Alec MacGillis: Mitt’s Luck: The Mistaken Focus On ’99 As Pivot Point

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PLANK JULY 13, 2012

Mitt’s Luck: The Mistaken Focus On ’99 As Pivot Point, UPDATED

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The new questions about Mitt Romney’s sworn version of his 1999 departure from Bain Capital—which seems to contradict statements in SEC filings, testimony given to prove his Massachusetts residency, and corporate annual reports—are causing his campaign such a headache that someone in Romneyland was moved to float Condi Rice’s veep prospects last night as a diversion. The renewed focus on Bain, as I wrote yesterday, vindicates the Obama team’s decision to press forward with its criticisms of Romney’s tenure year despite the much-ballyhooed warnings of the mayor of the 68th biggest city in the country.

But Romney has been getting some support from surprising quarters, which over the long run may serve to help him argue that the Bain attacks are mostly unfair and unfounded, equivalent to the 2004 Swift-boating of John Kerry. I am all for full vetting of campaign attacks by either side—just a few weeks ago, I judged as strained and dubious Team Obama’s attacks on Romney’s record as governor. But the defenses of Romney in this case seem to be missing two crucial points.

Let’s step back briefly and remind ourselves how this whole fight about the timing of Romney’s departure began. If he is running on his success at Bain Capital, then why is the candidate so adamant about the fact that he left the firm in 1999, and not in 2002 as some of the new revelations suggest? Quite simple: because he does not want to be associated with some of the less politically palatable activities that Bain was involved in post-’99, such as the bankruptcy of a Kansas City steel plant that the Obama campaign has seized on. And indeed, two factchecking outfits, the Washington Post’s Glenn Kessler and Factcheck.org, have scored as misleading Team Obama’s attacks on Romney for Bain deals that involved sending American jobs to China and Mexico. The jobs were shipped overseas after Romney’s 1999 departure to lead the Olympics, judged the factcheckers. And today, Jonathan Chait, normally a fierce nemesis of Romneyland, endorsed this general defense:

But Bain Capital did those things after Romney stopped running the company. It would be accurate to say that Romney’s firm did those things, and fair—in my opinion—to hold Romney largely responsible for his firm’s work. But Obama isn’t saying Romney’s firm shipped jobs overseas, he’s saying Romney shipped jobs overseas.

What this overlooks though, is the heart of the findings in the report by the Washington Post’s Tom Hamburger, which appeared shortly after the Post’s Kessler had judged the attacks over outsourcing unfair. Hamburger reported that, in fact, Bain had throughout the 1990s—while Romney was very much in charge—been investing heavily in firms that did not simply send some jobs overseas but specialized in offshoring:

Until Romney left Bain Capital in 1999, he ran it with a proprietor’s zeal and attention to detail, earning a reputation for smart, hands-on management.

Bain’s foray into outsourcing began in 1993 when the private equity firm took a stake in Corporate Software Inc., or CSI, after helping to finance a $93 million buyout of the firm. CSI, which catered to technology companies like Microsoft, provided a range of services including outsourcing of customer support. Initially, CSI employed U.S. workers to provide these services but by the mid-1990s was setting up call centers outside the country.

Two years after Bain invested in the firm, CSI merged with another enterprise to form a new company called Stream International Inc. Stream immediately became active in the growing field of overseas calls centers. Bain was initially a minority shareholder in Stream and was active in running the company, providing “general executive and management services,” according to SEC filings.

By 1997, Stream was running three tech-support call centers in Europe and was part of a call center joint venture in Japan, an SEC filing shows. “The Company believes that the trend toward outsourcing technical support occurring in the U.S. is also occurring in international markets,” the SEC filing said.

Stream continued to expand its overseas call centers. And Bain’s role also grew with time. It ultimately became the majority shareholder in Stream in 1999 several months after Romney left Bain to run the Salt Lake City Olympics.

Bain sold its stake in Stream in 2001, after the company further expanded its call center operations across Europe and Asia.

The corporate merger that created Stream also gave birth to another, related business known as Modus Media Inc., which specialized in helping companies outsource their manufacturing. Modus Media was a subsidiary of Stream that became an independent company in early 1998. Bain was the largest shareholder, SEC filings show.

Modus Media grew rapidly. In December 1997, it announced it had contracted with Microsoft to produce software and training products at a center in Australia. Modus Media said it was already serving Microsoft from Asian locations in Singapore, South Korea, Japan and Taiwan and in Europe and the United States.

Two years later, Modus Media told the SEC it was performing outsource packaging and hardware assembly for IBM, Sun Microsystems, Hewlett-Packard Co. and Dell Computer Corp. The filing disclosed that Modus had operations on four continents, including Asian facilities in Singapore, Taiwan, China and South Korea, and European facilities in Ireland and France, and a center in Australia.

“Technology companies, in particular, have increasingly sought to outsource the business processes involved in their supply chains,” the filing said. “. . . We offer a range of services that provide our clients with a one-stop shop for their outsource requirements.”

According to a news release issued by Modus Media in 1997, its expansion of outsourcing services took place in close consultation with Bain. Terry Leahy, Modus’s chairman and chief executive, was quoted in the release as saying he would be “working closely with Bain on strategic expansion.” At the time, three Bain directors sat on the corporate board of Modus.

It goes on. The point is, there is no sharp pre- and post-’99 marker when it comes to Bain Capital’s vigorous move into the offshoring sector. Somehow, the Romney campaign, with the help of the factcheckers, has managed to conflate Hamburger’s very specific, painstaking reporting with the Obama campaign’s broad accusations of sending jobs overseas, a few of which were based on, yes, more distinctly post-’99 deals. But for many of the investments in question, the line traces very definitely to the pre-’99 period.

But I would quibble with the defense of Romney on post-’99 grounds, as well. Yes, there is real confusion about exactly what Romney’s role at Bain was post-’99—on the one side, there are the SEC filings, residency testimony and corporate filings suggesting that Romney retained real responsibility at the helm of Bain, and on the other side there is Kessler’s lengthy new attempt to make the case that Romney’s executive role post-’99 was nothing beyond a few empty words on paper. But it seems there is a larger, common-sense truth getting lost in the weeds here. Yes, Romney left his full-time job at Bain in 1999 to take over Olympics planning, which was surely a taxing, full-time endeavor. But of course he did not sever all ties and responsibility—he remained the titular CEO, he was back frequently in Boston for business meetings (whether only at Bain-funded companies or at Bain itself is unclear) and he continued to have a major financial stake in the firm’s success. No, he was not making the day to day decisions, but he almost certainly had knowledge of the bigger decisions that were being made and offered input on them. Can we know that for sure? No, not without e-mails and call logs or testimony by his fellow Bain partners. But it’s silly to imagine there was a total break.*

So how should we judge his responsibility for Bain activities? Well, on a sliding scale. It doesn’t have to be black-or-white. We can judge him as very responsible for its decisions pre-’99, as somewhat less responsible for its decisions between 1999 and 2002 and as less responsible yet for its activities post-2002. But I would argue that it’s not out of the realm of fairness to hold him slightly to account even for Bain’s activities post-2002—as the New York Times reported a while back, Romney continued to get a huge cut of Bain’s deals this past decade as part of his retirement deal. And it is, after all, the company he founded and whose direction he set in motion.

Kessler, to his credit, nods at this larger point, at least as far as the 1999-2002 period goes, deep in his latest exhaustive take on the matter: “One can certainly argue that because Romney did not fully extricate himself from Bain till after his Olympic sojourn ended, he should bear some responsibility for what happened in that period.” But this is at odds with the rather more clear-cut judgment he offered in his earlier take, the one that the Romney campaign is now using in ads to declare the Obama outsourcing attacks false and dishonest. The whole new fact-checking enterprise is valuable for the added eyeballs it brings to murky subjects like this, but one of its shortcomings is that it presumes the possibility of stark true-false judgments in areas that demand nuance. Not to mention that, again, the subsequent reporting of Kessler’s own colleague on pre-1999 outsourcing suggests that the Obama attack was more accurate than Chicago itself realized when it first launched the charge.

*Update, 4:45 p.m. And lo and behold, now comes further suggestion that the reality was much the sort of middle-ground I describe here. Slate's Dave Weigel has turned up a February 1999 article -- cited by the Romney campaign a few months ago! -- that includes this: “Romney said he will stay on as a part-timer with Bain, providing input on investment and key personnel decisions. But he will leave running day-to-day operations to Bain's executive committee." Just further reason why it's completely fair to hold Romney somewhat accountable for Bain activities post-'99, and not draw a hard and fast before and after line.

Follow me on Twitter @AlecMacGillis

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