Romney’s riskless deal with Bain

To understand the confusing conditions under which Mitt Romney left Bain Capital, you need to understand the unusual deal he struck when he was hired to run it.

Bill Bain’s idea was simple. His firm, Bain & Company, was making lots of money by advising companies in exchange for fees. The fact that they were making money was proof that they understood what it took to make struggling companies successful. So why not eliminate the middleman? Rather than advising companies for a fee only to watch the current management reap the big profits, Bain Capital would take over troubled companies, manage them to profitability and reap the rewards itself. And Bill Bain knew exactly who he wanted to run this venture: Mitt Romney.

And then Romney stunned his boss by saying no.

As Michael Kranish and Scott Helman, authors of “The Real Romney,” describe it, Romney “explained to Bain that he didn’t want to risk his position, earnings and reputation on an experiment. He found the offer appealing but didn’t want to make the decision in a ‘light or flippant manner.’ So Bain sweetened the pot. He guaranteed that if the experiment failed, Romney would get his old job and salary back, plus any raises he would have earned during his absence. Still, Romney worried about the impact on his reputation if he proved unable to do the job. Again the pot was sweetened. Bain promised that, if necessary, he would craft a cover story saying that Romney’s return to Bain & Company was needed because of his value as a consultant. ‘So,’ Bain explained, ‘there was no professional or financial risk.’ This time Romney said yes.”

Romney managed, in other words, that most unusual of career transitions: A move entirely without risk. And as he tells it, he did the same thing when he left Bain Capital.

In 1999, Romney took a leave from Bain Capital to run the Salt Lake City Olympics. But from 1999 to 2002, he was listed on Securities and Exchange Commission documents as Bain Capital’s “sole stockholder, chairman of the board, chief executive officer and president.” He says he was an absentee executive who neither had knowledge of nor control over the decisions Bain made during this period. Then, when he subsequently decided to run for governor of Massachusetts, he signed papers dating his retirement from Bain to February 1999 — the actual date on which he ceased to be involved in, and responsible for, the company’s actions.

In other words, while Romney was running the Olympics and thinking about launching his campaign for governor, he kept his position at Bain in case he wanted or needed to return to it. He managed to do one job and explore running for another all without losing his first job.

There’s nothing illegal about this. There’s nothing even wrong with it. Romney is clearly an effective negotiator and a prudent individual — both admirable qualities. But he is also a presidential candidate who talks often of the need to increase “risk taking” in the economy and who is running on a platform that includes large tax cuts for the rich and deep cuts to the safety net.

And yet, Romney hasn’t had to take many serious risks, and he has been able to rely on the most expansive of safety nets: That of expansive family, personal and corporate wealth. But he often seems blind to that fact, and to the advantages it has given him. In Ohio, he advised a group of young students to “take a shot. Go for it. Take a risk and get the education. Borrow money if you have to from your parents. Start a business” — good advice if your parents have money to lend you, and depressing advice if they don’t.

There is an increasing sense in the United States that the rich play by different rules than the poor or the middle class — rules that make it easier for them to get even richer. Romney’s problem is that he seems to have taken unusually aggressive advantage of those different rules. Most Americans don’t get to stay on as “sole stockholder, chairman of the board, chief executive officer and president” while they try other things. They don’t make money when a firm they invested in goes bankrupt. They don’t get to sell stock their parents gave them to go to college. They don’t get to pay a 13.9 percent tax rate because their money comes from investments rather than wages. They don’t get to shelter cash overseas, or keep between $21 million and $102 million in an IRA.

When people question these elements of Romney’s history, Romney says they’re attacking his success. They’re not. They’re attacking the fact that once people become successful, they get to play by a set of rules, and fall back on a set of advantages, that make it a lot easier for them to remain successful. They’re questioning whether Romney really understands what the non-rich are going through, and the kinds of risks they face. And they’re questioning his policies, which would give more to those who already have so much while cutting spending on the programs that support the neediest Americans.

Thus far, Romney’s response has been indignation that anyone would question his business experience, technical arguments about whether his tax returns and SEC filings remained within the letter of the law, and an unwillingness to say how he’ll pay for his tax cuts or protect those who would be hurt by his spending cuts. That’s not going to be good enough. If Romney doesn’t come up with better answers, he’s putting his presidential campaign at risk.