“America cannot afford Romney economics. Mitt Romney will stick it to working people.”
— Former Ampad employee Randy Johnson during a speech at the Democratic convention, Sept. 5, 2012
The Democratic convention on Wednesday featured three speakers billed as “former employees at companies controlled by Romney’s Bain Capital,” who shared their experiences with layoffs, benefit reductions and plant closings while under the private-equity firm’s control. Each speaker tried to cast doubt on the notion that GOP presidential candidate Mitt Romney is uniquely qualified to create jobs because of his work as a corporate executive.
Opponents have accused Romney of leading a firm that looted companies and drove them toward debt-induced bankruptcy. But a number of prominent Democrats have defended the firm.
Massachusetts Gov. Deval Patrick called Bain “a perfectly fine company,” while Newark, N.J. Mayor Corey Booker said President Obama’s campaign should “stop attacking private equity.” Former Tennessee congressman Harold Ford, Jr. said “private equity’s not a bad thing; in fact, private equity is a good thing in many, many instances.”
Former president Bill Clinton cautioned voters not to judge Bain’s management practices based on a few deals that turned bad for workers. “I don’t think that we ought to get into the position where we say, ‘This is bad work, this is good work,’” he said, noting nonetheless that he strongly prefers Obama’s vision for the future over Romney’s.
We’ve noted in previous columns that former Obama administration “car czar” Steve Rattner also wrote a piece for Politico that said, “Bain Capital is not now, nor has it ever been, some kind of Gordon Gekko-like, fire-breathing corporate raider that slashed and burned companies, immolating jobs wherever they appear in its path.”
For easy reference, we’ve compiled a collection of Fact Checker columns dealing with the attacks on Romney’s record at Bain, most of which either lacked context or blamed the Republican candidate for job losses that occurred after he left the private-equity firm. Let’s examine the claims of these “former employees” to see how they hold up.
First, a little background on private equity. A December Washington Post article described how the practice works, explaining that firms like Bain acquire businesses, trim costs, often borrow money and acquire competitors in an effort to make the companies more profitable. The goal is to eventually sell the businesses for a gain.
Private equity firms often collect fees regardless of whether business is good or bad, and they sometimes use debt to pay out shareholder dividends. These practices make the industry controversial, especially when the businesses flounder or die.
A report from The Wall Street Journal found that about 22 percent of Bain’s companies either filed for bankruptcy or liquidated within eight years after the private-equity firm acquired them. That leaves 78 percent of its businesses that avoided such trouble. Furthermore, only four of the companies that produced Bain’s 10 biggest gains ended up in bankruptcy court, according to the Journal.
The December Washington Post article said that “Bain arguably drove some companies to the ground by taking on more debt to give investors dividends earlier.” But those examples are the exception rather than the norm, so the Obama campaign seems to be oversimplifying Romney’s business career.
“When Romney and Bain took over the mill, they loaded it up with millions in debt. And within months, they used some of that borrowed money to pay themselves millions. Within a decade, the debt kept growing and was so large, the company was forced into bankruptcy. They fired 750 steelworkers while they pocketed $12 million in profits.”
— Union leader David Foster during a Democratic convention speech, Sept. 6, 2012
The DNC listed David Foster as one of several “former employees at companies controlled by Romney’s Bain Capital”, but he was actually just a union director who represented workers at the Bain-owned GS Technologies steel plant in Kansas City. An ABC News report revealed that he never worked for GS Technologies, with confirmation coming from B.C. Huselton, the former head of human resources for the company.
Foster never said anything during his speech to dispel the notion that he worked for a Bain business, but he did mention that he “led the steelworkers in a 13-state region,” which suggests he was an organizer of some sort for employees.
Moving beyond the mischaracterization of Foster’s association with GS Technologies, the labor leader’s claims are factually correct. Bain acquired the company in 1993, and the steelmaker issued $125 million in bonds while Bain collected a $36.1 million dividend within one year of investing in the business, according to a Reuters article.
GS Industries, as the company was renamed, filed for bankruptcy in 2001, reporting total debts of $554 million.
The steelmaker also closed its Kansas City mill around that time. The Reuters article said that “...some 750 people lost their jobs. Workers were denied the severance pay and health insurance they’d been promised, and their pension benefits were cut by as much as $400 a month.” Meanwhile, Bain received $12 million on its initial $8 million investment, according to the report.
Romney was involved in the initial deal to acquire GS Technologies in 1993, and he has taken responsibility for the investment. But he was no longer actively managing Bain when the steel company filed for bankruptcy protection in 2001 and closed its Kansas City plant, as we noted in a past column. The GOP candidate had left Bain in February 1999 to organize the Salt Lake City Olympics.
The plant was also in serious decline when Bain took over, having shrunk from 4,500 employees in 1970 to 1,500 in 1983, according to a timeline published by the Kansas City Star in 2001. The Reuters report noted that “poor market conditions forced a wave of layoffs in the early 1980s and led the company to prune its product line.”
Furthermore, rising electricity and natural-gas prices, along with an influx of cheap steel imports, hurt the company’s competitiveness in the late 1990s, according to the company’s 1998 SEC filing.
Overall, Foster’s claims are factually correct for the most part, but they lack context: GS Technologies was in trouble before Bain took over, and Romney was gone before it filed for bankruptcy. Foster also spoke as a former Bain-company employee, but he never worked for the steelmaker. He earns two Pinocchios.
“On July 5, 1994, Mitt Romney and his partners at Bain Capital fired me and more than 350 of my coworkers. ...They handed us job applications and told us, ‘If we want you, we’ll let you know.’ Now, the truth is, some folks were hired back — lower wages, fewer benefits, no retirement. But many others weren’t. And seven months later, they closed our plant for good.”
— Former Ampad employee Randy Johnson during a speech at the Democratic convention, Sept. 5, 2012
In the case of Ampad, Bain acquired the paper manufacturer during Romney’s tenure and immediately laid off all the workers, telling them they could reapply for jobs at lower wages and with reduced health-care benefits. As we noted in a previous column, “Bain was trying to make this company more efficient, and it did so in a brutal fashion.”
But this is also the nature of private equity, which often times ends up saving struggling businesses. We questioned in our past column about Ampad whether “the story of one company — or a few — in some of Bain’s bad deals should negate a largely positive record of building businesses, sometimes in challenging economic climates.”
Overall, the story about Johnson earns one Pinocchio. The story of Ampad workers who lost jobs is an unfortunate one, but it’s not a reflection of Bain’s record on the whole.
“When Mitt Romney talks about his business experience, remember it is not experience creating good paying jobs. It is experience cutting jobs. It is experience shutting plants. It is experience making millions of dollars by making life tougher for hardworking Americans.”
— Former Dade Behring employee Cindy Hewitt during a Democratic convention speech, Sept. 5, 2012
Hewitt worked at Dade Behring, which laid off more than 1,000 workers from the time Bain acquired the medical-device manufacturer in 1994 until it filed for bankruptcy in August 2002 — after Romney had left the firm.
Dade decided to gradually terminate 1,528 employees as part of a 1997 restructuring plan, and the company laid off 69 workers in the early part of that process during Romney’s last full year with the private-equity firm, according to Dade’s 1999 SEC filing.
Once again, we have a situation in which Bain piled up debt while buying up a company’s competitors — or at least shares of competitors in this case. Bain also pressured Dade to buy half of the firm’s shares in the manufacturer, and Bain brought in $242 million from that deal, according to a New York Times article from November.
Debt certainly helped drive Dade toward bankruptcy, but economic factors weighed heavily on the company as well. Here’s how a 2006 AP article described the situation:
“Over the next few years, the euro weakened against the dollar. Since half of Dade Behring’s sales were in Europe, the company had fewer dollars coming in. At the same time, rising interest rates meant higher payments on its increased debt load. To deal with the one-two hit, Dade-Behring laid off 1,000 of its 7,000 employees [internationally] and shuttered factories.”
Perhaps the biggest issue with Hewitt’s comments is that she said Romney’s business experience “is not experience creating good paying jobs.” We don’t know for sure how many jobs the GOP candidate generated as an executive, but Hewitt’s assessment isn’t fair given the success rate for Romney-era Bain companies, which include Staples, Sealy Corporation and Sports Authority, to name a few.
Romney has tried to claim credit for 100,000 jobs through such companies, but we determined in a past column that his figure was untenable. Still, it’s simply not true that he didn’t create any jobs. Rattner wrote in his Politico piece that Bain Capital “doubtless created some incalculable number of net new jobs for the U.S. economy” despite a few examples of companies that faltered.
Hewitt earns three Pinocchios.
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