Illustration by Dan Andreasen.
James Sanderson had encountered a rare moment of industrial harmony.
It was the early 1990s, and the 750 men and women at Georgetown Steel were pumping out wire rods at peak performance. They had an abiding trust in management's ability to run a smart company. That allegiance was rewarded with fat profit-sharing checks. In the basement-wage economy of Georgetown, S.C., Sanderson and his co-workers were blue-collar aristocracy.
"We were doing very good," says Sanderson, president of Steelworkers Local 7898. "The plant was making money and we had good profit-sharing checks, and everything was going well."
What he didn't know was that it was about to end. Hundreds of miles to the north in Boston, a future presidential candidate was sizing up Georgetown's books.
At the time, Mitt Romney had been running Bain Capital since 1984, minting a reputation as a prince of private investment. A future prospectus by Deutsche Bank would reveal that by the time he left in 1999, Bain had averaged a shimmering 88 percent annual return on investment. Romney would use that success to launch his political career.
His specialty was flipping companies — or what he often calls "creative destruction." It's the age-old theory that the new must constantly attack the old to bring efficiency to the economy, even if some are destroyed along the way. In other words, people like Romney are the wolves, culling the herd of the weak and infirm.
His formula was simple: Bain would purchase a firm with little money down, then begin extracting huge management fees and paying Romney and his investors enormous dividends.
The result was that previously profitable companies were now burdened with debt. But much like the Enron boys, Romney's battery of MBAs fancied themselves the smartest guys in the room. It didn't matter if a company manufactured bicycles or contact lenses; they were certain they could run it better than anyone else.
Bain would slash costs, jettison workers, reposition product lines and merge its new companies with other firms. With luck, they'd be able to dump the firm in a few years for millions more than they'd paid for it.
But the beauty of Romney's thesis was that it really didn't matter if the company succeeded. Since he was yanking out cash early and often, he would profit even if his targets collapsed.
Which was precisely the fate awaiting Georgetown Steel.
When Bain purchased the mill, Sanderson says, change was immediate. Equipment upgrades stopped. Maintenance became an afterthought. Managers were replaced by people who knew nothing of steel. The union's profit-sharing plan was sliced twice in the first year — then whacked altogether.
"When Bain Capital took over, it seemed like everything was being neglected in our plant," says Sanderson. "Nothing was being invested in our plant. We didn't have the necessary time to maintain our equipment. They had people here that didn't know what they were doing. It was like they were taking money from us and putting it somewhere else."
History would prove him correct. While Georgetown was beginning its descent to bankruptcy, Romney was helping himself to the company's treasury.
The Working Man's Villain
He should have known better. The year before Romney purchased Georgetown, he mounted his career in politics, setting his sights on the biggest target in Massachusetts: the U.S. Senate seat held by Ted Kennedy.
There were early signs that he might topple the Kennedy dynasty. Much like today, Romney was pitching himself as a commander of the economy, a man with the mastery to create jobs. Yet he suffered an affliction common to those atop the financial food chain: He assumed that what was good for him was good for all. Call it trickle-down blindness.
In the midst of that 1994 campaign, one of Romney's companies, American Pad & Paper, bought a plant in Marion, Ind. At the time, it was prosperous enough to be running three shifts.
Bain's first move was to fire all 258 workers, then invite them to reapply for their jobs at lower wages and a 50 percent cut in health care benefits.
"They came in and said, 'You're all fired,'" employee Randy Johnson told the Los Angeles Times. "'If you want to work for us, here's an application.' We had insurance until the end of the week. That was it. It was brutal."
But instead of reapplying, the workers went on strike. They also decided the good people of Massachusetts should know what kind of man wanted to be their senator. Suddenly, Indiana accents were showing up in Kennedy TV ads, offering tales of Romney's villainy. He was sketched as a corporate Lucifer, one who wouldn't blink at crushing little people if it meant prettying his portfolio.
Needless to say, this wasn't a proper leading man's role for a labor state like Massachusetts. Romney was pounded in the election, taking just 41 percent of the vote. Meanwhile, the Marion plant closed just six months after Bain's purchase. The jobs were shipped to Mexico.
Yet Romney didn't learn his lesson. He seemed incapable of noticing that his brand of "creative destruction" left a lot of human wreckage in its wake. Or that voters might see him as more scumbag than saint.
Just a few months after being hammered by Kennedy, he set fire to another company.
The Price of Incompetence
The move was classic Bain. Before buying Georgetown, Romney had purchased the Armco steel mill in Kansas City, which had been in business more than 100 years.
"We were setting a lot of records for production at that time," says employee Steve Morrow. "We were making a lot of money, because we were getting profit-sharing."
Bain combined Armco with the mill in Georgetown and foundries in Tempe, Ariz., and Duluth, Minn., to form the newly christened GS Industries.
Romney purchased Armco with just $8 million down, borrowing the rest of the $75 million price tag. Then he issued bonds — basically IOUs — to borrow even more to pay himself and his investors $36 million.