Tuesday, January 10, 2012

Romney needs to address the Bain attacks

As is clear, Romney's GOP opponents are engaging in a pile-on using Romney's time at Bain Capital to attack him for Bain's raiding companies and sometimes leaving them worse off than before. They are previewing the sorts of attacks that the Democrats plan to use if Romney is the nominee.
Democrats have signaled that they intend to make Mr. Romney’s history at Bain a central part of their case against him if he wins the Republican nomination. But Bain has also emerged as an issue in the Republican primary, despite the party’s free market stance and business-friendly policies, reflecting the depth of public anger about the economy. At an appearance here on Sunday, Mr. Gingrich suggested that Bain’s approach was to carry out “clever legal ways to loot a company.”
It's totally legitimate for his opponents to launch these sorts of attacks. Romney has made his time working for Bain as his signature argument as to why he is the man who can help turn this economy around and some of the stories that the media has been running don't paint his work there in a good light.

The best story is the one that the WSJ had Monday examining the totality of the companies that Bain took over during Romney's time there. Their conclusion is rather equivocal.
The Journal's findings could provide fodder for both critics and supporters of Mr. Romney's presidential ambitions and of his role at Bain. Some experts, while conceding that available studies don't provide a direct comparison, said the rate at which the firms Bain invested in ran into trouble appears to be higher than experienced by some rival buyout firms during the era.

That notion could undermine a central thrust of Mr. Romney's campaign message: that his private-sector experience building companies makes him the best candidate to turn around the ailing U.S. economy.

The numbers, however, also reflect Bain's investing style, which, particularly during the firm's early years, was focused on smaller and sometimes troubled companies that Bain hoped to fix or build.

Bain was investing in "riskier deals," said Steven N. Kaplan, a finance professor at the University of Chicago's Booth School of Business. "For every one that went bankrupt, they had one that was a screaming success. The overall effect was terrific performance" for the firm's investors.
But that will be countered with stories of people who lost jobs after Bain took over. And everyone of those people is a negative ad in the making.

The DNC is already paying for someone
who lost his job in one of the factories that Bain took over to trail around behind Romney and tell his story and criticize Romney. And you know that reporters will love to interview this man and put his face in front of as many voters as possible.

Newt Gingrich is, of course, sinking to despicable levels by using lefty arguments to attack Romney. And, as usual with Gingrich, there is an added fillip of blatant hypocrisy given that Gingrich himself served on an advisory board for a leveraged buyout company, Forstmann Little, that bought out companies and shut down some of those purchases. Gingrich seems to think it was fine for him to receive a salary and fly in a couple of times a year to give them the value of his advice, but that is distinct from anything that he criticizes Romney for, of course.

Romney needs to address these criticisms and he should do it soon. I'd recommend his holding a press briefing or speech in the week following the New Hampshire primary. He should give out his own data about the company under his leadership and he better be sure that all the figures are correct. He should answer questions from reporters about the specific allegations in the Gingrich super-PAC ad and the stories that have come out in several media outlets. It's not enough to just pooh-pooh such stories becomes they come from the MSM.

Romney must show that he has an answer for these attacks since we know that the Democrats will launch a barrage of these missiles if Romney is the nominee. They probably already have the ads storyboarded out and ready to film. Having two CEOs who worked with him at Sports Authority and Staples come out and defend him is a start, but it isn't enough.

Romney could do worse than using the defense of leverage buyouts that Avik Roy published in the National Review. He worked for Bain in the period after Romney left. That might make him biased, but it also means that he understands the business. And he outlines the sorts of defenses that Romney should be able to use.
The LBO firm must execute on its turnaround plan, either by working with the company’s existing management or by installing new managers. Managers are often tasked with the difficult work of enacting layoffs, or renegotiating contracts, that the previous regime could or would not. Sometimes the company sells off a non-core asset or product line in order to focus on what it does best. Sometimes, as with Bain’s buyout of New York pharmacy chain Duane Reade, the turnaround involves getting deep into the guts of a business and reorganizing how it does everything from locating its storefronts to buying its toothpaste.

Frequently, these turnarounds initially involve layoffs — when they work, the layoffs act as a kind of pruning that allows a tree to grow again. When the turnarounds fail, however, the layoffs don’t work, and the company goes bankrupt. More often than not, these bankruptcies would have happened anyway: In the case of Bain’s investments in the steel industry, for example, cheap steel imports from abroad made it difficult for most American firms to survive.

Bain Capital succeeded far more often than it failed in these endeavors, averaging somewhere between 50 and 80 percent annual returns from 1984 to 1999. These returns not only made Mitt Romney and his colleagues wealthy, but also rewarded Bain Capital’s investors, which included the endowments of prominent universities and foundations, such as Yale and Stanford, and also well-known entrepreneurs such as Scott McNealy of Sun Microsystems and Michael Dell of Dell Computers.

In some cases Bain may have made mistakes in its turnaround efforts, or misjudged an original business opportunity. That’s, again, what happens in the private sector. Success is not guaranteed. On the other hand, it’s fair to say that private-equity firms such as Bain Capital were responsible for many of the productivity gains, and the retreat of sclerotic labor unions, that the American economy generated in the 1990s. Rest assured that Bain would have not generated those spectacular returns for its investors, nor attracted those investors in the first place, if the majority of its investments failed.

It is true that the money that LBO firms draw out of an acquired company — in the form of dividends and management fees — will always look bad in a situation where the turnaround fails. It will be up to Romney to defend this practice. But it’s important to remember that LBO firms have every incentive to avoid letting their investments fail: After all, they stand to make far more money if their turnarounds succeed.

It’s been discouraging to read that many conservatives see Romney’s record at Bain Capital as a liability. For the truth is the opposite: Romney is a candidate uniquely suited to defending the role of free enterprise in the American economy. When liberal politicians and journalists argue that layoffs are cruel, and that capitalism is unfair, Mitt Romney can speak to how dealing frontally with a business’s problems can lead to better and more numerous jobs over the long term. He can speak not merely in abstract philosophical terms, but using the real-world examples from his successes and his failures.
These are the sorts of arguments that it is hard to make in the course of a debate where he has maybe 60 seconds to frame his answer. That is why I think he needs to do this in a big way with all the time he can use to address questions and explain his actions. If he's going to sell himself as the guy who learned in the private sector how to turn around companies, he should be able to answer these questions. And if one comes up that he doesn't know, he can simply say that he doesn't remember the details and will get back to the reporter on that. And then he should follow through. Basically, I think he needs to pull a Geraldine Ferraro and give the media time to ask their questions, get it all out there, and then go on. If he does it early enough after New Hampshire, there will be time for the media to chew over this and then for it to be old news.

If he gets attacked in the debates later on or in ads, he can honestly say that he's answered the questions and let's move on. If he wins the nomination and the Democrats attack him, this will be old news. Sure the media will enjoy talking about him as the evil, predatory capitalist, but if he can capably defend himself, he'll neutralize a lot of those attacks.

If he doesn't address these stories and criticisms, the story will linger and grow. It will be a cancer that would endanger any chance he has against Obama. One of the more appealing aspects of Romney's candidacy, in my view, is that he defends capitalism. He says things like "corporations are people" and "I like to fire people." Sure, those statements sound awful in isolation. But his points are valid. Corporations are made up of individuals; if the corporation does poorly, the people who suffer are their employees and customers. If you raise taxes on corporations, the ones who will pay are the consumers. And we should like the idea of firing people who don't do their job well rather than government bureaucrats who have lifetime tenure. That is one of the arguments for getting rid of the tenure system in public schools. Republicans should be supporting these sorts of statements instead of jumping on them as some sort of sinful gaffe. I'm with Jay Nordlinger on this.
I was watching a clip of Romney tangling with an “Occupy” protester last week. Romney was defending corporate profits. I was astounded. I don’t think I had ever seen a candidate do this. When the subject comes up, you’re supposed to denounce corporate profits or say, “Hey, nice weather we’re having, huh?”

Phil Gramm once explained to Bill Buckley why he never talked about free trade on the stump — he, a professor of economics and a free-marketeer: “Free trade benefits almost everybody. But they don’t know who they are. Free trade hurts a few, and they all know who they are.”

Over and over, Romney defends and explains capitalism. And he’s supposed to be the RINO and squish in the race? That’s what I read in the conservative blogosphere, every day. What do you have to do to be a “real conservative”? Speak bad English and belch?....

I could go on: the $10 million bet, the pink slips, conservatives wetting their pants, over and over. They have no appetite to defend capitalism, to persuade people, to encourage them not to fall for the old socialist and populist crap. I fled the Democratic party many years ago. And one of the reasons was, I couldn’t stand the class resentment, the envy, the hostility to wealth, the cries of “Richie Rich!” And I hear them from conservatives, at least when Romney is running.

Go ahead, have your “bloodbath” in South Carolina. Make Romney the little guy in the top hat, from the Monopoly game. Have your Santorum, your Perry, your Newt. They may carry something like four states in the fall, but at least they’ve never sullied their hands with — eek! — business.
Instead of giving a few one-liners on the campaign trail or in a debate, let's hear his extended answer to these attacks. He's making a big mistake if he doesn't get his version out there. Otherwise, he'll be killed by the caricature of his career. Romney should be able to defend his record. It's his career, dang it! And if the campaign is Romney versus Obama, the whole concept of democratic capitalism will be on trial. And Romney would do his own campaign as well as free markets a big favor by launching a spirited defense.