Sure, we understand that the people who run political campaigns and the candidates who hire or encourage them will stretch or bend the truth in return for a bump in the polls. That’s why, as Harry Truman understood, it gets very hot in the campaign kitchen. The distortions, however, that have been pedaled about Bain Capital, private equity and Mitt Romney’s career as Chairman of the private capital firm have been beyond the pale. They are shameful, and shame on those Republican candidates who have perpetuated them, encouraged them or tolerated them. Investments made by private equity groups such as Bain Capital provide what is, for many firms, the wind in their sails that propels them from troubled waters to clear and profitable sailing. And, yes, sometimes those investments fail to turn around a sick company or to guarantee the continued success of a company facing tough competition. Bain had some failures, although relatively few, as has every investment bank or fund in the business of finding equity investors or providing risk capital.
Our impatience over the Bain imbroglio isn’t so much about the poor campaign tactics that were employed to try to make political capital (no pun intended) over the vicissitudes of the role and workings of private equity in the economy, but, rather, of the absurd and dishonest distortions that have been concocted about Bain and Romney’s record there. We’re not even that perturbed about the damage it may have caused to one candidate’s quest for the nomination (Romney will weather this contrived tempest in a tea pot). We’re in high dudgeon over the damage and confusion this deceitful attack has probably caused regarding the public’s understanding of the critical role of private equity investment and risk capital in the nation’s pursuit of prosperity.
The basic premise of the attack on Bain is, of course, an exercise in sophistry. Because some companies in which Bain invested failed, Bain (and Romney) is accused of costing communities jobs, and throwing people out of work. These are tough times and accusing a candidate of being a job destroyer is a direct shot at the jugular. However, for such an argument to stand any scrutiny, one has to assume that had Bain not invested in a company that ultimately failed, the enterprise would have sailed merely on its way, and its labor force would have been secure in their jobs. Nonsense! Companies that failed following an investment by Bain were candidates for failure and would have failed earlier had Bain not invested its own money to try to save it. While Bain can be faulted for not having a perfect record of success, it can’t reasonably be criticized for destroying jobs.
Whatever led any of the Republican candidates to believe they could level what are, essentially, scurrilous charges against Romney for his leadership at Bain without drawing fire from reputable and qualified observers who have no axes to grind is almost a mystery…almost, but not quite. Desperation can turn any political contest into a freak show, and that’s what this spectacle became.
Bain was “never interested in driving companies out of business,” said Howard Anderson, a professor at MIT’s Sloan School of Management, “and certainly to portray that as their modus operandi is unfair and inaccurate. The goal here was to create wealth,” Anderson said. “Jobs were the byproduct, not the product… on day one, they all look good, like the first day of baseball. … All in all, Bain is a remarkable company.”
“Their overall performance was terrific,” concurred Steven Neil Kaplan, a professor at the University of Chicago Booth School of Business. “He’s got lots of deals that worked.”
The U.S. Chamber of Commerce chimed in as well. Bain’s track record was not perfect, but it was pretty darn good, they said.
Now we understand that candidates in the throes of an election can overstate their case or shoot (at their opponents) from the hip. But we believe there was something far more nefarious here. First there is that 27-minute film that features interviews with former Bain employees, the context of which was so contorted that some of the individuals who were interviewed expressed shock at how their words were misrepresented. In one case, a former employee who was featured in the film jumped to Romney’s defense, explaining that he did very well while Romney and Bain were at the helm, and it was actually years later, after Bain had sold the company that things went south under new ownership. This is not a case of shooting from the hip. This is blatant fabrication of the facts. It is no less than manufacturing the mud they wished to sling.
USA Today, in a Fact-Check feature, reports that the video often overstates, or outright distorts, Romney’s culpability for job losses or bankruptcies.
•The film talks about layoffs at DDI Corp. and discusses questionable manipulation of stock prices after the circuit board company went public. But Romney had left Bain Capital a year before any layoffs and a public stock offering that ultimately netted Bain and Romney a big payday. The company’s subsequent bankruptcy filing came two years after Bain had largely divested from the company, and was the result of the dot-com bust. Moreover, the company emerged from bankruptcy, and its current CEO credits those early Bain investments for setting the foundation for the company’s current success.
•The film claims Romney was involved in the acquisition, management and demise of the now-defunct KB Toys. He wasn’t. Bain bought the toy company nearly two years after Romney left Bain.
•Likewise, the closing of UniMac’s plant in Marianna, Fla., occurred seven years after Romney left Bain and nearly two years after Bain sold UniMac’s parent company to another private equity house.
Private equity companies such as Bain Capital, and the men and women who create and manage them provide an invaluable service to a free market economy. They invest risk capital in companies in which they believe improved management can significantly add to a company’s value. Once a company is on its feet and doing well, they generally exit the company by selling their interest at a well-earned profit. A by-product of this activity is job creation. Sometimes their judgment is wrong and companies in which they have invested fail. Jobs are lost when companies fail. The investors are left with whatever assets, if any, the failed company has. According to extensive analysis of Bain’s operations, as reported in the press, the company had a nearly 80% success rate. But even if they had an 80% failure rate, they would not have been responsible for lost jobs. They would have simply been responsible for making lousy investments.
Compare the outrageous descriptions of Romney made by some of his Republican competitors who call him a vulture and a looter, to the assessment of him made by Jack Welsh, former CEO and Chairman of GE who is widely considered one of the premier CEO’s in the history of American business.
Jack Welch: “In my lifetime, Mitt Romney is the most qualified leader I’ve ever seen run for the presidency of the United States. We’ve got a guy here who’s a leader that’s demonstrated beyond anything we’ve ever had…we’re the luckiest people in the world to have this guy there at this point in time.”
Frankly, we think Mr. Welsh, perhaps, engages in a bit of hyperbole himself. But between the deplorable and unfounded vilification of Romney by his Republican competitors, and the lavish praise heaped upon him by Mr. Welsh, there yawns a gap in which there is generous room for fair battle in the rough and tumble of party politics.
Sadly, the subject of Bain simply camouflages that some of Romney’s competitors have resorted to tactics that are unbecoming of their candidacy and of the office they seek.
By Hal Gershowitz and Stephen Porter