Is Mitt Romney A Job Creator-- Or A Job Destroyer?
Artists and clowns aren't always the same thing
When I retired a few years ago, I had worked my way up to being a divisional president of Warner Bros. I ran Reprise Records, the label founded by Frank Sinatra as an artists' refuge that could boast being home to Green Day, Eric Clapton, Morrissey, Neil Young, Depeche Mode, Joni Mitchell, Barenaked Ladies, Enya, Lou Reed, Wilco, Fleetwood Mac, Josh Groban, Alanis Morissette, the B-52s, Chris Isaak, Steely Dan, Candlebox and scores of other artists that probably made your heart dance at one time or another. I've written a great deal in the past about the disaster of the TimeWarner merger with AOL. The irresponsible, avaricious and predatory nature of AOL top management spelled doom for the merger from day one. It also spelled doom for the companies that had been built over the decades. And it got worse. Eventually a failing AOLTimeWarner sold off Warner Music-- which included the record divisions-- to a consortium of investors that included, prominently, Bain Capital, the vulture firm (that's actually what it's called) run by Mitt Romney, who hopes to propel himself to the White House by claiming to be a job creator. He wasn't; he was a job destroyer-- as a business strategy. In 2008 the Boston Globe explained the Bain strategy of slashing jobs.
A few weeks ago a much-diminished Warner Music sold itself to a Russian Mafia character (an oil billionaire)-- and inside player who was already on the Board-- who basically bought it for the debts it had accrued while Bain and the rest of the consortium destroyed what was once the world's greatest record company and turned it into nothing at all... shedding 4/5 of the employees in the process. That's the Romney job creation prowess. We had over 500 people working at Warner Records USA when Bain came along. Now there are less than 100. And, in the process, Bain made a fortune and everyone else lost, especially the artists and the public and... music. As the Globe explained, Bain "specializes in leveraged buyouts. Leveraged buyouts combine small amounts of investors' money with large amounts of borrowed money to buy established companies, increase their value, and resell them at a profit."
The primary objective, of course, was to make money. That meant every job couldn't be saved. Some strategies, such as a roll-ups, are designed at the outset to cut jobs. In roll-ups, similar firms in the same industry are acquired and combined to boost revenues while eliminating duplicative jobs, particularly in administrative areas such as payroll, personnel, and information technology.
Bain embarked on a roll-up after acquiring Ampad in 1992. Two years later, Ampad bought the office supplies division, including the Marion, Ind., plant, of typewriter maker Smith Corona. Ampad shuttered the Indiana plant in 1995, moving equipment and production to other Ampad factories.
In 1996, another Bain company, Dade International, a maker of medical diagnostic equipment, bought a similar unit of E.I. du Pont de Nemours and Co., of Wilmington, Del. Dade soon shut down two plants and cut more than 700 jobs, according to government filings. The next year, Dade merged with Behring Diagnostics, a German company, to form Dade Behring Inc. Dade Behring shut three US plants, affecting more than 1,000 workers, some of whom were offered transfers to other facilities.
Sometimes, Bain cut jobs to right underperforming companies. In 1997, after acquiring Live Entertainment, later known as Artisan Entertainment, the producer of the hit film Blair Witch Project, Bain slashed 40 jobs, about 25 percent of the workforce, according to the Hollywood Reporter. Midwest of Cannon Falls, Minn., a giftware distributor, cut 40 jobs, or about 10 percent of its workforce, less than a year after Bain bought a "significant" stake in the company.
In assessing deals, Romney and partners didn't consider whether they saved or created jobs, according to a former Bain employee who requested anonymity, citing confidentiality guidelines. When Bain partners discussed shutting down failing businesses in which they invested, Romney never suggested they had to do something to save workers' jobs. "It was very clinical," the former employee said. "Like a doctor. When the patient is dead, you just move on to the next patient."
While Bain Capital has one of the investment industry's best track records in terms of return to its investors, it did have failures. Companies acquired through leveraged buyouts are particularly vulnerable to changing conditions because of their heavy debt. Should cash flow diminish by a few percentage points, these companies can miss debt payments and plunge into bankruptcy.
Bain acquired GS Industries in 1993. The steelmaker borrowed heavily to modernize plants in Kansas City and North Carolina, as well as pay dividends to Bain investors. But as foreign competition increased and steel prices fell in the late 1990s, the company struggled to support the debt, according to Mark Essig, the former CEO. GS filed for bankruptcy in 2001, and shut down its money-losing Kansas City plant, throwing some 750 employees out of work.
Ampad, too, became squeezed between onerous debt that had financed acquisitions and falling prices for its office-supply products. Its biggest customers-- including Staples-- used their buying power and access to Asian suppliers to demand lower prices from Ampad.
Romney sat on Staples's board of directors at this time.
Creditors forced Ampad into bankruptcy in early 2000, and hundreds of workers lost jobs during Ampad's decline. Bain Capital and its investors, however, had already taken more than $100 million out of the company, in debt-financed dividends, management fees, and proceeds from selling shares on public stock exchanges.
By the time Ampad failed, Randy Johnson, the former union official in Marion, Ind., had moved on with his life. After the Indiana plant shut down, he worked nearly six months to help the workers find new jobs. He later took a job at the United Paperworkers union.
"What I remember the most," said Johnson, "were the guys in their 50s, breaking down and crying."
In his reply to Johnson's letter, Romney said the Ampad strike had hurt his 1994 bid to unseat Senator Edward M. Kennedy, and no one had a greater interest in seeing the strike settled than he.
"I was advised by counsel that I could not play a role in the dispute," Romney explained, adding, "I hope you understand I could not direct or order Ampad to settle the strike or keep the plant open or otherwise do what might be in my personal interest."
Hiding behind lawyers is an easy way out for CEOs. But it doesn't make for a good leader or good leadership. Lawyers gave me advice all the time-- like to drop Depeche Mode or Joni Mitchell or Eric Clapton because their last record wasn't performing up to par. I always listened politely and then did the right thing, never something I would have to explain was something some effin' lawyer told me to do.