Tell me about Bain Capital and your perceptions of Mitt Romney’s role there.
I recruited against Mitt Romney when I was running McKinsey’s business school recruiting and he was running Bain Consulting’s business school recruiting. So I’ve seen him in action, and he’s a formidable recruiter, I can tell you that. He was a very personable and effective recruiter. When Bain Capital started, it was one of a small number of firms, and they had the idea that they had some business insights and could invest money behind those insights. It wasn’t more complicated than that. As it’s grown, they now have multiple lines of business, but the core really hasn’t changed. … Private equity firms and their investors can’t make money unless the businesses they are investing in get better. There’s no way to exit or sell them to someone else at a higher value unless you’ve created something that’s sustainable. And that somehow is lost in the debate … [the notion that] all private equity is involved in asset-stripping, and they’re just sort of vultures or vampires leaving carcasses behind—there’s nothing further from reality.
What you’re saying about private equity in general applies to Bain?
It’s a respected firm. That doesn’t mean that they—or anyone else—don’t make investments that they regret. But, you know, there’s a survivorship bias in the world because private equity firms have to perform well on many metrics to succeed and sustain their business. Private equity’s as pure a performance-based and meritocratic business as you can find. The private equity firms that have been in business for more than 20 years, or in our case, since 1978, have made mistakes along the way, but unless you make good investments, create value, build strong businesses, find willing buyers at the end of your holding period, you can’t make money. And your investors can’t make money, and the companies in which you invest won’t succeed.
Would you say that what happened with Bain’s investment in GST Steel was typical?
In any business you can find good stories and complicated ones and ambiguity. Private equity tends to invest in businesses that are in some period of transition. Sometimes you can read those correctly, and in some cases you invest in a business that you think you can save and you can’t. But in the absence of private equity investment, in many cases, those companies go under much sooner, if not immediately. And all the jobs are lost. So that shouldn’t be lost here. Bain has probably made hundreds of investments. So to pick on two is not representative.
You’re saying that some distressed companies will fail and some will yield huge returns and create jobs?
More than 60 percent of private equity transactions are held by the owner for more than five years, and the reason is you can’t fix and build businesses easily. It takes time. Employment in most private equity-owned businesses is declining before we even make the investment. That’s why we’re there. And it continues that decline for a couple of years. So these are nuanced arguments, but all the more reason to resist the simplistic generalizations of private equity.
You’ve been a strong supporter of President Obama in the past, right?
I have been in the past.
But you’re not now?
I’m distressed both by the arguments he’s making against private equity and by implication … the antipathy to businesses that indeed are creating jobs. And I just don’t think it’s productive. So I would like to see some change in that.
So the president has gone too far?
In my view, yes.
The president is basically saying that Mitt Romney and his experience at Bain do not necessarily make for the qualities in a good president. Is he right or wrong?
The standards of leadership for the president of the United States are very demanding, and I think Mitt Romney has had a number of experiences in leadership that do qualify him for some aspects of the job. A lot of this is being able to build a team, set priorities, execute successfully against the stated strategy. Romney’s experience speaks directly to many of those attributes.
It sounds to me like you’re saying you’re more likely to support Governor Romney than President Obama.
I am saying that to you.