Rauner Parlays Romney-Like Past in Illinois Governor Run

Photographer: Bob Stefko/Bloomberg Markets
Bruce Rauner, who left as chairman of Chicago-based private- equity firm GTCR LLC in 2012, won the Illinois Republican gubernatorial primary on March 18. He is challenging Democratic incumbent Pat Quinn in the Nov. 4 governor's race -- one of the latest business executives to make the leap to politics from business.

Private-equity mogul Bruce Rauner jabs his left index finger at the Chicago ballroom crowd after his victory in Illinois’s Republican primary election, vowing things will change in the debt-strapped state if voters choose him as governor in November.

“This is about shakin’ up Springfield, rippin’ corruption out by its roots,” shouts Rauner, clenching his fist as if the offenders are right in front of him.

“And gettin’ term limits on everybody,” he roars, leaning over the podium for extra emphasis on everybody.

Rauner, 58, who has worked in finance for three decades, owns nine homes and reported $53 million in 2012 income, is among the latest wealthy U.S. business executives pledging to run government better than career politicians, Bloomberg Markets magazine will report in its June issue. Polls reflect a close contest in President Barack Obama’s home state, where a Republican last won a gubernatorial election in 1998.

Rauner entered politics after retiring in 2012 as chairman of GTCR LLC, a Chicago-based private-equity firm that invested more than $10 billion in about 200 companies from 1980 to April. He spent $6 million of his own money, or about $18 a vote, in the March 18 race and will face incumbent Democrat Pat Quinn on Nov. 4. A lawyer and former lieutenant governor, Quinn, 65, has a 40-year record in politics.

This story appears in the June 2014 issue of Bloomberg Markets. Close

This story appears in the June 2014 issue of Bloomberg Markets.

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This story appears in the June 2014 issue of Bloomberg Markets.

Business Leaders

Rauner, who declined to be interviewed for this story, joins a roster of business leaders who have plunged into the electoral fray. Jon Corzine, who joined the company that became Goldman Sachs Group Inc. in 1975 and left as its co–chief executive officer in 1999, served in the U.S. Senate as a Democrat from New Jersey starting in 2001. He went on to become the state’s governor from 2006 to 2010.

Corzine stumbled after returning to business when MF Global Holdings Ltd., the financial services firm he was running, filed for bankruptcy in 2011, followed by investigations into missing funds.

Republican Rick Scott, a venture capitalist who left Columbia/HCA Healthcare Corp. in 1997 after serving as CEO and chairman, has been governor of Florida since 2011. He’s seeking a second term in November. Rick Snyder, a computer and VC veteran, became Michigan’s Republican chief the same year and also is standing for re-election.

‘Somewhat Offensive’

Some notable business-to-government aspirants have failed in spite of their corporate credentials and willingness to spend. Republican Meg Whitman, who was CEO of EBay Inc. and now holds that post at Hewlett-Packard Co., forked out $144.2 million of her own money running for California governor in 2010. She lost to lifelong Democratic politician Jerry Brown.

Mitt Romney, who, like Rauner, made millions in private equity, lost the 2012 presidential race to Obama, once a community organizer and U.S. senator, by 332 to 206 votes in the Electoral College.

“People who have spent the major portion of their careers making money assume that because they’ve been able to do that, they have the ability or the right to present themselves as someone who knows about public service,” says former Ohio Governor Ted Strickland, a Democrat who served from 2007 to 2011 and is now president of the Center for American Progress Action Fund.

“That’s puzzling and, quite frankly, somewhat offensive to me.”

‘Tea Leaf’

CEOs approach their political assignments already certain they know what’s best, says David Yepsen, director of the Paul Simon Public Policy Institute at Southern Illinois University.

“The message from the business types is: ‘God, that corporation called government is so screwed up, and I just know I can fix it,’” he says. “A guy who kicks butt and takes names doesn’t always work well in politics.”

Illinois voters are weighing candidates with starkly different strategies for turning around one of the most financially troubled U.S. states. The outcome may foreshadow future elections, Yepsen says.

“The decision Illinois faces about its fiscal health is the same one we face all over the country,” he says. “It’ll be watched as a tea leaf.”

Illinois has the lowest credit rating among the 50 states, with an A3 grade from Moody’s Investors Service. Its 8.4 percent jobless rate in March was the third highest, behind Rhode Island and Nevada. It’s bogged down by a $100 billion public pension shortfall and $4.9 billion in delinquent bills at the end of April.

Government Malfeasance

And it has a reputation for criminal political behavior. More than 1,800 public officials have been convicted on corruption charges since the 1970s. Such malfeasance costs taxpayers more than $500 million a year, the University of Illinois at Chicago estimates. Quinn himself became governor in 2009 after Rod Blagojevich was impeached and removed from office. Quinn won election the next year by less than 1 percentage point.

Rauner proposes to curb wrongdoing by limiting terms for state lawmakers. He wants to cut taxes and reduce regulations to lift Illinois from its financial morass. He says Democratic-backed income tax increases -- a 67 percent hike on individuals and 46 percent on corporations enacted in 2011 -- should expire at the end of 2014, as scheduled.

Rauner says “union bosses” who bargain on behalf of public employees hurt taxpayers. The fixed-benefit pensions of workers on government payrolls should be converted to 401(k)- type programs, Rauner says, a move Quinn opposes.

“A risky 401(k) plan for our teachers of Illinois -- no way, for as long as I’m governor,” Quinn said during an April appearance with Rauner before the Illinois Education Association.

Quinn’s Approach

Quinn promotes public education and union rights. He pushed to expand Medicaid as part of the Affordable Care Act and favors extending the income tax increases that Rauner wants to end. He enjoys legislative majorities in a state that has voted Democratic in every presidential election since 1992.

Even so, Rauner is persuading Democrats such as Newton Minow that his cut-taxes-and-control-spending approach makes sense.

“Illinois is drowning in debt, unemployment and dysfunction,” Minow, a Chicago lawyer and former chairman of the Federal Communications Commission, said in endorsing Rauner in March.

“On the issue of financial survival of our state, he is right.”

Rauner, a Dartmouth College graduate with a Harvard Business School Master’s in Business Administration, presents himself to voters as a common man. He boasts about his $18 watch, drops the g’s from the end of verbs and says his grandfather lived in a double-wide trailer. After leaving GTCR, he formed venture-capital group R8 Capital Partners LLC.

Romney Roots

Rauner and Romney share roots at Boston consulting firm Bain & Co., where they worked in the late 1970s, Rauner while attending Harvard. Romney went on in 1984 with partners to form asset management firm Bain Capital LLC, which had about $75 billion under management in early May and has been the source of Romney’s fortune. Rauner contrasts himself with Romney.

“I drink beer. I smoke a cigar,” he told the Chicago Sun-Times when asked how he differs from the former Massachusetts governor. “I use a gun. I ride a Harley.”

Rauner counts Rahm Emanuel, Chicago’s Democratic mayor, among his friends. Rauner was recruited to GTCR in 1981 by co-founder Stanley Golder, a financier and namesake of a private-equity center at the University of Illinois at Urbana-Champaign. The firm grew by scouting businesses ripe for consolidation.

Emanuel’s Help

Two decades later, it enlisted the help of Emanuel, who’d entered investment banking at what was then Wasserstein Perella & Co. after leaving as a top adviser to President Bill Clinton in 1998. Emanuel, who has endorsed Quinn, earned at least $17 million in commissions in less than three years on banking deals. Among them was GTCR’s 2001 purchase of a company called SecurityLink that Emanuel brokered for Rauner’s firm.

“They are friends,” Emanuel’s communications director, Sarah Hamilton, says of his relationship with Rauner. “The mayor is actively supporting Governor Quinn.”

GTCR has done business with the pension funds Rauner would like to repurpose into 401(k)-type plans, including the State Employees’ Retirement System of Illinois. William Atwood, executive director of the Illinois State Board of Investment, which manages that fund and two other state pensions, says GTCR has delivered 17.3 percent annual returns since 1984.

“They met and exceeded our return expectations,” he says.

Lason Inc. is one investment GTCR doesn’t promote on its website. GTCR bought a controlling interest in the Detroit-area data management firm in 1995.

‘Harder Questions’

Lason went on to acquire more than 60 competitors in the next four years. Its stock plummeted in 1999 as investors complained of accounting fraud and the U.S. Securities and Exchange Commission began investigating. Three top executives served prison terms for fraud; Lason declared bankruptcy in 2001, emerging the next year.

Neither Rauner, then a member of Lason’s board, nor GTCR partners were accused of wrongdoing.

“You wonder how a board of directors wouldn’t start to ask harder questions,” says Peter Henning, who specializes in securities fraud and teaches at Wayne State University Law School in Detroit.

Mike Schrimpf, spokesman for Rauner’s campaign, says Lason didn’t turn out the way GTCR expected.

“The company’s top three executives conspired with one another, and, unfortunately, no one on the board of directors knew about the accounting irregularities,” he says.

‘Maximizing Profit’

Private equity and public service will always have divergent goals, says Ralph Martire, executive director of the Chicago-based Center for Tax and Budget Accountability.

“The private-equity world is about maximizing profit for personal gain,” he says. “Public service is about taking care of people who don’t have the capacity to make it on their own. The two really don’t square.”

Rauner wants to soften that perception by using his business experience to revive Illinois. Paul O’Connor, who led a recruiting group called World Business Chicago until 2007, says Rauner lobbied to bring a technology-research center to the city last year.

“There’s no element of my-way-or-the-highway,” he says.

Rauner’s primary win over three elected officials indicates voters may be receptive to the newcomer with a CEO’s perspective, Southern Illinois University’s Yepsen says. “The public mood in Illinois is just in the toilet,” he says.

That’s a potential plus as Rauner stumps through the state wearing his workingman Carhartt vest and promoting a private-equity-inspired plan to turn Illinois around.

“Has Springfield ever seen anyone like me?” Rauner asked during a fund-raiser last year.

He didn’t pause long enough for the audience to reply.

To contact the reporter on this story: Tim Jones in Chicago at tjones58@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net; Michael Serrill at mserrill@bloomberg.net Gail Roche, Jonathan Neumann

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