Adapted from The Real Romney,
by Michael Kranish and Scott Helman, to be published this month by HarperCollins; © 2012 by The Boston Globe
.
Mitt
Romney’s privileged pedigree was common knowledge to his classmates at
Harvard Business School and Harvard Law School, where he was
simultaneously enrolled in 1971 through a joint-degree program. By that
time, his father, George Romney, had run a major corporation (American
Motors), been elected three times as Michigan’s governor, sought the
presidency, and been appointed to President Nixon’s Cabinet. Despite
strongly resembling the elder Romney—the full head of strikingly dark
hair, square jaw, dazzling smile—Mitt did little to draw attention to
his parentage. The only hint was George’s faded gold initials on a
beat-up old briefcase that Mitt carried around.
In truth, Mitt
cherished his father’s example and endeavored to follow it. George
became more than just a mentor to his youngest son. He was a pathfinder,
showing the way of their Mormon faith through the thickets of politics
and business, home life, and character. Through his achievements and
mistakes, George had bestowed many lessons, and Mitt soaked them up.
“His whole life,” said John Wright, a close family friend, “was
following a pattern which had been laid out by his dad.” So with his
wife, Ann, as a partner and his father as an inspiration, Mitt set out
to build a family, a career, and a place in the church that he loved.
The
Romneys’ Mormon faith, as Mitt and Ann began their life together,
formed a deep foundation. It lay under nearly everything—their acts of
charity, their marriage, their parenting, their social lives, even their
weekly schedules. Their family-centric lifestyle was a choice; Mitt and
Ann plainly cherished time at home with their children more than
anything. But it was also a duty. Belonging to the Mormon Church meant
accepting a code of conduct that placed supreme value on strong
families—strong heterosexual families, in which men and women often
filled defined and traditional roles. The Romneys have long cited a
well-known Mormon credo popularized by the late church leader David O.
McKay: “No other success can compensate for failure in the home.” They
had arrived in the Boston area with one son, Taggart, and soon had a
second, Matthew. Over the next decade, the Romneys would have three more
boys: Joshua was born in 1975, Benjamin in 1978, and then Craig in
1981.
To Mitt, the special one in the
house was Ann, with her wide smile, piercing eyes, and steadying
domestic presence. And woe was the boy who forgot it. Tagg said there
was one rule that was simply not breakable: “We were not allowed to say
anything negative about my mother, talk back to her, do anything that
would not be respectful of her.” On Mother’s Day, their home would be
fragrant with lilacs, Ann’s favorite flowers. Tagg didn’t get it back
then, but he came to understand. From the beginning, Mitt had put Ann on
a pedestal and kept her there. “When they were dating,” Tagg said, “he
felt like she was way better than him and he was really lucky to have
this catch. He really genuinely still feels that way.” What makes his
parents’ relationship work, he said, is their distinct characters: Mitt
is driven first by reason, while Ann operates more on emotion. “She
helps him see there’s stuff beyond the logic; he helps her see that
there’s more than just instinct and feeling,” Tagg said. Mitt and Ann’s
relationship would grow and change as their family entered the public
eye. But she has remained his chief counselor and confidante, the one
person who can lead Mitt to a final decision. Though she did not
necessarily offer detailed input on every business deal, friends said,
she weighed in on just about everything else. “Mitt’s not going to do
something that they don’t feel good about together,” said Mitt’s sister
Jane. Tagg said they called their mom “the great Mitt stabilizer.” Ann
would later be mocked for her claim that she and Mitt had never had an
argument during their marriage, which sounded preposterous to the ears
of many married mortals. Tagg said it’s not that his parents never
disagree. “I know there are things that she says that he doesn’t agree
with sometimes, and I see him kind of bite his tongue. But I know that
they go and discuss it in private. He doesn’t ever contradict my mother
in public.” Friends of the Romneys’ back up that account, saying they
cannot recall Mitt ever raising his voice toward Ann. Nowhere was Ann’s
special status more evident than on long family car trips. Mitt imposed
strict rules: they would stop only for gas, and that was the only chance
to get food or use the restroom. With one exception, Tagg explained.
“As soon as my mom says, ‘I think I need to go to the bathroom,’ he
pulls over instantly and doesn’t complain. ‘Anything for you, Ann.’” On
one infamous road trip, though, it wasn’t Ann who forced Mitt off the
highway. The destination of this journey, in the summer of 1983, was his
parents’ cottage, on the Canadian shores of Lake Huron. The white Chevy
station wagon with the wood paneling was overstuffed with suitcases,
supplies, and sons when Mitt climbed behind the wheel to begin the
12-hour family trek from Boston to Ontario. As with most ventures in his
life, he had left little to chance, mapping out the route and planning
each stop. Before beginning the drive, Mitt put Seamus, the family’s
hulking Irish setter, in a dog carrier and attached it to the station
wagon’s roof rack. He had improvised a windshield for the carrier to
make the ride more comfortable for the dog.
Then Mitt put his
sons on notice: there would be pre-determined stops for gas, and that
was it. Tagg was commandeering the way-back of the wagon, keeping his
eyes fixed out the rear window, when he glimpsed the first sign of
trouble. “Dad!” he yelled. “Gross!” A brown liquid was dripping down the
rear window, payback from an Irish setter who’d been riding on the roof
in the wind for hours. As the rest of the boys joined in the howls of
disgust, Mitt coolly pulled off the highway and into a service station.
There he borrowed a hose, washed down Seamus and the car, then hopped
back onto the road with the dog still on the roof. It was a preview of a
trait he would grow famous for in business: emotion-free crisis
management. But the story would trail him years later on the national
political stage, where the name Seamus would become shorthand for
Romney’s coldly clinical approach to problem solving.
The Book of Mitt
If
Romney is exceedingly comfortable around family and close friends, he’s
much less so around those he doesn’t know well, drawing a boundary
that’s difficult to traverse. It’s a strict social order—us and
them—that has put co-workers, political aides, casual acquaintances, and
others in his professional circles, even people who have worked with or
known him for years, outside the bubble. As a result, he has numerous
admirers but, by several accounts, not a long list of close pals. “He’s
very engaging and charming in a small group of friends he’s comfortable
with,” said one former aide. “When he’s with people he doesn’t know, he
gets more formal. And if it’s a political thing where he doesn’t know
anybody, he has a mask.” For those outside the inner circle, Romney
comes across as all business. Colleagues at work or political staffers
are there to do a job, not to bond. “Mitt is always the star,” said one
Massachusetts Republican. “And everybody else is a bit player.” He has
little patience for idle chatter or small talk, little interest in
mingling at cocktail parties, at social functions, or even in the
crowded hallway. He is not fed by, and does not crave, casual social
interaction, often displaying little desire to know who people are and
what makes them tick. “He wasn’t overly interested in people’s personal
details or their kids or spouses or team building or their career path,”
said another former aide. “It was all very friendly but not very deep.”
Or, as one fellow Republican put it, “He has that invisible wall
between ‘me’ and ‘you.’” Referring to the time later when Romney was
governor of Massachusetts, a Democratic lawmaker recalls, “You remember
Richard Nixon and the imperial presidency? Well, this was the imperial
governor.” There were the ropes that often curtailed access to Romney
and his chambers. The elevator settings restricted access to his office.
The tape on the floor told people exactly where to stand during events.
This was the controlled environment that Romney created. His orbit was
his own. “We always would talk about how, among the legislators, he had
no idea what our names were—none,” the lawmaker said, “because he was so
far removed from the day-to-day operations of state government.”
This
sense of detachment is a function partly of his faith, which has its
own tight social community that most outsiders don’t see. Indeed, the
stories of Romney’s humanity and warmth come mostly from people who know
him as a fellow Mormon. His abstention from drinking also makes parties
and other alcohol-fueled functions distinctly less appealing. He is the
antithesis of the gregarious pol with a highball in one hand and a
cigar in his mouth. Romney’s discomfort around strangers would later
become more than just a curiosity; it would be an impediment on the
campaign trail. Lacking an easy rapport with voters, he would come
across as aloof, even off-putting. “A lot of it is he is patrician. He
just is. He has lived a charmed life,” said one former aide. “It is a
big challenge that he has, connecting to folks who haven’t swum in the
same rarefied waters that he has.” His growing wealth, the deeper he got
into his career, only widened the disconnect. Even as he began
shouldering more responsibility at work, Romney would assume several
leadership positions in the Mormon Church. But he could handle it.
“Mitt,” said Kem Gardner, a fellow church official from this period,
“just had the capacity to keep all the balls up in the air.” Or, as Tagg
put it, “Compared to my dad, everyone’s lazy.” Helen Claire Sievers,
who served in a church leadership position under Romney, got a glimpse
of his work habits during weekend bus trips to the Mormon temple near
Washington, D.C. Church groups would leave late on a Friday, drive all
night, and arrive early on Saturday morning. Then they’d spend all day
Saturday in temple sessions before turning around and driving home, to
be back by Sunday morning. It was a grueling itinerary, Sievers said, so
everyone used the time on the bus to sleep or read quietly. Everyone
but Romney. “Mitt was always working. His light was on,” she said.
Mormon
congregations, typically groups of 400 to 500 people, are known as
wards, and their boundaries are determined by geography. Wards, along
with smaller congregations known as branches, are organized into stakes.
Thus a stake, akin to a Catholic diocese, is a collection of wards and
branches in a city or region. Unlike Protestants or Catholics, Mormons
do not choose the congregations to which they belong. It depends
entirely on where they live. In another departure from many other
faiths, Mormons do not have paid full-time clergy. Members in good
standing take turns serving in leadership roles. They are expected to
perform their ecclesiastical duties on top of career and family
responsibilities. Those called to serve as stake presidents and bishops,
or leaders of local wards, are fully empowered as agents of the church,
and they carry great authority over their domains. Mitt Romney first
took on a major church role around 1977, when he was called to be a
counselor to Gordon Williams, then the president of the Boston stake.
Romney was essentially an adviser and deputy to Williams, helping
oversee area congregations. His appointment was somewhat unusual in that
counselors at that level have typically been bishops of their local
wards first. But Romney, who was only about 30 years old, was deemed to
possess leadership qualities beyond his years. Romney’s responsibilities
only grew from there; he would go on to serve as bishop and then as
stake president, overseeing about a dozen congregations with close to
4,000 members altogether. Those positions in the church amounted to his
biggest leadership test yet, exposing him to personal and institutional
crises, human tragedies, immigrant cultures, social forces, and
organizational challenges that he had never before encountered.
The
Church of Jesus Christ of Latter-Day Saints is far more than a form of
Sunday worship. It is a code of ethics that frowns on homosexuality,
out-of-wedlock births, and abortion and forbids pre-marital sex. It
offers a robust, effective social safety net, capable of incredible
feats of charity, support, and service, particularly when its own
members are in trouble. And it works hard to create community, a
built-in network of friends who often share values and a worldview. For
many Mormons, the all-encompassing nature of their faith, as an
extension of their spiritual lives, is what makes belonging to the
church so wonderful, so warm, even as its insularity can set members
apart from society.
But a dichotomy exists within the Mormon
Church, which holds that one is either in or out; there is little or no
tolerance for those, like so-called cafeteria Catholics, who pick and
choose what doctrines to follow. And in Mormonism, if one is in, a lot
is expected, including tithing 10 percent of one’s income, participating
regularly in church activities, meeting high moral expectations, and
accepting Mormon doctrine—including many concepts, such as the belief
that Jesus will rule from Missouri in his Second Coming, that run
counter to those of other Christian faiths. That rigidity can be
difficult to abide for those who love the faith but chafe at its
strictures or question its teachings and cultural habits. For one,
Mormonism is male-dominated—women can serve only in certain leadership
roles and never as bishops or stake presidents. The church also makes a
number of firm value judgments, typically prohibiting single or divorced
men from leading wards and stakes, for example, and not looking kindly
upon single parenthood.
The portrait of Romney that emerges from
those he led and served with in the church is of a leader who was pulled
between Mormonism’s conservative core views and practices and the
demands from some quarters within the Boston stake for a more elastic,
more open-minded application of church doctrine. Romney was forced to
strike a balance between those local expectations and the dictates out
of Salt Lake City. Some believe that he artfully reconciled the two,
praising him as an innovative and generous leader who was willing to
make accommodations, such as giving women expanded responsibility, and
who was always there for church members in times of need. To others, he
was the product of a hidebound, patriarchal Mormon culture, inflexible
and insensitive in delicate situations and dismissive of those who
didn’t share his perspective.
In the
spring of 1993, Helen Claire Sievers performed a bit of shuttle
diplomacy to resolve a thorny problem confronting church leaders in
Boston: resentment among progressive Mormon women at their subservient
status within the church. Sievers was active in an organization of
liberal women called Exponent II, which published a periodical. The
group had been chewing over the challenges of being a woman in the
male-led faith. So Sievers went to Romney, who was stake president, with
a proposal. “I said, ‘Why don’t you have a meeting and have an open
forum and let women talk to you?’” she recalled. The idea was that,
although there were many church rules that stake presidents and bishops
could not change, they did have some leeway to do things their own way.
Romney
wasn’t sure about holding such a meeting, but he ultimately agreed to
it. Sievers went back to the Exponent II group and said they should be
realistic and not demand things Romney could never deliver, such as
allowing women to hold the priesthood. On the day of the meeting, about
250 women filled the pews of the Belmont Chapel. After an opening song,
prayer, and some housekeeping items, the floor was open. Women began
proposing changes that would include them more in the life of the
church. In the end, the group came up with some 70 suggestions—from
letting women speak after men in church to putting changing tables in
men’s bathrooms—as Romney and one of his counselors listened and took
careful notes.
Romney was essentially willing to grant any
request he couldn’t see a reason to reject. “Pretty much, he said yes to
everything that I would have said yes to, and I’m kind of a liberal
Mormon,” Sievers said. “I was pretty impressed.” (Ann Romney was not
considered to be sympathetic to the agitation of liberal women within
the stake. She was invited to social events sponsored by Exponent II but
did not attend. She was, in the words of one member, understood to be
“not that kind of woman.”)
Romney’s leadership was not so rosy
for everyone, though. As both bishop and stake president, he at times
clashed with women he felt strayed too far from church beliefs and
practice. To them, he lacked the empathy and courage that they had known
in other leaders, putting the church first even at times of great
personal vulnerability. Peggie Hayes had joined the church as a teenager
along with her mother and siblings. They’d had a difficult life.
Mormonism offered the serenity and stability her mother craved. “It
was,” Hayes said, “the answer to everything.” Her family, though poorer
than many of the well-off members, felt accepted within the faith.
Everyone was so nice. The church provided emotional and, at times,
financial support. As a teenager, Hayes babysat for Mitt and Ann Romney
and other couples in the ward. Then Hayes’s mother abruptly moved the
family to Salt Lake City for Hayes’s senior year of high school.
Restless and unhappy, Hayes moved to Los Angeles once she turned 18. She
got married, had a daughter, and then got divorced shortly after. But
she remained part of the church.
By
1983, Hayes was 23 and back in the Boston area, raising a 3-year-old
daughter on her own and working as a nurse’s aide. Then she got pregnant
again. Single motherhood was no picnic, but Hayes said she had wanted a
second child and wasn’t upset at the news. “I kind of felt like I could
do it,” she said. “And I wanted to.” By that point Mitt Romney, the man
whose kids Hayes used to watch, was, as bishop of her ward, her church
leader. But it didn’t feel so formal at first. She earned some money
while she was pregnant organizing the Romneys’ basement. The Romneys
also arranged for her to do odd jobs for other church members, who knew
she needed the cash. “Mitt was really good to us. He did a lot for us,”
Hayes said. Then Romney called Hayes one winter day and said he wanted
to come over and talk. He arrived at her apartment in Somerville, a
dense, largely working-class city just north of Boston. They chitchatted
for a few minutes. Then Romney said something about the church’s
adoption agency. Hayes initially thought she must have misunderstood.
But Romney’s intent became apparent: he was urging her to give up her
soon-to-be-born son for adoption, saying that was what the church
wanted. Indeed, the church encourages adoption in cases where “a
successful marriage is unlikely.”
Hayes was deeply insulted. She
told him she would never surrender her child. Sure, her life wasn’t
exactly the picture of Rockwellian harmony, but she felt she was on a
path to stability. In that moment, she also felt intimidated. Here was
Romney, who held great power as her church leader and was the head of a
wealthy, prominent Belmont family, sitting in her gritty apartment
making grave demands. “And then he says, ‘Well, this is what the church
wants you to do, and if you don’t, then you could be excommunicated for
failing to follow the leadership of the church,’ ” Hayes recalled. It
was a serious threat. At that point Hayes still valued her place within
the Mormon Church. “This is not playing around,” she said. “This is not
like ‘You don’t get to take Communion.’ This is like ‘You will not be
saved. You will never see the face of God.’ ” Romney would later deny
that he had threatened Hayes with excommunication, but Hayes said his
message was crystal clear: “Give up your son or give up your God.”
Not
long after, Hayes gave birth to a son. She named him Dane. At nine
months old, Dane needed serious, and risky, surgery. The bones in his
head were fused together, restricting the growth of his brain, and would
need to be separated. Hayes was scared. She sought emotional and
spiritual support from the church once again. Looking past their
uncomfortable conversation before Dane’s birth, she called Romney and
asked him to come to the hospital to confer a blessing on her baby.
Hayes was expecting him. Instead, two people she didn’t know showed up.
She was crushed. “I needed him,” she said. “It was very significant that
he didn’t come.” Sitting there in the hospital, Hayes decided she was
finished with the Mormon Church. The decision was easy, yet she made it
with a heavy heart. To this day, she remains grateful to Romney and
others in the church for all they did for her family. But she shudders
at what they were asking her to do in return, especially when she pulls
out pictures of Dane, now a 27-year-old electrician in Salt Lake City.
“There’s my baby,” she said.
In the fall
of 1990, Exponent II published in its journal an unsigned essay by a
married woman who, having already borne five children, had found herself
some years earlier facing an unplanned sixth pregnancy. She couldn’t
bear the thought of another child and was contemplating abortion. But
the Mormon Church makes few exceptions to permit women to end a
pregnancy. Church leaders have said that abortion can be justified in
cases of rape or incest, when the health of the mother is seriously
threatened, or when the fetus will surely not survive beyond birth. And
even those circumstances “do not automatically justify an abortion,”
according to church policy.
Then the woman’s doctors discovered
she had a serious blood clot in her pelvis. She thought initially that
would be her way out—of course she would have to get an abortion. But
the doctors, she said, ultimately told her that, with some risk to her
life, she might be able to deliver a full-term baby, whose chance of
survival they put at 50 percent. One day in the hospital, her
bishop—later identified as Romney, though she did not name him in the
piece—paid her a visit. He told her about his nephew who had Down
syndrome and what a blessing it had turned out to be for their family.
“As your bishop,” she said he told her, “my concern is with the child.”
The woman wrote, “Here I—a baptized, endowed, dedicated worker, and
tithe-payer in the church—lay helpless, hurt, and frightened, trying to
maintain my psychological equilibrium, and his concern was for the
eight-week possibility in my uterus—not for me!”
Romney would
later contend that he couldn’t recall the incident, saying, “I don’t
have any memory of what she is referring to, although I certainly can’t
say it could not have been me.” Romney acknowledged having counseled
Mormon women not to have abortions except in exceptional cases, in
accordance with church rules. The woman told Romney, she wrote, that her
stake president, a doctor, had already told her, “Of course, you should
have this abortion and then recover from the blood clot and take care
of the healthy children you already have.” Romney, she said, fired back,
“I don’t believe you. He wouldn’t say that. I’m going to call him.” And
then he left. The woman said that she went on to have the abortion and
never regretted it. “What I do feel bad about,” she wrote, “is that at a
time when I would have appreciated nurturing and support from spiritual
leaders and friends, I got judgment, criticism, prejudicial advice, and
rejection.”
One woman who had been
active in the Exponent II organization was Judy Dushku, a longtime
scholar of global politics at Suffolk University in Boston. At one point
while Romney was stake president, Dushku wanted to visit the temple
outside Washington to take out endowments, a sacred rite that commits
Mormons to a lifetime of faithfulness to the church. She had never
entered a temple before and was thrilled at the chance to affirm her
dedication to a faith she’d grown up with and grown to love. Earlier in
her life, temples had been off limits to Mormons who, like Dushku, were
married to non-Mormons. Now that rule had changed, and she was eager to
go. But first she needed permission from her bishop and stake president.
After
what she described as a “lovely interview” with her bishop and after
speaking with one of Romney’s counselors, she went to see Romney. She
wasn’t sure what to expect. Despite Romney’s willingness to allow some
changes in 1993, he and Dushku had clashed over the church’s treatment
of women. “He says something like ‘I suspect, if you’ve gotten through
both of the interviews, there’s nothing I can do to keep you from going
to the temple,’ ” Dushku recalled. “I said, ‘Well, why would you want to
keep me from going to the temple?’ ” Romney’s answer, Dushku said, was
biting. “He said, ‘Well, Judy, I just don’t understand why you stay in
the church.’ ” She asked him whether he wanted her to really answer that
question. “And he said, ‘No, actually. I don’t understand it, but I
also don’t care. I don’t care why you do. But I can tell you one thing:
you’re not my kind of Mormon.’ ” With that, Dushku said, he dismissively
signed her recommendation to visit the temple and let her go. Dushku
was deeply hurt. Though she and Romney had had their differences, he was
still her spiritual leader. She had hoped he would be excited at her
yearning to visit the temple. “I’m coming to you as a member of the
church, essentially expecting you to say, ‘I’m happy for you,’ ” Dushku
said. Instead, “I just felt kicked in the stomach.”
The Bain of Mitt’s Campaign
By
the time Mitt Romney walked into the Faneuil Hall offices of his mentor
and boss, Bill Bain, in the spring of 1983, the 36-year-old was already
a business-consulting star, coveted by clients for his analytical cool.
He was, as people had said of him since childhood, mature beyond his
years and organized to a fault. Everything he took on was thought
through in advance, down to the smallest detail; he was rarely taken by
surprise. This day, however, would be an exception. Bill Bain, the
founder of Bain & Company, one of the nation’s premier consulting
outfits, had a stunning proposition: he was prepared to entrust an
entirely new venture to the striking young man seated before him.
From
the moment they’d first met, Bill Bain had seen something special,
something he knew, in Mitt Romney. Indeed, he had seen someone he knew
when he interviewed Romney for a job in 1977: Mitt’s father. “I remember
[George] as president of American Motors when he was fighting the gas
guzzlers and making funny ads So when I saw Mitt, I instantly saw George
Romney. He doesn’t look exactly like his dad did, but he very strongly
resembles his father.” Beyond appearances, Mitt had an air of great
promise about him. He seemed brilliant but not cocky. All of the
partners were impressed, and some were jealous. More than one partner
told Bain, “This guy is going to be president of the United States
someday.”
The Bain Way, as it became known, was intensely
analytical and data-driven, a quality it shared with some other firms’
methods. But Bill Bain had come up with the idea of working for just one
client per industry and devoting Bain & Company entirely to that
company, with a strict vow of confidentiality. From the start Romney was
perfectly adapted to the Bain Way and became a devoted disciple.
Patient analysis and attention to nuance were what drove him. For six
years, he delved into numerous unfamiliar companies, learned what made
them work, scoped out the competition, and then presented his findings.
An increasing number of clients preferred Romney over more senior
partners. He was plainly a star, and Bain treated him as a kind of
prince regent at the firm, a favored son. Just the man for the big move
he now had in mind.
And so Bain made his pitch: Up to that point,
Bain & Company could watch its clients prosper only from a
distance, taking handsome fees but not directly sharing in profits.
Bain’s epiphany was that he would create a new enterprise that would
invest in companies and share in their growth, rather than just advise
them.
Starting almost immediately, Bain
proposed, Romney would become the head of a new company to be called
Bain Capital. With seed money from Bill Bain and other partners at the
consulting firm, Bain Capital would raise tens of millions of dollars,
invest in start-ups and troubled businesses, apply Bain’s brand of
management advice, and then resell the revitalized companies or sell
their shares to the public at a profit. It sounded exciting, daring,
new. It would be Romney’s first chance to run his own firm and,
potentially, to make a killing. It was an offer few young men in a hurry
could refuse.
Yet Romney stunned his boss by doing just that. He
explained to Bain that he didn’t want to risk his position, earnings,
and reputation on an experiment. He found the offer appealing but didn’t
want to make the decision in a “light or flippant manner.” So Bain
sweetened the pot. He guaranteed that if the experiment failed Romney
would get his old job and salary back, plus any raises he would have
earned during his absence. Still, Romney worried about the impact on his
reputation if he proved unable to do the job. Again the pot was
sweetened. Bain promised that, if necessary, he would craft a cover
story saying that Romney’s return to Bain & Company was needed due
to his value as a consultant. “So,” Bain explained, “there was no
professional or financial risk.” This time Romney said yes.
Thus
began Romney’s 15-year odyssey at Bain Capital. Boasting about those
years when running for senator, governor, or president, Romney would
usually talk about how he had helped create jobs at new or
underperforming companies, and would claim that he had learned how jobs
and businesses come and go. He’d typically mention a few well-known
companies in which he and his partners had invested, such as Staples.
But the full story of his years at Bain Capital is far more complicated
and has rarely been closely scrutinized. Romney was involved in about a
hundred deals, many of which have received little notice because the
companies involved were privately held and not household names. The most
thorough analysis of Romney’s performance comes from a private
solicitation for investment in Bain Capital’s funds written by the Wall
Street firm Deutsche Bank. The company examined 68 major deals that had
taken place on Romney’s watch. Of those, Bain had lost money or broken
even on 33. Overall, though, the numbers were stunning: Bain was nearly
doubling its investors’ money annually, giving it one of the best track
records in the business.
Romney was, by
nature, deeply risk-averse in a business based on risk. He worried about
losing the money of his partners and his outside investors—not to
mention his own savings. “He was troubled when we didn’t invest fast
enough; he was troubled when we made an investment,” said Bain partner
Coleman Andrews. Sorting through possible investments, Romney met weekly
with his young partners, pushing them for deeper analysis and more data
and giving himself the final vote on whether to go forward. They
operated more like a group of bankers carefully guarding their cash than
an aggressive firm eager to embrace giant deals. Some partners
suspected that Romney always had one eye on his political future. “I
always wondered about Mitt, whether he was concerned about the blemishes
from a business perspective or from a personal and political
perspective,” one partner said years later. The partner concluded that
it was the latter. Whereas most entrepreneurs accepted failure as an
inherent part of the game, the partner said, Romney worried that a
single flop would bring disgrace. Every calculation had to be made with
care.
Despite some initial struggles, 1986 would prove to be a
pivotal year for Romney. It started with a most unlikely deal. A former
supermarket executive, Thomas Stemberg, was trying to sell venture
capitalists on what seemed like a modest idea: a cheaper way to sell
paper clips, pens, and other office supplies. The enterprise that would
become the superstore Staples at first met with skepticism. Small and
midsize businesses at the time bought most of their supplies from local
stationers, often at significant markups. Few people saw the
profit-margin potential in selling such homely goods at discount and in
massive volume. But Stemberg was convinced and hired an investment
banker to help raise money. Romney eventually heard Stemberg’s pitch,
and he and his partners dug into Stemberg’s projections. They called
lawyers, accountants, and scores of business owners in the Boston area
to query them on how much they spent on supplies and whether they’d be
willing to shop at a large new store. The partners initially concluded
that Stemberg was overestimating the market. “Look,” Stemberg told
Romney, “your mistake is that the guys you called think they know what
they spend, but they don’t.” Romney and Bain Capital went back to the
businesses and tallied up invoices. Stemberg’s assessment that this was a
hidden giant of a market seemed right after all.
Romney hadn’t
stumbled on Staples on his own. A partner at another Boston firm,
Bessemer Venture Partners, had invited him to the first meeting with
Stemberg. But after that, he took the lead; he finally had his hands on
what looked like a promising start-up. Bain Capital invested $650,000 to
help Staples open its first store, in Brighton, Massachusetts, in May
1986. In all, it invested about $2.5 million in the company. Three years
later, in 1989, Staples sold shares to the public, when it was just
barely turning a profit, and Bain reaped more than $13 million. It was a
big success at the time. Yet it was very modest compared with later
Bain deals that reached into the hundreds of millions of dollars.
For
years Romney would cite the Staples investment as proof that he had
helped create thousands of jobs. And it is true that his foresight in
investing in Staples helped a major enterprise lift off. But neither
Romney nor Bain directly ran the business, though Romney was active on
its board. At the initial public offering, Staples was a firm of 24
stores and 1,100 full- and part-time jobs. Its boom years were still to
come. Romney resigned his seat on the board of directors in 2001 in
preparation for his run for governor. A decade later, the company had
more than 2,200 stores and 89,000 employees.
Assessing claims
about job creation is hard. Staples grew hugely, but the gains were
offset, at least partially, by losses elsewhere: smaller, mom-and-pop
stationery stores and suppliers were being squeezed, and some went out
of business entirely. Ultimately, Romney would approvingly call Staples
“a classic ‘category killer,’ like Toys R Us.” Staples steamrolled the
competition, undercutting prices and selling in large quantities. When
asked about his job-creation claim during the 1994 Senate campaign—that
he had helped create 10,000 jobs at various companies (a claim he
expanded during his 2012 presidential campaign to having “helped to
create tens of thousands” of jobs)—Romney responded with a careful
hedge. He emphasized that he always used the word “helped” and didn’t
take full credit for the jobs. “That’s why I’m always very careful to
use the words ‘help create,’ ” he acknowledged. “Bain Capital, or Mitt
Romney, ‘helped create’ over 10,000 jobs. I don’t take credit for the
jobs at Staples. I helped create the jobs at Staples.”
Howard
Anderson, a professor at M.I.T.’s Sloan School of Management and a
former entrepreneur who has invested with Bain, put it more plainly:
“What you really cannot do is claim every job was because of your good
judgment,” he said. “You’re not really running those organizations.
You’re financing it; you’re offering your judgment and your advice. I
think you can only really claim credit for the jobs of the company that
you ran.”
The same year Romney invested
in Staples—digging into a true start-up—he also inked the biggest
transaction, by far, that Bain Capital had put together until then. And
with this $200 million deal, he waded full-on into the high-stakes
financial arena of the time: leveraged buyouts, or LBOs. Whereas a
venture-capital deal bet on a new business, pursuing an LBO meant
borrowing huge sums of money to buy an established company, typically
saddling the target with big debts. The goal was to mine value that
others had missed, to quickly improve profitability by cutting costs and
often jobs, and then to sell.
Initially, Romney thought that
putting money into young firms “would be just as good as acquiring an
existing company and trying to make it better.” But he found that
“there’s a lot greater risk in a start-up than there is in acquiring an
existing company.” He was much more comfortable in an environment where
the issue wasn’t whether an idea would pan out but whether the numbers
worked. He knew himself, knew that his powers ran less to the creative
than to the analytical; he was not at heart an entrepreneur. Perhaps
that was what led him to push the Pause button at the outset with Bill
Bain. But he now felt ready to take on much bigger financial risks,
mostly by making leveraged bets on existing companies, whose market was
known and whose business plans he could parse and master.
Billions
of dollars were being made in the field of leveraged buyouts in the
roaring 80s, and Romney was fully in the game, continuing to ratchet up
his favored strategy. On the campaign trail in 2011, Romney said his
work had “led me to become very deeply involved in helping other
businesses, from start-ups to large companies that were going through
tough times. Sometimes I was successful and we were able to help create
jobs, other times I wasn’t. I learned how America competes with other
companies in other countries, what works in the real world and what
doesn’t.” It was a vague summary of what was a very controversial type
of business. In his 2004 autobiography, Turnaround, Romney put it
more bluntly: “I never actually ran one of our investments; that was
left to management.” He explained that his strategy was to “invest in
these underperforming companies, using the equivalent of a mortgage to
leverage up our investment. Then we would go to work to help management
make their business more successful.”
Romney’s
phrase, “leverage up,” provides the key to understanding this most
profitable stage of his business career. While putting relatively little
money on the table, Bain could strike a deal using largely debt. That
generally meant that the company being acquired had to borrow huge sums.
But there was no guarantee that target companies would be able to repay
their debts. At Bain, the goal was to buy businesses that were
stagnating as subsidiaries of large corporations and grow them or shake
them up to burnish their performance. Because many of the companies were
troubled, or at least were going to be heavily indebted after Bain
bought them, their bonds would be considered lower-grade, or “junk.”
That meant they would have to pay higher interest on the bonds, like a
strapped credit-card holder facing a higher rate than a person who pays
off purchases more quickly. High-yielding junk bonds were appealing to
investors willing to take on risk in exchange for big payouts. But they
also represented a big bet: if the companies didn’t generate large
profits or could not sell their stock to the public, some would be
crippled by the debt layered on them by the buyout firms.
The
arcane domain of corporate buyouts and junk-bond financing had entered
the public consciousness at the time, and not always in a positive way.
Ivan Boesky, a Wall Street arbitrageur who often bought the stock of
takeover targets, was charged with insider trading and featured on the
cover of Time magazine as “Ivan the Terrible.” Shortly after Romney began working on leveraged deals, a movie called Wall Street
opened. It featured the fictional corporate raider Gordon Gekko, who
justified his behavior by declaring, “I am not a destroyer of companies.
I am a liberator of them! … Greed, for lack of a better word, is good.
Greed is right. Greed works. Greed clarifies, cuts through, and captures
the essence of the evolutionary spirit.”
Romney, of course,
never said that greed is good, and there was nothing of Gekko in his
mores or style. But he bought into the broader ethic of the LBO kings,
who believed that through the aggressive use of leverage and skilled
management they could quickly remake underperforming enterprises. Romney
described himself as driven by a core economic credo, that capitalism
is a form of “creative destruction.” This theory, espoused in the 1940s
by the economist Joseph Schumpeter and later touted by former Federal
Reserve Board chairman Alan Greenspan, holds that business must exist in
a state of ceaseless revolution. A thriving economy changes from
within, Schumpeter wrote in his landmark book, Capitalism, Socialism and Democracy,
“incessantly destroying the old one, incessantly creating a new one.”
But as even the theory’s proponents acknowledged, such destruction could
bankrupt companies, upending lives and communities, and raise questions
about society’s role in softening some of the harsher consequences.
Romney,
for his part, contrasted the capitalistic benefits of creative
destruction with what happened in controlled economies, in which jobs
might be protected but productivity and competitiveness falters. Far
better, Romney wrote in his book No Apology, “for governments to
stand aside and allow the creative destruction inherent in a free
economy.” He acknowledged that it is “unquestionably stressful—on
workers, managers, owners, bankers, suppliers, customers, and the
communities that surround the affected businesses.” But it was necessary
to rebuild a moribund company and economy. It was a point of view he
would stick with in years ahead. Indeed, he wrote a 2008 op-ed piece for
The New York Times opposing a federal bailout for automakers that the newspaper headlined, let detroit go bankrupt.
His advice went unheeded, and his prediction that “you can kiss the
American automotive industry goodbye” if it got a bailout has not come
true.
Thanks to a highly leveraged but successful takeover and
turnaround of a wheel-rim maker, Accuride, Bain Capital became a hot
property. So much money poured into Romney’s second investment fund that
the firm had to turn away investors. Romney set out to raise $80
million and received offers totaling $150 million. The partners settled
on $105 million, half of it from wealthy customers of a New York bank.
During a break at a photo shoot for a brochure to attract investors, the
Bain partners playfully posed for a photo that showed them flush with
cash. They clutched $10 and $20 bills, stuffed them into their pockets,
and even clenched them in their grinning teeth. Romney tucked a bill
between his striped tie and his buttoned suit jacket. Everything was
different now.
Valley of the LBO Kings
It
was time for another road show, but the days of soliciting prospects
for scarce cash in obscure locales were mostly over. This time Romney
and his partners headed to Beverly Hills, California. Arriving at the
intersection of Rodeo Drive and Wilshire Boulevard, they headed to the
office of Michael Milken, the canny and controversial junk-bond king, at
his company, Drexel Burnham Lambert. Romney knew Milken was able to
find buyers for the high-yield, high-risk bonds that were crucial to the
success of many leveraged-buyout deals. At the time of Romney’s visit,
it was widely known that Drexel and Milken were under investigation by
the Securities and Exchange Commission. But Drexel was still the big
player in the junk-bond business, and Romney needed the financing.
Romney
had come to Drexel to obtain financing for the $300 million purchase of
two Texas department-store chains, Bealls and Palais Royal, to form
Specialty Retailers, Inc. On September 7, 1988, two months after Bain
hired Drexel to issue junk bonds to finance the deal, the S.E.C. filed a
complaint against Drexel and Milken for insider trading. Romney had to
decide whether to close a deal with a company ensnared in a growing
clash with regulators. The old Romney might well have backed off; the
newly assertive, emboldened Mitt decided to press ahead.
Romney’s
deal with Drexel turned out well for both him and Bain Capital, which
put $10 million into the retailer and financed most of the rest of the
$300 million deal with junk bonds. The newly constituted company, later
known as Stage Stores, refocused in 1989 on its small-town,
small-department-store roots. Seven years later, in October 1996, the
company successfully sold shares to the public at $16 a share. By the
following year, the stock had climbed to a high of nearly $53, and Bain
Capital and a number of its officers and directors sold a large part of
their holdings. Bain made a $175 million gain by 1997. It was one of the
most profitable leveraged buyouts of the era.
Romney sold at
just the right time. Shares plunged in value the next year amid
declining sales at the stores. The department-store company filed for
Chapter 11 bankruptcy protection in 2000, struggling with $600 million
in debt, and a reorganized company emerged the following year. So ended
the story of a deal that Romney would not be likely to cite on the
campaign trail: the highly leveraged purchase, financed with junk bonds
from a firm that became infamous for its financial practices, of a
department-store company that had subsequently gone into bankruptcy. But
on the Bain balance sheet, and on Romney’s, it was a huge win.
Not
every deal worked out so well for Romney and his investors. Bain
invested $4 million in a company called Handbag Holdings, which sold
pocketbooks and other accessories. When a major customer stopped buying,
the company failed and 200 jobs were lost. Bain invested $2.1 million
in a bathroom-fixtures company called PPM and lost nearly all of it. An
investment in a company called Mothercare Stores also didn’t pan out;
the firm had eliminated a hundred jobs by the time Bain dumped it.
Fellow Bain partner Robert White said Bain lost its $1 million and
blamed “a difficult retail environment.”
In some cases, Bain
Capital’s alternative strategy of buying into companies also ended in
trouble. In 1993, Bain bought GST Steel, a maker of steel-wire rods, and
later more than doubled its $24 million investment. The company
borrowed heavily to modernize plants in Kansas City and North
Carolina—and to pay out dividends to Bain. But foreign competition
increased and steel prices fell. GST Steel filed for bankruptcy and shut
down its money-losing Kansas City plant, throwing some 750 employees
out of work. Union workers there blamed Bain, then and now, for ruining
the company, upending their lives, and devastating the community.
Then,
in 1994, Bain invested $27 million as part of a deal with other firms
to acquire Dade International, a medical-diagnostics-equipment firm,
from its parent company, Baxter International. Bain ultimately made
nearly 10 times its money, getting back $230 million. But Dade wound up
laying off more than 1,600 people and filed for bankruptcy protection in
2002, amid crushing debt and rising interest rates. The company, with
Bain in charge, had borrowed heavily to do acquisitions, accumulating
$1.6 billion in debt by 2000. The company cut benefits for some workers
at the acquired firms and laid off others. When it merged with Behring
Diagnostics, a German company, Dade shut down three U.S. plants. At the
same time, Dade paid out $421 million to Bain Capital’s investors and
investing partners.
The amount of money
now being earned at Bain Capital was skyrocketing, and much of it came
from a handful of giant deals. During Romney’s 15 years there, the firm
invested about $260 million in its 10 top deals and reaped a nearly $3
billion return. That was about three-quarters of its overall profit on
roughly 100 transactions during Romney’s tenure. In one of his most
specific explanations of how he made his fortune, in his autobiography, Turnaround,
Romney wrote that most of the companies he invested in were ones that
“no one has heard of—TRW’s credit services, the Yellow Pages of Italy.”
Those weren’t just any two deals. They were two of the most lucrative of
Romney’s career, and luck played a big part in both. A mere seven weeks
after buying TRW, Romney and his partners flipped the company. Bain’s
$100 million investment returned at least $300 million. The second deal
cited by Romney took longer but involved even more good timing and luck.
It began with a renowned Italian investor named Phil Cuneo, who had the
idea of buying the Italian version of the Yellow Pages. It seemed a
solid investment in a firm with a staid and stable business model. But
mere months after closing the deal, Cuneo and his Bain associates
realized that they had acquired a company that might benefit from the
surging interest in dot-com businesses; the Yellow Pages company owned a
Web-based directory that had the potential to be the Italian version of
America Online or Yahoo. In just under three years, in September 2000,
the partners sold the investment, earning a windfall that far exceeded
anyone’s initial expectations. Bain’s $51.3 million investment in the
Italian Yellow Pages returned at least $1.17 billion, according to a
Romney associate familiar with the deal. There is no public
documentation of how the profits were distributed, but at that time at
least 20 percent of the return would have gone to Bain Capital. Of that,
Romney’s typical payout was then 5 to 10 percent. That means this one
obscure deal would have given him a profit of $11 million to $22
million. If Romney made a side investment in the deal, as was standard
among Bain partners, he would have made even larger gains. One Romney
associate said Romney’s total profit could have been as much as $40
million. (A Romney spokesman did not respond to questions about the
deal.)
It was those kinds of deals that enabled Bain Capital to
report the highest returns in the business in the 1990s. Romney’s own
net worth would grow to at least $250 million, and maybe much more, a
trove that would enable him to foot a large part of the bill for his
2008 presidential campaign. Asked about a report that his wealth at one
point reached as high as $1 billion, Romney said, “I’m not going to get
into my net worth. No estimates whatsoever.”
For
15 years, Romney had been in the business of creative destruction and
wealth creation. But what about his claims of job creation? Though Bain
Capital surely helped expand some companies that had created jobs, the
layoffs and closures at other firms would lead Romney’s political
opponents to say that he had amassed a fortune in part by putting people
out of work. The lucrative deals that made Romney wealthy could exact a
cost. Maximizing financial return to investors could mean slashing
jobs, closing plants, and moving production overseas. It could also mean
clashing with union workers, serving on the board of a company that ran
afoul of federal laws, and loading up already struggling companies with
debt.
There is a difference between companies run by buyout
firms and those rooted in their communities, according to Ross Gittell, a
professor at the University of New Hampshire’s Whittemore School of
Business and Economics. When it comes to buyout firms, he said, “the
objective is: Make money for investors. It’s not to maximize jobs.”
Romney, in fact, had a fiduciary duty to investors to make as much money
as possible. Sometimes everything worked out perfectly; a change in
strategy might lead to cost savings and higher profits, and Bain cashed
in. Sometimes jobs were lost, and Bain cashed in or lost part or all of
its investment. In the end, Romney’s winners outweighed his losers on
the Bain balance sheet. Marc Wolpow, a former Bain partner who worked
with Romney on many deals, said the discussion at buyout companies
typically does not focus on whether jobs will be created. “It’s the
opposite—what jobs we can cut,” Wolpow said. “Because you had to
document how you were going to create value. Eliminating redundancy, or
the elimination of people, is a very valid way. Businesses will die if
you don’t do that. I think the way Mitt should explain it is, if we
didn’t buy these businesses and impose efficiencies on them, the market
would have done it with disastrous consequences.”
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