Sears. Sears had the Sears Catalog which transferred to the Internet would have been Amazon! Mismanagement caused Sears not to change and virtually put it out of business.

    Your graphs clearly show that Kodak was downsizing from a peak of over 60,000 employees but what would have happened to Rochester if instead of downsizing to a few thousand employees they developed the digital camera and employed over 100,000 people? I can assure you that poverty in the Flower City would be much lower and the population declines over the last several decades would have leveled off or maybe even increased.

    Kodak needed a leader like Jack Welch who constantly changed GE and grew the business during his tenure. Since Fallon was at Kodak and all the leaders that followed they failed miserably at modernizing and transitioning this once Blue Chip juggernaut into a viable company for the 21’st century. So Kodak’s demise might not be all that devastating on the surface but in reality it was devastating from the vantage point of what Kodak could have been with forward thinking leadership.

  2. As a medical provider to many former Kodak employees, I’ve learned of the “two Kodaks” — research and development, and manufacturing. True, true and true in your piece regarding the previously better paid R&D folk, most with some sort of college or advanced training. Not true for the folk whose skill set was film processing or some such factory job — Kodak’s death and their job specific training placed so many in the jaws of low paying jobs the rest of their working lives– and today they make up much of the senior citizen sector our poverty laden City.

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