As Bain slashed jobs, Romney stayed to side

Mitt Romney with William Bain Jr. at Bain Capital's offices in 1990. A review of Bain's investments during Romney's tenure indicates that job growth was not a particular priority. Mitt Romney with William Bain Jr. at Bain Capital's offices in 1990. A review of Bain's investments during Romney's tenure indicates that job growth was not a particular priority. (Globe file photo by Justine Schiavo)
Email|Print| Text size + By Robert Gavin
Globe Staff / January 27, 2008

In early 1995, as the Ampad paper plant in Marion, Ind., neared its shutdown following a bitter strike, Randy Johnson, a worker and union official, scrawled a personal letter to Mitt Romney, pouring out his disappointment that Romney, then chief executive of the investment firm that controlled Ampad, had not done enough to settle the strike and save some 200 jobs.

"We really thought you might help," Johnson said in the handwritten note, "but instead we heard excuses that were unacceptable from a man of your prominent position."

Romney, who had recently lost a Senate race in which the strike became a flashpoint, responded that he had "privately" urged a settlement, but was advised by lawyers not to intervene directly. His political interests, he explained, conflicted with his business responsibilities.

Now, Romney's decision to stay on the sidelines as his firm, Bain Capital, slashed jobs at the office supply manufacturer stands in marked contrast to his recent pledges to beleaguered auto workers in Michigan and textile workers in South Carolina to "fight to save every job."

Throughout his 15-year career at Bain Capital, which bought, sold, and merged dozens of companies, Romney had other chances to fight to save jobs, but didn't. His ultimate responsibility was to make money for Bain's investors, former partners said.

Much as he did when running for Massachusetts governor, Romney is now touting his business credentials as he campaigns for president, asserting that he helped create thousands of jobs as CEO of Bain. But a review of Bain's investments during Romney's tenure indicates that job growth was not a particular priority.

Romney's approach at Bain Capital was more reflective of the economic philosophy articulated by his opponent, John McCain: to acknowledge that some less efficient jobs will be lost and concentrate on creating new jobs with potential for higher growth.

In many cases, such as Staples Inc., the Framingham retailer, and Steel Dynamics Inc., an Indiana steelmaker, the companies expanded and added thousands of jobs. In other cases, such as Ampad and GS Industries, another steelmaker, Bain-controlled companies shuttered plants, slashed hundreds of jobs, and landed in bankruptcy.

But in almost all cases Bain Capital made money. In fact, the firm earned substantially more from Ampad than Staples. Staples returned about $13 million on a $2 million investment; Ampad yielded more than $100 million on $5 million, according to reports to investors.

"It's not that employment grows, it's that their investment grows," said Howard Anderson, a professor at MIT's Sloan School of Management. "Sometimes its expansion, and sometimes it's shutting things down."

Romney's spokesman acknowledged that layoffs sometimes are necessary for a company's health.

"Governor Romney is not critical of companies that have to reduce their workforce in order to remain competitive. He is critical of Washington politicians who throw up their hands in despair and say there's nothing we can do about it," said Eric Fehrnstrom, a campaign spokesman. "Governor Romney can't promise that he will bring back lost jobs, but he can guarantee that he will fight for every job."

Bain Capital is a private equity firm that invests in start-ups and established firms. It provides venture capital for emerging companies, such as Staples in the 1980s, but specializes in leveraged buyouts. Leveraged buyouts combine small amounts of investors' money with large amounts of borrowed money to buy established companies, increase their value, and resell them at a profit.

Increasing value means boosting profits. That can require a range of approaches including cost-cutting, modernizing plants, adding products, expanding into new markets, and acquiring similar companies.

Bain employed all these strategies under Romney. It's impossible to say precisely if more jobs were created than cut by Bain since the firm does not track employment in its investments. But Bain officials say the companies in which they invested added more jobs than they cut.

Geoffrey Rehnert, a former Bain partner, said Bain often increased employment to boost the value of the company. In one of its first deals, for example, Bain acquired an Illinois manufacturer of medical diagnostic trailers that travel from hospital to hospital, and quickly expanded its national sales force. Sales tripled and employment grew to roughly 150 from 90 in the 27 months that Bain owned it, said Rehnert.

"The profit improvements which Bain companies generated were driven mostly by growth, and not slash and burn cost cutting," said Rehnert, now co-chief executive at another Boston investment firm, Audax Group. "While it wasn't the primary objective, there was actually a very strong record of job creation across Bain Capital's portfolio."

The primary objective, of course, was to make money. That meant every job couldn't be saved. Some strategies, such as a roll-ups, are designed at the outset to cut jobs. In roll-ups, similar firms in the same industry are acquired and combined to boost revenues while eliminating duplicative jobs, particularly in administrative areas such as payroll, personnel, and information technology.

Bain embarked on a roll-up after acquiring Ampad in 1992. Two years later, Ampad bought the office supplies division, including the Marion, Ind., plant , of typewriter maker Smith Corona. Ampad shuttered the Indiana plant in 1995, moving equipment and production to other Ampad factories.

In 1996, another Bain company, Dade International, a maker of medical diagnostic equipment, bought a similar unit of E.I. du Pont de Nemours and Co., of Wilmington, Del. Dade soon shut down two plants and cut more than 700 jobs, according to government filings. The next year, Dade merged with Behring Diagnostics, a German company, to form Dade Behring Inc. Dade Behring shut three US plants, affecting more than 1,000 workers, some of whom were offered transfers to other facilities.

Sometimes, Bain cut jobs to right underperforming companies. In 1997, after acquiring Live Entertainment, later known as Artisan Entertainment, the producer of the hit film "Blair Witch Project," Bain slashed 40 jobs, about 25 percent of the workforce, according to The Hollywood Reporter. Midwest of Cannon Falls, Minn., a giftware distributor, cut 40 jobs, or about 10 percent of its workforce, less than a year after Bain bought a "significant" stake in the company.

In assessing deals, Romney and partners didn't consider whether they saved or created jobs, according to a former Bain employee who requested anonymity, citing confidentiality guidelines. When Bain partners discussed shutting down failing businesses in which they invested, Romney never suggested they had to do something to save workers' jobs. "It was very clinical," the former employee said. "Like a doctor. When the patient is dead, you just move on to the next patient."

While Bain Capital has one of the investment industry's best track records in terms of return to its investors, it did have failures. Companies acquired through leveraged buyouts are particularly vulnerable to changing conditions because of their heavy debt. Should cash flow diminish by a few percentage points, these companies can miss debt payments and plunge into bankruptcy.

Bain acquired GS Industries in 1993. The steelmaker borrowed heavily to modernize plants in Kansas City and North Carolina, as well as pay dividends to Bain investors. But as foreign competition increased and steel prices fell in the late 1990s, the company struggled to support the debt, according to Mark Essig, the former CEO. GS filed for bankruptcy in 2001, and shut down its money-losing Kansas City plant, throwing some 750 employees out of work.

Ampad, too, became squeezed between onerous debt that had financed acquisitions and falling prices for its office-supply products. Its biggest customers - including Staples - used their buying power and access to Asian suppliers to demand lower prices from Ampad.

Romney sat on Staples's board of directors at this time.

Creditors forced Ampad into bankruptcy in early 2000, and hundreds of workers lost jobs during Ampad's decline. Bain Capital and its investors, however, had already taken more than $100 million out of the company, in debt-financed dividends, management fees, and proceeds from selling shares on public stock exchanges.

By the time Ampad failed, Randy Johnson, the former union official in Marion, Ind., had moved on with his life. After the Indiana plant shut down, he worked nearly six months to help the workers find new jobs. He later took a job at the United Paperworkers union.

"What I remember the most," said Johnson, "were the guys in their 50s, breaking down and crying."

In his reply to Johnson's letter, Romney said the Ampad strike had hurt his 1994 bid to unseat Senator Edward M. Kennedy, and no one had a greater interest in seeing the strike settled than he.

"I was advised by counsel that I could not play a role in the dispute," Romney explained, adding, "I hope you understand I could not direct or order Ampad to settle the strike or keep the plant open or otherwise do what might be in my personal interest."

Robert Gavin can be reached at

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