Romney Kept Reins, Bargained Hard on Severance

By Beth Healy and Michael Kranish 
July 20, 2012
The Boston Globe
boston.com/news/politics/articles/2012/07/20/romney_kept
_reins_bargained_hard_on_severance/

Shortly after Mitt Romney took a leave of absence from
Bain Capital to run the Olympics in February 1999, he
made a trip to Palm Beach, Fla. The firm Romney founded
was meeting to celebrate its 15th anniversary as well as
the men he had helped make extraordinarily wealthy.
Romney and his partners had decided that, in his
absence, five managing directors would oversee the
company.

And in Palm Beach it became clearer that Romney was
unlikely to return -- but would retain his title as
chief executive officer and sole shareholder. The Palm
Beach meeting, which has not been previously reported,
demonstrates the duality of Romney's role as he parted
ways with Bain, an issue that has sparked controversy in
his presidential campaign. Romney has said in financial
disclosure statements that he "was not involved in the
operations of any Bain Capital entity in any way" after
Feb. 11, 1999. But he was still legally the CEO, with
numerous duties and obligations that were his alone,
until early 2002.

Interviews with a half-dozen of Romney's former
partners and associates, as well as public records, show
that he was not merely an absentee owner during this
period. He signed dozens of company documents, including
filings with regulators on a vast array of Bain's
investment entities. And he drove the complex
negotiations over his own large severance package, a
deal that was critical to the firm's future without him,
according to his former associates.

Indeed, by remaining CEO and sole shareholder, Romney
held on to his leverage in the talks that resulted in
his generous 10-year retirement package, according to
former associates. "The elephant in the room was not
whether Mitt was involved in investment decisions but
Mitt's retention of control of the firm and therefore
his ability to extract a huge economic benefit by
delaying his giving up of that control," said one former
associate, who, like some other Romney associates, spoke
only on condition of anonymity because they were not
authorized to speak for the company. Romney had a lot at
stake because Bain had become hugely valuable under his
leadership. Romney established Bain Capital in 1984, and
in the 15 years that followed, the company had invested
$260 million in its 10 largest deals (out of more than
100 during that period) and had reaped a nearly $3
billion return.

On one deal alone, involving an Italian phone directory
company, Bain had invested $51 million and reaped more
than $1 billion, with Romney's personal profit being as
much as $40 million, according to a former partner.
Bain's funds nearly doubled investors' money annually
during Romney's tenure. Romney had expected to remain at
Bain Capital for years. He initially rejected the idea
of running the Olympics, recounting in his memoir,
"Turnaround," that "after fifteen years of effort, Bain
Capital had become extraordinarily lucrative. How could
I walk away from the golden goose, especially now that
it was laying even more golden eggs?"

To do so, Romney wrote, meant "I would walk away from my
leadership at Bain Capital at the height of its
profitability."

Before he left, tasks were doled out to other partners,
including work on an investment committee and a
compensation committee. He was not a partner in the new
private equity funds launched in 2000 and 2001, meaning
he had no role in assessing new investments, his
partners said -- a departure from his having previously
had the final say on every deal. He initially kept his
corner office at the firm's Copley Square headquarters,
which was eventually turned into a conference room. His
secretary moved into Bain's human resources department.
But Romney still had a lot of money on the table; much
of his personal wealth was tied up in Bain. And he was
still technically in charge.

James Cox, a professor of corporate and securities law
at Duke University, said Bain's continued reference to
Romney as CEO and sole shareholder indicated that Romney
was still the final authority. Moreover, Cox said,
Romney would likely have been updated regularly about
Bain Capital's profits while he was negotiating his
severance package. As a result, Cox said, Romney's
statement that he had no involvement with "any Bain
Capital entity" appears "inconsistent" with his actions.
"If he is 100 percent owner, I just find it incredible
that what I would call `big decisions' -- acquisitions,
restructuring, changes in business policy -- that they
would not have passed on to him on an informational
basis, not asking for formal approval but just keeping
him in the loop," Cox said.

Romney campaign spokesman Matt McDonald said via e-mail
that Romney was not involved in investment decisions
after February 1999. Referring to the subsequent period,
in which Romney remained CEO and sole shareholder,
McDonald said, "Because of the suddenness of the
departure and the challenge of fixing the Olympics, it
took some time to transfer his ownership to the other
partners, which is not surprising given the growth and
success of the firm."

Steve Pagliuca, a managing director of Bain Capital,
said, "Bain Capital's operations were run by a
management committee, composed of five of the firm's 14
remaining active partners, after Mitt Romney left for
Salt Lake in February 1999."

Last week on CBS News, Romney sought to draw the
distinction between his owning the company and managing
it. "I was the owner of an entity which was a management
entity. That entity was one which I had ownership of
until the time of the retirement program was put in
place." He said he had no responsibility after February
1999 for management or ownership of the firm, but then,
correcting himself, said, "management, rather, of Bain
Capital."

Romney apparently was trying to shield himself from
charges by President Obama's campaign that he had
authority, tacit or otherwise, over Bain investments in
companies that shipped jobs overseas. That is an
argument being litigated over the course of the
campaign, and comes while Romney has declined to release
relevant tax returns and meeting minutes that might shed
more light on the matter.

At Bain, there would be significant upheaval in the
immediate months following Romney's departure in 1999.
At least one partner worried that, in losing the founder
-- one who excelled at bringing in investors, not at
finding the companies to invest in and overhaul -- Bain
might have trouble attracting money to its funds. Bain,
which specialized in leveraged buyouts, raised money
from investors, bought and sometimes restructured a
company, paid itself fees for managing that company, and
in many cases, profited from the eventual sale of such
companies.

"The ability to raise money without him was untested and
that was a concern," said one former Romney associate
from the time. "Mitt leaves; now who is in charge?"
Investors such as Tas Parafestas of The Bollard Group,
LLC, a private firm in Boston that has placed client
money in Bain funds, paid special attention to the Bain
organization during this first effort to raise money
without Romney in 2000. It was the firm's seventh fund,
and the prior six all had Romney at the helm.

"I would view it as a major transition," Parafestas
said. "Bain had been Mitt's shop, and all these guys
worked with Mitt. Mitt had left, and these guys were
raising Fund VII." But in the end, they had little
trouble raising the $2.5 billion fund; some investors
received smaller slices than they had requested. "They
persuaded people to invest with them," Parafestas said.

Several Bain executives left to start their own firms,
rather than go through the limbo transition. Among them
were Geoffrey Rehnert and Marc Wolpow, who started Audax
Group, a private equity firm; and David Dominik who
started Golden Gate Capital on the West Coast. Amid the
anxiety, one Sunday afternoon, Romney and his longtime
Bain partner Bob Gay, a fellow Mormon, knelt on the
floor together. "We were facing a crucial event that
threatened the very existence [of] our firm's
partnership," Gay later said in a speech that reflected
on his time at the company. Romney's exit dragged on,
officials of the firm said, because it was a complex
ordeal to extract Romney from dozens of partnerships and
business entities of the firm, along with the
negotiations over his compensation. The full tally of
Romney's 10-year compensation deal is not known because
he has refused to release tax returns for the relevant
period, which ended in 2009. In addition, his financial
disclosures are sporadic and incomplete, and his assets
are in a blind trust. Romney has released his 2010 tax
returns and has said the only other release will be for
2011.

Edward Conard, a former Bain Capital partner, provided
perhaps the freshest insight last week in an MSNBC
interview about Romney's negotiations during this
period. (Conard declined an interview request.) "He'd
created a lot of franchise value, and we were going to
pay him for that," Conard said. "We had a very
complicated set of negotiations that took us about two
years for us to unwind. During that time a management
committee ran the firm, and we could hardly get Mitt to
come back to negotiate the terms of his departure
because he was working so hard on the Olympics." Conard
said Romney's negotiating position was along these
lines: "'I created an incredibly valuable firm that's
making all you guys rich. You owe me.' That's the
negotiation." While Romney continued negotiating the
terms of the severance deal, he referred to himself as
CEO. In July 1999, five months after he had left for
Utah, he provided a quote for a press release issued by
Rehnert and Wolpow, who had left Bain to start their own
firm, Audax. He was referred to as "Bain Capital CEO W.
Mitt Romney, currently on a part-time leave of
absence."

In that release, Romney said of the departing partners,
"While we will miss them, we wish them well and look
forward to working with them as they build their firm."
Those did not sound like the words of someone who had
severed his ties to Bain Capital. To the contrary, it
implied that Romney was still a part of Bain and its
future. Two and a half years after leaving to run the
Olympics, Romney finally signed his severance agreement
in August 2001. Still, Romney's name continued to appear
as CEO and owner on dozens of Bain fund documents filed
with the Securities and Exchange Commission until
January 2002. No one would succeed Romney as CEO of Bain
Capital. To this day, Bain is run by a management
committee.

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