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Mitt Romney -- The
Turnaround Artist

In his careers in business and politics, Mitt Romney has demonstrated a unique ability to save dysfunctional organizations from self-inflicted harm, and leave them healthier than they had ever been before.

The first example of Romney’s talent involved the company that gave him his start in business: Bain Capital.

Crisis at Bain Capital

In the closing years of the 1980s, infighting among Bain Capital’s senior partnership threatened to destroy the company. Much of the problem revolved around the Employee Stock Ownership Plan (ESOP) which the firm had established. Bain's senior partners had started to borrow against their equity for cash, which over time left Bain under a staggering load of debt.

With the economy slowing, the debt began to take its toll on the firm’s financial health. The problem grew so serious that Bain ran afoul of Bank of New England loan regulations. A debt write-off ensued that led to the collapse of the Bank of New England in 1991.

Under financial duress, Bain Capital partner Mitt Romney (who had left the firm earlier) was asked to rejoin and lead the company as its interim CEO.

Upon his return, Romney negotiated a complicated settlement between the Bain partnership and its lenders. The agreement slashed $10 million from the $38 million Bain owed the Bank of New England, which by then had been taken over by the FDIC and placed in Chapter 7 liquidation.

According to the Boston Globe, Romney oversaw negotiations between the banks and Bain’s partners. A crucial point came when those negotiations led to a package under which Bill Bain and the founding partners had to give up control of the firm and return $30 million they had taken from the ESOP and $100 million in notes they’d held against the firm.

The plan Romney helped craft included "a complicated restructuring of the firm's stock-ownership plan, real-estate holdings, bank loans, and money still owed to partners". A buyout would have led to a financial crisis. To avoid this, Romney helped convince the group of founding partners to return roughly $100M cash and forgive the outstanding debt.

Though Romney acted in this role for only one year, his work changed Bain Capital profoundly in three ways:

1) Ownership of Bain was officially shifted from the original owners to the firm's 70 general partners.

2) Transparency in Bain’s finances improved dramatically.

3) Bill Bain gave up control of the company that carried his name.

Less than a year later, Bain Capital had returned to profitability without suffering major partner defections. Mitt Romney had laid the groundwork for a prolonged period of steady growth.

Crisis at the 2002 Salt Lake City Olympics

In 1998, four years before its opening ceremonies would begin, the Salt Lake City Olympics languished under a cloud of corruption and controversy. Several International Olympic Committee (IOC) members had been forced to resign after investigations had led to the discovery that they had accepted bribes from Salt Lake City officials in exchange for voting in favor of the city’s Olympics hosting bid.

In response to this scandal, which had led to a serious financial shortfall for the games, the Salt Lake Organizing Committee hired Mitt Romney, then CEO of Bain Capital, to become the new President and CEO of the embattled Committee. Romney and IOC President Dr. Jacques Rogge would have to cope with the fallout, which threatened the basic viability of the games.

Ten IOC members were expelled. Another ten were sanctioned. Meanwhile, Mitt Romney headed up a small group that raised millions of dollars from Mormon families, and $410 million from the federal government. Romney also put the SLOC on a strict diet, weaning it off a wasteful and expensive addiction to lavish dinners and padded expense accounts. Millions of dollars were saved. As a result of Romney’s efforts, the Salt Lake City games were rescued from ignominy and gained universal recognition as an organizational, commercial, and athletic triumph.

Crisis in Massachusetts State Government

When Mitt Romney was sworn in as the 70th governor of Massachusetts on January 2, 2003, he was walking into a full-blown state budget crisis: a $650 million shortfall for the current year (already half over) and a projected $3 billion deficit for the following year. Both legislative houses were held by large Democrat party majorities.

Romney recruited his cabinet and advisors more for their managerial prowess than their partisan affiliation. Luckily, unforeseen revenue of $1–1.3 billion from previously enacted capital gains tax increases and a $500 million federal grant windfall halved the deficit to $1.2–1.5 billion. But the work of financial restoration was still far from over. It took a tough combination of spending cuts, increased fees, and closing of corporate tax loopholes, to return Massachusetts to budgetary health. But Romney, working with both political parties, brought the Bay State back from the brink. It ran surpluses of $600–700 million for the last two full fiscal years Romney held office.

He accomplished this without raising taxes. Instead he raised a variety of fees -- including those for driver's licenses, marriage licenses, and gun licenses -- by more than $300 million. He instituted a special gasoline retailer fee by two cents per gallon, which generated about $60 million per annum. Opponents charge that Romney’s reliance on fees often imposed a hardship on those at the bottom of the economic ladder, but they overlook the fact that Romney also closed tax loopholes for the very wealthy (which netted the state over $300 million for his term) over the objections of conservative and corporate critics. Rich, middle-class, and poor alike shared the pain on the road to financial stability in Massachusetts under Mitt Romney's administration.

Crucially, the state legislature, with Romney’s support, cut spending by $1.6 billion, which included $700 million in reduced state aid to cities and towns. The state's centers of higher education also bore some of the fiscal sacrifice, losing $140 million in funding. Romney wanted to cut more, seeking almost 250 additional reductions in his last year as governor with the veto pen. All of his attempts were overridden by a heavily Democrat legislature.

Reforming the grossly-dysfunctional financial management of the U.S. government is a Herculean task -- perhaps even a Sisyphean one. Its scope staggers the imagination of even the most ambitious and optimistic budget cutter. But if anyone is qualified to take it on, surely it is Mitt Romney -- a driven, principled, data and metrics-driven policy wonk, who, accompanied now by Paul Ryan, has already demonstrated a greater temperamental and philosophical affinity for the task than all but a handful of politicians. And none of those other politicians is the presumptive Presidential nominee for the Republican party in 2012.

 


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