Republican presidential candidate Mitt Romney’s campaign misses few opportunities to promote his record creating jobs, including his role in taking Staples Inc. from a start-up to the world’s largest office-supply retailer.
“You’d have a president who has spent his life in business -- small business, big business -- and who knows something about how jobs are created and how we compete around the world,” he said at a campaign stop last month at Buddy Brew Coffee in Tampa, Florida.
What Romney skips is his experience in eliminating jobs. It’s a facet of his career that presents a particular challenge for the Republican primary frontrunner: Tough business decisions don’t necessarily translate into good politics.
As head of private equity firm Bain Capital LLC, Romney was the lead deal-maker, buying and selling companies to make money for investors. Whether companies boomed or filed for bankruptcy, the Boston-based firm found profits for Romney, its other executives and investors. Romney, who spent most of his career at Bain, estimated his wealth in 2007 at as much as $250 million. He has yet to update his financial status for the 2012 presidential campaign.
Entrepreneurs and corporate founders “create the bulk of the jobs, not the financiers,” said Marc Wolpow, a former Bain managing director who left in 1999 and is now co-chief executive officer of Audax Group, which manages more than $4.8 billion.
“That is not necessarily a good political story for a candidate with a buyout background,” said Wolpow, a Democrat-leaning independent who said he would consider backing Romney in 2012.
1,600 Jobs Cut
At Dade Behring Inc., a medical-testing company based in Deerfield, Illinois, Bain cut at least 1,600 jobs during a series of acquisitions before the firm entered into bankruptcy in 2002. Romney foreshadowed those cuts in a speech to employees shortly after Bain acquired the firm.
DDi Corp., an electronics company in Anaheim, California, filed for bankruptcy in 2003 after Bain sold shares in the company generating at least $85.5 million and billed $10 million in management fees.
GS Industries Inc., a steel company in Charlotte, North Carolina, filed for bankruptcy in 2001 after workers said a chief executive hired under Bain made missteps, including installing managers who lacked industry expertise, former employees said.
Romney Held Responsible
Employees who lost jobs at Bain-controlled companies more than a decade ago say they still hold Romney responsible.
“I would not vote for him for anything,” said Phyllis Detro, 68, who lost her job at a Bain-owned office paper products factory in Marion, Indiana, closed in 1995. “I’d like to see the jobs that he’s created. He has taken away jobs.”
In a presidential campaign becoming a referendum on jobs as the economy struggles with a 9.2 percent unemployment rate, Romney’s private sector credentials are coming under scrutiny.
A video played when Republican Jon Huntsman Jr. announced his presidential candidacy in New Jersey on June 21 said Huntsman “built things, built jobs -- didn’t just buy them.” Huntsman is a former Utah governor and executive at Huntsman Corp., a chemical company that started as his family’s business in 1970.
Huntsman is following a script written at the start of Romney’s political career. In a 1994 race against the late U.S. Senator Edward Kennedy, a Massachusetts Democrat, Romney was trumpeting his business credentials and leading in the polls -- until Kennedy’s campaign turned the spotlight on Bain-backed job cuts at an American Pad & Paper, or Ampad, factory in Indiana that was closed in 1995. Romney went on to win election as governor of Massachusetts, serving from 2003 to 2007.
In 1984, Romney co-founded Bain Capital, whose affiliates now manage about $65 billion. In a corporate statement e-mailed to Bloomberg News, Bain Capital said the firm’s record “will undoubtedly” be distorted in the political debate. “We are proud of the role that our people-intensive, analytical approach has played in growing companies and delivering superior investment returns,” it stated.
In addition to Staples, Romney’s campaign cites successes at Ann Arbor, Michigan-based Domino’s Pizza Inc., which is now the world’s second largest pizza-maker behind Yum! Brands Inc.’s Pizza Hut, and the Sports Authority Inc., the Englewood, Colorado-based sporting goods chain.
Andrea Saul, a Romney campaign spokeswoman, said his business record gives him more expertise than President Barack Obama to “focus on job creation and turn around our nation’s faltering economy.”
Tom Stemberg, a founder of Framingham, Massachusetts-based Staples who convinced Romney in 1985 to help finance the idea for the stores and plot their expansion, said: “He was a brilliant corporate director.”
Romney’s role with companies varied. With Staples, he sat on the company board for more than a decade. With many others, he left oversight and daily management to his associates appointed to company boards and executives running the businesses, said Wolpow. Executives of several companies bought by Bain said they had little or no interaction with Romney.
Geoffrey Rehnert, a former managing director at Bain who worked for the firm until 1999, said that while Bain was focused on making money, its strategy was to create businesses that created jobs. Rehnert, who is now co-chief executive officer with Wolpow at Audax, said he’s “certain that Bain Capital was a net creator of jobs by a wide margin,” while he had no data to support that. At a minimum, Wolpow said, Bain helped preserve jobs that otherwise might have been lost.
Bain and the campaign didn’t respond to requests for job creation estimates.
A Bloomberg News review of several Bain deals during Romney’s tenure showed that workers in some firms had indications their jobs might be in jeopardy soon after Bain moved into management. In other cases, pink slips arrived after Bain and its investors had collected their profits and left debts behind.
Interviews with former employees and executives at Bain and companies it controlled, along with a review of Bain’s activities described in public documents and news accounts, paint a picture of an operation that wasn’t focused on expanding employment. Instead, Bain’s mission, like most private equity firms, was to generate gains for its investors.
In 1994, Bain and Goldman Sachs Group Inc. acquired Dade International, a medical diagnostics firm that had been a unit of Baxter International Inc.
Soon after, Romney told employees in a speech that Bain planned to restructure Dade and resell it for a profit, said a former employee who spoke on condition of anonymity because he feared negative repercussions. Fulfilling that mission would lead to merging companies, consolidating operations and eliminating employees.
Michael Rumbin, vice president of technology at the Baxter division, said his responsibility under the new company became cutting half of the research projects. Projects were eliminated that had little possibility of success, though the reductions were a “relatively traumatic experience” for workers, he said.
Dade was combined with several other companies, got a new name, Dade Behring, and became one of the largest makers of diagnostic tests. Each acquisition was followed by job eliminations. At least 1,600 employees were dismissed from 1996 to 1999, according to SEC reports.
Redundancies led to cuts and plant closures, a standard practice when companies are merged, said Scott Garrett, who was the chief executive officer at Dade from 1994 to 1997. “It’s very unfair to suggest that Mitt Romney was anything but a very good business person,” said Garrett.
Bain and Goldman cashed in on their investment in June 1999, selling back shares to Dade for $365.4 million.
Dade borrowed so much money to make that payment that when sales declined and interest rates rose the company struggled to pay its creditors. Standard & Poor’s downgraded its outlook for Dade Behring to negative from stable. The company later filed for bankruptcy.
“They leveraged this thing to the hilt and got out when they could,” Rumbin said. “We were left holding the bag.”
It didn’t work out as well for Rumbin. His position was eliminated.
“These guys worked there for two years and ended up as millionaires,” he said. “I worked there for 25 years and I’m not a millionaire.”
Dade emerged from bankruptcy and was acquired by Siemens AG.
Bain’s 1997 investment in DDi, a circuit board maker, also illustrates how Bain came out ahead even when a company it bought ultimately faltered.
Bain initially invested $46.3 million in the company, according to a Securities and Exchange Commission filing. After taking DDi public, Bain sold shares generating at least $85.5 million, according to a Bloomberg News review of SEC filings.
Bain also collected management fees. A DDi prospectus filed with the SEC in February 2001 described payments of $10 million to Bain when it provided consulting and other services.
In the months after Bain sold shares, DDi’s performance deteriorated, the company eliminated jobs and then filed for bankruptcy.
Shareholders protested, filing a class action lawsuit saying DDi, in advertising its initial public offering, withheld information suggesting results were about to sour. Defendants eventually settled the case for $4.4 million, according to court records.
DDi emerged from bankruptcy and continues to operate.
GS Technologies Corp.
At another Bain company, bad management and a lack of oversight from Romney’s firm contributed to losses and job cuts, according to former employees.
Bain invested in GS Technologies Corp. in 1993 and merged it with another company in 1995 to form GS Industries Inc., based in Charlotte, North Carolina. The combined company was the largest producer of steel wire rods in the U.S.
Chief Executive Officer Roger Regelbrugge, who had come from Georgetown Industries Inc., the company that merged with GS Technologies, said he met Romney at a luncheon in Boston, and may have had some subsequent conversations. The bulk of his communication with Bain was through two Bain executives who served on the GS board, he said.
When Regelbrugge stepped down as CEO in 2000, his successor, Mark Essig, replaced top staff with colleagues from a previous job who didn’t know the GS business, said Regelbrugge, who remained on the board. That contributed to the company’s decline, Regelbrugge said, adding that he relayed his concerns to Bain representatives. Essig didn’t respond to phone and e-mail requests for comment.
“Bain pleaded with me to give my successor a chance,” said Regelbrugge. “They showed more patience than they needed to.”
At a steel plant in Kansas City, Missouri, one new supervisor had previously sold mattresses, said Steve Morrow, 59, who worked at the plant for 32 years and represented workers there as president of United Steelworkers Local 13.
The business deterioration was made worse by declining steel prices and difficult business conditions, Regelbrugge said.
In 2001, the company shut the Kansas City plant, which it said was losing money. More than 700 workers lost their jobs. Retirees and those eligible to retire lost their health benefits and life insurance, said John Wiseman, a staff representative with the United Steelworkers.
GS Industries began reorganizing under bankruptcy protection in 2001. In a bankruptcy court filing, the company blamed lower steel prices that resulted in record levels of low-priced imports into the U.S.
That explanation doesn’t satisfy Morrow, who remembers seeing his former colleagues struggle to find jobs with health benefits. Today, when he hears Romney campaign on job creation, he said, “It makes me about half sick.”
In contrast, Bain flourished under Romney’s management and the business model he installed.
The firm started with fewer than 10 employees and a $37 million fund that Romney helped to create. When Romney left in 1999 to help organize the 2002 Winter Olympics in Salt Lake City, Bain had 115 employees managing $4 billion in assets.
Successful Business Model
Instead of just advising companies, Romney and several partners would invest in them, provide financial and management advice and then typically sell their stake five to seven years later.
“The returns were very, very good relative to others in the industry and this persisted while Romney was there,” said Steven Kaplan, a professor at the University of Chicago Booth School of Business who specializes in private equity. “Everybody has copied them. He was spectacularly successful.”
The company earned Romney much of his fortune, valued at between $190 million and $250 million, according to a financial disclosure report filed when he ran for president in 2007.
Romney has tempered his claims about the jobs he created at Bain over the years. In his unsuccessful 1994 Senate campaign, Romney said he helped create 10,000 jobs, which was challenged by his opponents. In his campaign for his party’s 2012 nomination, Romney has avoided such specific claims.
“Sometimes I was successful and helped create jobs, other times I was not,” Romney said in announcing his candidacy on June 2 in Stratham, New Hampshire.