From Vanity Fair
Mitt Romney has long been a front-runner for the G.O.P. nomination—even if no one really knows who he is. Digging into the candidate’s record as a Mormon leader, his business deals at Bain Capital, and that infamous car trip with the family dog strapped to the roof, Michael Kranish and Scott Helman pierce the Mitt bubble in an adaptation from their new book, The Real Romney, to find that the contradictions, question marks, and ambivalence go deeper than his politics.
itt 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.”
The first time I saw a picture of Mitt Romney,he reminded me of a sleazy car salesman. Guess I was right
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