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Romney and Bain Capital

The opinions expressed by columnists are their own and do not necessarily represent the views of


How much does the public truly understand about the inner working of Bain Capital beyond the sound bites?  Let me share my thoughts on the subject of Romney and Bain Capital, and why I think it’s a Rorschach test.  Bain’s model was a typical private-equity play and somewhere between a venture firm and a merchant bank. Typically they were approached by, or approached firms, to help execute a turnaround or improvement program (and, yes, sometimes this involved a leveraged buyout).  In addition to offering advice, Bain generally took an equity stake and would occupy one or several board seats. Sometimes, Bain partners become executive officers in the firm.  Generally, they use their investors’ money to take these stakes. It is important to note here, however, that the Bain partners themselves are the largest single pool of investors – i.e. they have ‘skin in the game.’ What’s important about this model is that, other than the fairly nominal service fee they charge the investors, the firm’s profits are generated only when they increase the value of the firms they invest in and cash those investments out.


Now, what else is important about this model?  First, though people want to lump this in with “Wall Street,” a firm that takes this model is not strictly a financial investor. They bring real expertise and, by working through numerous cases, gain real management experience in myriad firms across several markets.  I would also note that the vast majority of Bain’s clients under Romney were commercial firms, often in consumer markets, e.g. Sports Authority, Domino’s Pizza, Burlington Coat Factory etc. They were not government-controlled or government sector firms that often use a similar contracting model. Secondly, their profit is set by the market valuation of the firms, not by a committee or set of ‘benchmark firms’ (as with a CEO) or by a ‘politicized market’ e.g. federal contracting.  If you don’t like how much money Romney made, then your argument is not with some cabal of insiders; it’s with the market mechanism itself.  Thirdly, I’d point out that in turning around a firm, there are in many, many instances the needs for cutting costs, and yes, employees. However, I’d compare this to pruning a shrub: if you don’t prune away the excess or unhealthful parts, you can’t save the whole plant. So, yes there are instances when Bain recommended or executed job cuts, but that has to be balanced with the increased employment and shareholder returns of the successful cases.  Judging by the money Romney made for himself, his firm, and his investors, I’d say he was pretty efficient and effective as a manager. Romney was undoubtedly in-charge, focused, and organized.  


I say this is a “Rorschach Test,” because charges of “vulture capitalism” don’t stand up to scrutiny. Bain was not a financial manipulator (like the “financial engineers” on Wall Street playing with derivatives and reinsurance). His compensation was market-determined. He put his own money at risk, and his expertise was evident and manifested in both private and public circumstances. There are a lot of reasons not to vote for Romney. There are even a lot of reasons not to like him and to criticize him. His record at Bain, however, is just not one of them. To criticize his record there, especially in pejorative terms like “vulture capitalism,” which have no meaning, tells me more about the speaker (and, I think Rick Perry coined the term – enough said) than about Romney.

I just wanted you to have the full explanation of my recoil at the use of the term.  I think this also goes a long way to explaining the opprobrium being visited on Gingrich and Perry by the party for taking this tack.

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