Former Massachusetts Gov. Mitt Romney officially jumped into the presidential race in early February as a Republican candidate. In the weeks since, reporters and pundits have largely focused on his Mormon heritage, and on whether his views on stem-cell research, abortion and same-sex marriage are acceptable to the party faithful who hold sway over the GOP nomination.
The media will undoubtedly tire of these story lines as the nation won’t elect a president for some 18 months. So attention could well drift to other areas of Romney’s resume, such as his 15 years at the helm of Bain Capital, where his personal fortune was made.
Romney’s tenure at Bain Capital “is part of his pedigree, and it will come under close scrutiny,” says James Post, a professor of corporate governance, strategy and policy at the Boston University School of Management.
Americans know more about Bain Capital and other private equity firms than they did two years ago. LBO shops make business headlines nearly every day thanks to huge deals to acquire such household names as Harrah’s Entertainment Inc. and Hertz Global Holdings Inc. Still, the private equity industry remains a “black box” for most of the public, Post says. “I think we’ll see the private equity world put under a much brighter spotlight, with or without Mitt Romney,” he says. But Romney’s candidacy “is a convenient factual springboard to get into a discussion about this dark force.”
Tale of two campaigns
Romney, a self-described data junkie known for exacting audits, left Boston-based consultancy Bain & Co. with a handful of colleagues to form Bain Capital in 1984. The offshoot began as a traditional venture firm. But under his leadership, the firm evolved into a buyout shop as it made a series of profitable investments in such companies as Domino’s Pizza and The Sports Authority. In perhaps his best-known deal, Romney and two partners planted $600,000 of seed stage money on Staples Inc. The office supply company, which opened its first store in Boston in 1986, now has a market capitalization of nearly $20 billion.
Romney then stepped backed from Bain Capital on two notable occasions. He took a leave of absence to nurse an ailing Bain & Co. back to health in the early 1990s, and he left the firm for a year to run for the U.S. Senate in 1994. By the time he exited from Bain Capital for good in 1999 to perform another rescue mission, this time to help salvage the scandal-tainted Salt Lake City Winter Olympics, Romney was playing a smaller role in the firm he co-founded.
When he made his first bid for public office in 1994, Romney, the son of former Michigan Gov. George Romney, presented an unusually formidable challenge to the incumbent, Democrat Ted Kennedy. Romney put his record at Bain Capital front and center, boasting of having helped create 10,000 jobs.
Kennedy responded aggressively by turnng Romney’s private equity success story on its head. Attack ads portrayed Romney as a “ruthless” buyout king who pocketed $11 million in the same year Bain Capital laid off scores of employees at an Indiana paper plant and denied health care coverage to Staples employees. (Romney’s campaign responded by saying those employees worked part-time and were ineligible for health benefits; full-timers received coverage.)
Defending himself at the time, Romney said that Bain Capital operated in “the real world” where “there’s nothing wrong with companies trying to make money, trying to stay alive, trying to compete.” Romney lost to Kennedy by 18 percentage points, but Kennedy’s need to conjure Romney as a heartless capitalist was seen by commentators as a sign that PE pro presented a genuine threat to the well-entrenched senator.
Eight years later, when Romney made his second run for office, he again found his impressive record at Bain Capital turned against him. In the final days of a close 2002 gubernatorial race, Romney’s opponent, Shannon O’Brien, brought back the same story about the Indiana plant and staged a rally in Boston featuring some of the same workers who appeared in Kennedy’s 1994 ads.
“It worked in 1994. And supporters of the Democratic gubernatorial nominee … are hoping it will work again,” the Boston Globe wrote at the time. O’Brien’s campaign also ran an ad featuring a Kansas City steel worker who had been laid off after Bain bought GST Steel Co. in 2001.
Romney accused O’Brien of “exploiting” the workers for political gain and said he was on leaves of absence in 1994 when the Indiana paper company laid off workers and in 2001 when Bain bought GST Steel. Romney’s campaign produced a letter from GST’s president absolving Romney of any responsibility, according to the Boston Globe. Romney’s attorney also provided a letter stating that Romney stopped being actively involved with Bain Capital beginning in February 1999.
The spotlight is already returning in 2007, with reports now connecting Romney, Bain & Co. and Bain Capital to government contracts in Iraq. Romney has called on pension funds to divest of investments in Iraq.
In the eight years since Romney left Bain Capital, he has had few ties to the firm other than a financial interest kept in the form of a blind trust that contains all of his investments. In his speeches, when Romney wants to prove his business acumen, he turns to his resuscitation of the Salt Lake City games, not his years at Bain Capital; his official biography on his campaign website devotes three paragraphs to his role at the Winter Olympics and just one to Bain Capital.
That’s fine with executives at the private equity firm, which now has a hedge fund operation, is big enough to take major public companies private and invests overseas. Bain partners wish Romney well, but they hope just as much that his eight years away from the firm will keep the spotlight pointed elsewhere.
“Like any elected official, Mitt has a track record as governor that will draw a lot more campaign scrutiny than anything he did with Bain,” says a Bain Capital spokesperson. “Since the industry is already in the limelight, we believe Romney’s candidacy will add only a small amount of incremental attention to private equity.”
Romney, whose campaign did not respond to requests for comment, has kept a few old Bain partners among his inner circle. Eric Kriss, who helped launch Bain Capital, served as Romney’s administration and finance secretary. Bob White, who jumped from Bain & Co. to Bain Capital with Romney in 1984, worked on Romney’s 1994 senate bid, helped to revive the Winter Olympics in Salt Lake City and ran Romney’s 2002 gubernatorial campaign. White is also Romney’s top fund-raiser.
But no matter how much Bain Capital blood still flows in Romney, Boston University’s Post predicted that the presidential candidate would distance himself quickly from his former business life if the same liabilities that dogged him in 1994 and 2002 resurface.
Romney’s track record at Bain Capital “will be just another piece to move on the political chess board,” Post says.