Assessing Bain

I'll start with the punchline: with 70% of the voters thinking that the country is on the wrong track, and most thinking that our best days are in the past, we need a turnaround expert.

I'm in the small camp that thinks that Newt Gingrich's "King of Bain" video (well, technically his "independent" PAC's video) is a good thing. It was easily discredited as blatantly distorted, even by the Washington Post which gave it four pinnochios; the attack on capitalism rallied Republicans around Romney; and, it started an education process which will be needed to defeat President Obama's primary campaign theme of income inequality and class warfare.

Back in my corporate days I lived the video's story. I was a senior operations guy for a national brewery and then a major food company, going through numerous acquisitions and figuring out what plants to keep and close, what staff to keep and let go, which suppliers to standardize on and which to terminate. I myself was "made redundant" when the brewery was acquired. Some learnings:

- There are four classes of "private equity" companies:

1. Venture capitalists who build things from the ground up. Today these are mostly in technology and come in all sizes; Bain's focus from 1984 to 1989 was venture and included Staples, DoubleClick.com, and Shopping.com among many others.

2. Leveraged buyouts and growth capital which are heavy in restructuring both finances and operations of sick companies. Particularly in the 80's and 90's there was a wave of capitalism's "creative destruction", largely engineered by a shifting consortium of firms - Kohlberg, Kravits, & Roberts; the Blackstone Group; Goldman Sachs; Bain; and others who aim to grow their businesses. Among Bain's couple hundred deals (many after Romney left in 1999 to turn around the Salt Lake Olympics and enter politics) were Burger King, Dunkin' Donuts, the Hospital Corporation of America, and many mundane manufacturers. Mitt Romney's contribution included a beneficial restructuring of Bain itself and a rigorous analytical process (The Bain Way) for analyzing companies and markets. Many individuals got hurt; more prospered.

3. Scavengers who can extract value from a dying brand, decaying facilities, over-funded pension plans, and the like - Rick Perry's "vulture capitalists". Names like Carl Icahn , Victor Posner, Nelson Peltz ,and Paul Kalmanovitz come to mind, as do hostile takeovers and extreme financial leverage. Bain did not play on this field.

4. Purely financial alchemists which don't have much to do with facilities, markets, and people who make real companies go. Think Michael Milken, and Ivan Boesky, and the Wall Street investment banks, not Bain.

- Sometimes the "how" is as important as the "what". Some consolidators provide severance, honor pensions, provide outplacement, encourage retraining, and offer relocation. Others don't. (My last official act at the brewery was to gather up the artwork that the company owned to send it to the acquirer's home - "scorched earth". On the other hand, the food company helped employees at a closed plant obtain financing to begin operations as an independent company.) Displaced people need to be encouraged to relocate, get retrained, and accept (at least temporarily) lesser jobs. Objective stories from Bain - if there can be such a thing - may tell something about Romney.

In any case, Romney does know business and he knows turnarounds. He's not a Herman Cain who was successful in a couple of related businesses - he has been successful over 70% of the time across a broad range of industries, across a broad geography. His first few years at Bain were as a management consultant. He understands finance, operations, marketing, and personnel - and what makes companies successful.

And perhaps equally importantly, he has the analytical ability and personal fortitude necessary to undertake the restructuring and downsizing that the federal government requires. All of the Republican candidates talk about getting back to "small government". Romney is the only candidate to have demonstrated the executive experience and temperament to do it.

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This week's video is an advertisement by one of the Political Action Committees vying in South Carolina - Americans for a Better Tomorrow, Tomorrow - Steven Colbert's creation.

bill bowen - 1/19/2112

Comments

[Bill McCormick]

WHAT MESSAGE FROM THE FEDS?

Revised downward the economic forecast for 2012 to 2.2%. Hold interest rates to zero into 2014. Inflation without energy and food to be steady at 2%. Unemployment to stay high (8.5%) for 2012 and 2013 then go to 5-6% in 2014. They are holding on Q3 but are "at the ready" if necessary.

That sounds like a belief that any more time for Obama and we are stuck in this no growth cycle for a decade. But, fear not, they have the presses on standby to print if needed to pay our bills. Food and energy inflation is at or above 100% for the tree years of Obama--so let's not count it--just print more food stamps. Fund birth control to hold babies down. And, tax the rich. What a program for growth and "fairness" to level the playing field. By default the rich are now 50% of Americans who get taxed while the other 50% are getting their "fair" treatment with zero taxes. If only we all could be so unfortunate to be Warren Buffet's poor secretary who pays so much more tax than her boss. And, the smoke and mirrors man wants us to relect him?

[Bill McCormick]

WHY NOT NEWT---

It is too bad that by grabbing an old page from Reagan's book Newt was able to turn the tables on the media and resurrect for a minute at least his campaign. The difference between Reagan and Newt is that Newt blisters the opponent with a stinging rebuff or the "how dare you" method. While Ronald Reagan simply turned the question into something to smile about such as "there you go again" or his famous response to a question about his age with "I won't hold his lack of experience against him". In my opinion Newt's job is to answer the questions and his seemingly angered posture is one of the big reasons I don't think he measures up to Romney in leadership talent. For Republicans letting the media have it has some appeal after years of frustrating presentations of liberal bias. And, in this case it worked for a short term. However, long term blasting the media with "how dare you ask me about my flawed moments with infidelity, lobby efforts, ethics questions and being taken out of leadership positions" will not work. Not all of the media will let him off the hook after a bashing, and not all of them will offer him a slow pitch question he can rant on. And, the voters will ignore the entertainment value of his responses and return to the question of economic and foreign policy. Both Romney and Obama seem to have solid home lives to contrast against Newt's.

Newt is the best history teacher of the three.(Romney,Obama and Newt.) And, he has the longest legislative record. This gives him a tremendous advantage in the debates as he can site event after event from history (some of which he was present at) that makes him sound smart. But, that is different than having the answers, the guts to change direction when wrong and the ability to get others to do what needs to be done --all the keys to leadership and management skills. When Newt talks it is always of the achievement of others(Reagan, Kemp and Clinton) with himself as the able assistant (we) helping out. In Headhunting we look for those signs in candidates as people who were "on the team" but not the leader. Too many employers let a candidate take credit for helping and mistake it for leading. Romney on the other hand led Bain himself, was the Governor, designed Romney care (like it or not), turned the Salt Lake Olympics around, etc. He led, he made the decisions, he was responsible, he put the teams together, he got other people to make it all happen. That is leadership and as Jack Welch says—Romney is the best we've had a chance to elect in a long time. Newt might have worked for a Romney or perhaps Romney would not have let him be on the team. While Newt is winning the debates Romney will have others implementing the programs we need.

As for the tax issue and wealth: Romney gives 10% of his income to his church. He legally pays 15% taxes because he invests in America. (Like Warren Buffet) That's 25% he gives back on millions. His wealth is a merit badge of how good he is. As I recall President Obama made $4M last year. He's wealthy too. President Clinton earned nearly $100M in his first 4 years after leaving office. Al Gore made $106M selling us on global warming. Lyndon Johnson was wealthy. John F Kennedy was wealthy. John Kerry is wealthy. Let's get off the wealth issue and get on to leadership.

[DickG]

WE CERTAINLY NEEDED THIS; and so didn't 'Mitt'.(forward to info@mittromney.com) His last 'Chance',at least in S.C. and he didn't grab it. How long he is going to allow these things to pass thru his 'mit' is a mystery. If he is protecting Bain's proprietary 'Methods';someone better release him in the interest of the Country.
The contrast is startleing; between 'Mitt' becoming 'The Great Evader' (Mark Levin's tag)and 'Newt'; taking on 'The Media Sharks', out for 'Blood'. It's clouding up an extraordinary talent; the Country can ill afford to lose.