Wednesday, June 08, 2011

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.

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At 2:42 PM, Blogger John said...

Fantastic post and greatly important to read.

At 11:48 AM, Blogger Unknown said...

Murdoch must hate Romney's ass as his NY Post did a large piece recently on what a lying sack of shit Mittens is regarding job creation and how Bain actually did the opposite.

At 12:29 PM, Blogger Daniel said...

I tried to explain to my 15 year old daughter how a leveraged buyout worked, and she was aghast that a publicly traded company could be taken over in that way.

Mouths of babes and all of that.

At 8:51 AM, Anonymous Anonymous said...

Thank You for the enlightening story.

You have convinced me that Mitt Romney is a real deal conservative and my vote has my vote and support for president.

At 12:39 PM, Anonymous ARHYTHMATIK said...

Yeah, the digital music revolution had nothing to do with the demise of Warner music.

At 1:26 PM, Blogger Jacobus 323 said...

What you are saying is that Romney is nothing more than a Carl Icahn, people who leverage their stocks by sacking employees. Icahn became the model for the movie character of Gordon Gekko ("Greed is Good"). Now, what I can't figure out is, why are the evangelicals so set against Romney becoming the nominee? His past indicates he fits right in with the megachurch "Prosperity Gospel." They could use a man like Romney.

At 5:56 PM, Blogger Teresa Nielsen Hayden said...

Structurally, I don't see a lot of difference between a leveraged buy-out followed by mass firings and resource stripping, and the con game called a "bust out" (memorably dramatized on The Sopranos).

Both gain control of an established company by paying far less than its value, which is not the same thing as its current earnings. (A culture of superficial investment, guided only by stock market prices, essentially speculative, can scarcely be expected to tell the difference.)

They then proceed to destroy a huge amount of accumulated value, built up over the life of the company by the work, intelligence, and talent of its employees and former management, in order to realize a small amount of short-term profit. If the profit that goes into the pockets of the new owners is greater than they money they personally expended to gain control of the company, they consider it a success.

Hey, running companies takes work.

This has nothing to do with productivity. Nothing to do with competitiveness. Nothing to do with lean-and-mean management. Nothing to do with the frackin' blessed holy Invisible Hand of the Marketplace. It's pure grab-and-run, enabled by a financial system that can't be bothered to rein in its depredations.

That same corporate system pays professional liars to tell vulnerable members of the listening public that the only way the system costs them money is via taxes. Years of unemployment are "economic fluctuations," and no one's fault. A mystery. Just plain old bad luck.

Thank you for saying it isn't. May your message come to more ears.


At 6:29 PM, Anonymous Anonymous said...

James Martin, is that a serious question? Romney is a Mormon. Like Catholics, Mormons are not deemed to be "Christians" by evangelical Protestant groups.

My sister is an evangelical, and thinks Catholics are all going to Hell.

Mormon ≠ evangelical.

At 7:13 PM, Blogger Batocchio said...

Great post and sad tale.

At 7:53 PM, Blogger Unknown said...

It's pure grab-and-run, enabled by a financial system that can't be bothered to rein in its depredations.
Good way to look at it. So damn true too.

At 10:45 AM, Blogger Lars said...

Theresa's comment, in part, remeinds me of the way that an ecologist would describe humanity's current impact on the biosphere.

At 3:04 PM, Blogger . said...

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At 5:07 PM, Blogger DownWithTyranny said...

Yes, Greg, DownWithTyranny is Howie Klein (me), former president of Reprise Records. I plan to roll out the entire Romney story if he gets the GOP nomination but by all means use this all you'd like.

At 4:32 PM, Blogger . said...

This comment has been removed by the author.

At 9:34 AM, Blogger Xcentric said...

No one forces a business owner to sell his business, nor does anyone hold a gun to the heads of the stockholders of a publicly owned company to force them to sell their shares in the company. They sell their share in the company because they benefit from the sale in some way, even if it's simply because they see a future where the value will be lower and want to take advantage of the price today. All companies eventually become bloated with people on the payroll who shouldn't be there. From time to time, every business needs to shed dead weight in order to stay viable. Guess what, the government is the same way. Time to start hacking and slashing now! When a business goes thru Chapter 11 bankruptcy, it gets a fresh new start. When a government goes bankrupt, and ours is on that road, we're in a heap of trouble.

At 10:33 AM, Blogger Dustin Ketchem said...

Actually.. a leveraged buyout is a FORCED BUYOUT against the owners will. They rarely walk away with anything. Basically Romney and Bain Capital were loan sharks cutting people off at the hip and then making money off of whatever was left over.. even if the cmpany could be salvaged. Bain's system was to slash and burn. Make a quick profit and run. They had no clue how to actaully run a business. Except the business of killing business.

At 5:51 PM, Anonymous Anonymous said...

"Jobs Song" for Romnet camp just released


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