Business career
Romney was heavily recruited and, after graduation, chose to remain in Massachusetts to work for Boston Consulting Group (BCG), thinking that working as a management consultant to a variety of companies would prepare him for a future job as a chief executive.[15][40][44][nb 7] Romney was part of a 1970s wave of top graduates who chose to go into consulting rather than join a major company directly.[46] Romney’s legal and business education proved useful in his job, and he became a rising star[40] while applying BCG principles such as the growth-share matrix.[4]
In 1977, he was hired away by Bain & Company, a management consulting firm in Boston that had been formed a few years earlier by Bill Bain and other former BCG employees.[4][40][47] Bain would later say of the thirty-year-old Romney, “He had the appearance of confidence of a guy who was maybe ten years older.”[48] With Bain & Company, Romney learned the “Bain way”, which consisted of immersing the firm in each client’s business,[40][48] and not simply to issue recommendations, but to stay with the company until they were changed for the better.[4][47][49] With a record of helping clients such as the Monsanto Company, Outboard Marine Corporation, Burlington Industries, and Corning Incorporated, Romney became a vice president of the firm in 1978 and within a few years one of its best consultants and one sought after by clients over more senior partners.[9][40][44][50] Romney became a believer in Bain’s methods; he later said, “The idea that consultancies should not measure themselves by the thickness of their reports, or even the elegance of their writing, but rather by whether or not the report was effectively implemented was an inflection point in the history of consulting.”[47]
Logo of company that Romney co-founded
Romney was restless for a company of his own to run, and in 1983, Bill Bain offered him the chance to head a new venture that would buy into companies, have them benefit from Bain techniques, and then reap higher rewards than just consulting fees.[4][40] Romney initially refrained from accepting the offer, and Bain re-arranged the terms in a complicated partnership structure so that there was no financial or professional risk to Romney.[40][48][51] Thus, in 1984, Romney left Bain & Company to co-found the spin-off private equity investment firm, Bain Capital.[49] In the face of skepticism from potential investors, Bain and Romney spent a year raising the $37 million in funds needed to start the new operation, which had fewer than ten employees.[44][48][52][53] As general partner of the new firm, Romney spent little money on costs such as office appearance, and saw weak spots in so many potential deals that by 1986, very few had been done.[40] At first, Bain Capital focused on venture capital opportunities.[40] Their first big success came with a 1986 investment to help start Staples Inc., after founder Thomas G. Stemberg convinced Romney of the market size for office supplies and Romney convinced others; Bain Capital eventually reaped a nearly sevenfold return on its investment, and Romney sat on the Staples board of directors for over a decade.[40][52][53]
Romney soon switched Bain Capital’s focus from startups to the relatively new business of leveraged buyouts: buying existing firms with money mostly borrowed against their assets, partnering with existing management to apply the “Bain way” to their operations (rather than the hostile takeovers practiced in other leverage buyout scenarios), and then selling them off in a few years.[40][48] Existing CEOs were offered large equity stakes in the process, as part of Bain Capital’s belief in the emerging agency theory notion that CEOs should be bound to maximizing shareholder value rather than other goals.[53] Bain Capital lost most of its money in many of its early leveraged buyouts, but then started finding deals that made large returns.[40] Some of the highest were a 34-fold return on Calumet Coach and a 16-fold return on the Gartner Group.[54] The firm invested in or acquired many well-known companies such as Accuride, Brookstone, Domino’s Pizza, Sealy Corporation, Sports Authority, and Artisan Entertainment, as well as lesser-known companies in the industrial and medical sectors.[40][48][55] During the 14 years Romney headed the company, Bain Capital’s average annual internal rate of return on realized investments was 113 percent.[44] Much of this profit was earned from a relatively small number of deals, with Bain Capital’s overall success and failure rate being about even.[nb 8]
Less an entrepreneur than an executive running an investment operation,[50][56] Romney excelled at presenting and selling the deals the company made.[51] The firm initially gave a cut of its profits to Bain & Company, but Romney later persuaded Bain to give that up.[51] Within Bain Capital, Romney spread profits from deals widely within the firm to keep people motivated, often keeping less than ten percent for himself.[57] He was viewed as a very fair manager and received considerable loyalty from the firm’s members.[53] Romney’s wary instincts were still in force at times, and he was generally data-driven and averse to risk.[40][53] He wanted to drop a Bain Capital hedge fund that initially lost money, but other partners prevailed and it eventually gained billions.[40] He also personally opted out of the Artisan Entertainment deal, not wanting to profit from a studio that produced R-rated films.[40] Romney was on the board of directors of Damon Corporation, a medical testing company later found guilty of defrauding the government; Bain Capital tripled its investment before selling off the company, and the fraud was discovered by the new owners (Romney was never implicated).[40] In some cases Romney had little involvement with a company once acquired.[52]
Bain Capital’s leveraged buyouts sometimes led to layoffs, either soon after acquisition or later after the firm had left.[4][40][51][52] How jobs added compared to those lost due to these investments and buyouts is unknown, due to a lack of records and Bain Capital’s penchant for privacy on behalf of itself and its investors.[54][58][59] In any case, maximizing the value of acquired companies and the return to Bain’s investors, not job creation, was the firm’s fundamental goal, as it was for most private equity operations.[52][60] Regarding job losses, Romney later said, “Sometimes the medicine is a little bitter but it is necessary to save the life of the patient. My job was to try and make the enterprise successful, and in my view the best security a family can have is that the business they work for is strong.”[51] Bain Capital’s acquisition of Ampad exemplified a deal where it profited handsomely from early payments and management fees, even though the subject company itself ended up going into bankruptcy.[40][53][60] Dade Behring was another case where Bain Capital received an eightfold return on its investment, but the company itself was saddled with debt and laid off over a thousand employees before Bain Capital exited (the company subsequently went into bankruptcy, with more layoffs, before recovering and prospering).[54] Bain was among the private equity firms that took the most fees in such cases.[48][53] Romney said in retrospect: “It is one thing that if I had a chance to go back I would be more sensitive to. It is always a balance. Great care has got to be taken not to take a dividend or a distribution from a company that puts that company at risk. [Having taken a big payment from a company that later failed] would make me sick, sick at heart.”[48]
In 1990, Romney was asked to return to Bain & Company, which was facing financial collapse.[49] He was announced as its new CEO in January 1991[61][62] (but drew only a symbolic salary of one dollar).[49] Romney managed an effort to restructure the firm’s employee stock-ownership plan, real-estate deals and bank loans, while rallying the firm’s thousand employees, imposing a new governing structure that included Bain and the other founding partners giving up control, and increasing fiscal transparency.[40][44][49] Within about a year, he had led Bain & Company through a turnaround and returned the firm to profitability without further layoffs or partner defections.[44] He turned Bain & Company over to new leadership and returned to Bain Capital in December 1992.[40][62][63]
Romney left Bain Capital in February 1999 to serve as the President and CEO of the 2002 Salt Lake City Olympic Games Organizing Committee.[40] By that time, Bain Capital was on its way to being one of the top private equity firms in the nation,[51] having increased its number of partners from 5 to 18, having 115 employees overall, and having $4 billion under its management.[48][52] It had made between 100 and 150 deals where it acquired and then sold a company.[50][54][56] Bain Capital’s approach of applying consulting expertise to the companies it invested in became widely copied within the private equity industry.[18][52] University of Chicago Booth School of Business economist Steven Kaplan would later say, “[Romney] came up with a model that was very successful and very innovative and that now everybody uses.”[53]
His experience at Bain & Company and Bain Capital gave Romney a business-oriented world view – centering on a hate of waste and inefficiency, a love for data and charts and analysis and presentation, and a belief in keeping an open mind and seeking opposing points of view – that he would take with him to the public sector.[15][49] At the time of his departure, Romney negotiated an agreement with Bain Capital that allowed him to receive a passive profit share as a retired partner in some Bain Capital entities, including buyout and investment funds.[57][64] Because the private equity business continued to thrive, this deal brought him millions of dollars in income each year.[57] As a result of his business career, by 2007, Romney and his wife had a net worth of between $190 and $250 million, most of it held in blind trusts.[64] An additional blind trust existed in the name of the Romneys’ children and grandchildren that was valued at between $70 and $100 million as of 2007.[65] The couple’s net worth remained in the same range as of 2011, and was still held in blind trusts.[66] A substantial portion of these assets – between $20.7 million and $101.6 million, as of 2011 – are held in an individual retirement account (IRA).[67] In January 2012 Romney revealed that he received $42.5 million in income during 2010 and 2011 and paid $6.2 million in taxes.[68]
