October 20, 2011--Romney & Bain & Company

For some time here I have been suggesting that if Mitt Romney were not a Mormon he would be the odds-on favorite to win the Republican nomination and could beat Barack Obama in the general election.

In fact, Romney may still win the nomination.

Consider the competition--Herman Cain? That 9-9-9 business will have a shelf life of maybe two more GOP debates. Especially the last 9--a 9 percent national sales tax that is so regressive that even regressive-loving conservatives think it goes too far.

Michele Bachmann, the front runner a month and a half ago? A Constitution-loving right-winger who doesn't know even the simplest facts about American history is an embarrassment to even those who hate the liberal arts and reject all of modern science. And having a pray-the-gay-away husband who she "submits" to is too much for the country-club set.

And Rick Perry, whose wife is now saying was told to run for president by a burning bush, is too "progressive" for values primary voters. His not being eager to deport all Mexicans and wanting to prevent teenage girls from acquiring the HPV virus almost qualifies as the work of the Devil.

Gingrich? Santorum? And poor Jon Huntsman? They're all single-digit players.

(As a sidebar, I wonder what Mike Huckerberry must be thinking--in their field of contenders he could have been nominated in a walk. But then he'd have had to give up his Fox News, big-money gig.)

So with Christie and Rudy dropping out, still standing is good old reliable Romney.

I thus thought I should make an attempt to learn more about him, especially his work with Bain & Company. It is his best asset--having worked for decades in the corporate sector--and his greatest liability--he has been accused of taking over companies, consolidating them, and firing hundreds of workers--not good when people's concerns are jobs, jobs, jobs--while he made billions for the company and hundreds of millions for himself.

Here then is a lengthy except from Wikipedia about Romney's Bain years. It appears to be fair and balanced and I can confirm its accuracy from other research that I did--

In 1977, he was hired by Bain & Company, a management consulting firm in Boston that had been formed a few years earlier by Bill Bain and other former BCG employees. Bain would later say of the thirty-year-old Romney, "He had the appearance of confidence of a guy who was maybe ten years older." With Bain & Company, Romney proved adept at learning the "Bain way", which consisted of immersing itself in each client's business, and not simply to issue recommendations, but to stay with the company until they were effectively changed for the better. With a record of success with clients such as the Monsanto Company, Outboard Marine Corporation, Burlington Industries, and Corning Incorporated, Romney became a vice president of the firm in 1978 and within a few years one of its best consultants. Romney became a firm believer in Bain's methods; he later said, "The idea that consultancies should not measure themselves by the thickness of their reports, or even the elegance of their writing, but rather by whether or not the report was effectively implemented was an inflection point in the history of consulting."

Romney was restless for a company of his own to run, and in 1983 Bill Bain offered him the chance to head a new venture that would buy into companies, have them benefit from Bain techniques, and then reap higher rewards than just consulting fees. Romney was initially cautious about accepting the offer, and Bain re-arranged the terms in a complicated partnership structure so that there was no financial or professional risk to Romney. Thus, in 1984, Romney left Bain & Company to co-found the spin-off private equity investment firm, Bain Capital. Bain and Romney spent a year raising the $37 million in investment money needed to start the new operation, which had fewer than ten employees. As general partner of the new firm, Romney was frugal and cautious, spending little on office appearance and finding the weak spots in so many potential deals that by 1986, very few had been done. At first, Bain Capital focused on venture capital opportunities. Their first big success came with a 1986 investment to help start Staples Inc., after founder Thomas G. Stemberg convinced Romney of the market size for office supplies; Bain Capital eventually reaped a nearly sevenfold return on its investment, and Romney sat on the Staples board of directors for over a decade.

Romney soon switched Bain Capital's focus from startups to the relatively new business of leveraged buyouts: buying existing firms with money mostly borrowed against their assets, partnering with existing management to apply the "Bain way" to their operations (rather than the hostile takeovers practiced in other leverage buyout scenarios), and then selling them off in a few years. Bain Capital lost most of its money in many of its early leveraged buyouts, but then started finding successes with spectacular returns. Indeed, during the 14 years Romney headed the company, Bain Capital's average annual internal rate of return on realized investments was 113 percent. Romney excelled at presenting and selling the deals the company made. The firm initially gave a cut of its profits to Bain & Company, but Romney later persuaded Bain to give that up.

The firm successfully invested in or acquired many well-known companies such as Accuride, Brookstone, Domino's Pizza, Sealy Corporation, Sports Authority, and Artisan Entertainment, as well as lesser-known companies in the industrial and medical sectors. Romney's cautious instincts were still in force at times; he wanted to drop a Bain Capital hedge fund that initially lost money, but other partners prevailed and it eventually gained billions. He also personally opted out of the Artisan Entertainment deal, not wanting to profit from a studio that produced R-rated films. Romney was on the board of directors of Damon Corporation, a medical testing company later found guilty of defrauding the government; Bain Capital tripled its investment before selling off the company, with the fraud being discovered by the new owners (Romney was never implicated). In some cases Romney had little involvement with a company once acquired.

Bain Capital's leveraged buyouts sometimes led to layoffs, either soon after acquisition or later after the firm had left. Bain Capital officials later said that overall, more jobs were added than lost due to these buyouts. In any case, maximizing the value of acquired companies and the return to Bain's investors, not job creation, was the firm's fundamental goal, as it was for most private equity operations. Regarding job losses, Romney later said, "Sometimes the medicine is a little bitter but it is necessary to save the life of the patient. My job was to try and make the enterprise successful, and in my view the best security a family can have is that the business they work for is strong." Bain Capital's acquisition of Ampad exemplified a deal where it profited handsomely from early payments and management fees, even though the subject company itself ended up going into bankruptcy. Bain was among the private equity firms that took the [highest] fees, and [other deals of this sort [occurred] as Romney was leaving the firm. He said in retrospect, "It is one thing that if I had a chance to go back I would be more sensitive to. It is always a balance. Great care has got to be taken not to take a dividend or a distribution from a company that puts that company at risk. [Having taken a big payment from a company that later failed] would make me sick, sick at heart."

Far from a perfect record, but if I were Obama I'd be worried.