By Gary P Jackson
One of the greatest myths floating around these days is the one claiming Mitt Romney would be a “great president” because of his business experience and ability to create good jobs.
First off, it’s been proven time and time again that “business experience,” even at the executive level, doesn’t always translate into the ability to successfully govern. Mitt Romney just happens to be Exhibit A!
We reported earlier that Mitt Romney, who ran for Governor on his ability to create jobs, was totally unable to fulfill that promise, and his state was ranked 50 out of 50 at job creation after a full year of his “expertise.”
But still you say: “He was a successful businessman.” Well, as Josh Kosman at the New York Post points out, Romney’s “success” came on the back of the employees of businesses his company, Bain Capitol, destroyed. What this shows is, rather than creating successful businesses, Romney and company engaged in the “turn and burn” quick buck artisty many corporate raiders are known for. This is a devastaing read:
Romney’s private equity firm, Bain Capital, bought companies and often increased short-term earnings so those businesses could then borrow enormous amounts of money. That borrowed money was used to pay Bain dividends. Then those businesses needed to maintain that high level of earnings to pay their debts.
Romney in 2007 told the New York Times he had nothing to do with taking dividends from two companies that later went bankrupt, and that one should not take a distribution from a business that put the company at risk.
Yet Geoffrey Rehnert, who helped start Bain Capital and is now co-CEO of the private equity firm The Audax Group, told me for my Penguin book, “The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy,” that Romney owned a controlling stake in Bain Capital between approximately 1992 and 2001. The firm under his watch took such risks, time and time again.
Bain and Goldman Sachs, for example, put $85 million down in a $415 million 1994 leveraged buyout of Baxter International’s medical testing division (renamed Dade Behring), which sold machines and reagents to labs.
Former Dade CEO Scott Garrett, who managed the business for the first few years after the takeover, said Romney “was far more in tune with what was going on throughout his firm, and even the portfolio companies, than you might expect.”
Bain reduced Dade’s research and development spending to 6 to 7 percent of sales, while its peers allocated between 10 and 15 percent. Dade in June 1999 used the savings as part of the basis to borrow $421 million. Dade then turned around and used $365 million from the loan to buy shares from its owners, giving them a 4.3 times return on their investment.
A Dade executive, who requested anonymity, said he confronted new CEO Steven Barnes after a boardroom meeting within a week of the distribution.
“You really think it’s a good idea to borrow, you know, one times sales?” he asked.
“Oh. Yeah. Yeah. You know, that’s fine,” Barnes responded. “You know companies do that all the time.”
The executive then told Barnes, “Well, that’d be like me going out and borrowing the amount of money I make in a year and then trying to pay it off and pay for my house and feed myself and everything else. That doesn’t make sense.” The executive said he let it drop after that.
In August 2002, Dade filed for bankruptcy.
No one is against making lots of money, but this is not the way to do it and also create jobs, or even preserve them.
Read more here.