Tuesday, July 17, 2012

Mitt Romney and The Ampad Affair: A Bain Success Story

by Nomad

here’s an old saying that you can judge a tree but by the fruit it produces. For people it is a case of looking at the actions and not merely by the words. That’s especially true with politicians.

In the Republican party’s presumptive nominee Mitt Romney’s case, if the things he has said can be pretty awful, his past actions are generally far worse. As a corporate head, his treatment of the American worker offers a clear picture of the kind of disdain, or at least, indifference, he harbors for the working class. In July 1994, a Bain-controlled paper company Ampad purchased a Marion Indiana paper plant. 

Two years before, Bain Capital saw Ampad as a troubled company in a thriving market, and so, began the process of restructuring, reducing waste and whatever else was needed with aim of taking the company public. In turn, as it had done with many companies, Bain would sell the stock of newly revitalized Ampad at a profit. 

This is what equity companies do. They buy companies with problems and after increasing their value, then sell them. There are many ways to boost profits, including cost-cutting, modernizing plants, adding products, expanding into new markets, and acquiring similar companies. It might even require hiring more workers. But that wasn’t the case in Ampad.

With Ampad, one of Baine’s first steps was to fire the over 200 workers at the Indiana plant. It later offered to re-hire them at their old jobs for a reduction in wages and benefits. In one deft move, the labor cost were dramatically reduced.

But all was not merry in Marion. In protest to the corporate maneuver, the workers initiated a labor action.
Most of the 258 employees were allowed to reapply for jobs at reduced wages and benefits. Johnson’s pay fell 22 percent, he says, from $10.05 an hour to $7.88. Dismayed to see their old union contract torn up, the Marion workers negotiated with Ampad management for several months, then called a risky strike.
For Romney the timing could hardly have been worse. He had just entered the political field and was in the midst of a Massachusetts Senate race against Edward Kennedy. The race was hard-fought and Kennedy was, of course, a Kennedy. And naturally Romney's opponent seized upon the controversy and milked it for all it was worth.
When confronted with the questions, Mitt Romney initially attempted to justify the action as necessary corporate restructuring. He later agreed to meet with disgruntled workers in Boston. At that meeting he claimed that he had no responsibility in the decision, displaying a company flowchart. He then claimed that he had been on a leave of absence during the campaign.

Joan Vennochi, writing for the Boston Globe in 2002 explains:
Romney tried to distance himself from the Ampad controversy, since he was on a leave of absence during the initial downsizing. But [former Bain Capital executive and Ampad board member Marc] Wolpow, who came to Bain in 1990 from Drexel Burnham, the infamous junk bond company, says: ‘I reported directly to Mitt Romney … You can’t be CEO of Bain Capital and say, “I really don’t know what my guys were doing.”
Another source tells us that according to Wolpow, Romney was responsible for the business plan carried out by Bain in Indiana.”Mitt's employees executed that transaction,” he said. “We carried out the business plan. He was CEO of the firm.”

But that’s not the end of the story.
Three months after he lost the senatorial race, Ampad closed the paper plant, firing all of the 200 workers. In this case, Romney was certainly back in charge of Bain operations. He had promised to look into the worker’s complaints. As the Boston Herald noted:
When Ampad’s five-member board, two of whom answer to Romney via Bain Capital, voted to give up and let the paper plant close, the defeated candidate felt little need to make noise on labor’s behalf. ‘That was a local decision made on local merits.’
In effect, Romney had washed his hands of the whole episode. Others, however, have never forgotten how Romney behaved, as one source tells us:
"I really feel he didn't care about the workers. It was all about profit before people," said Randy Johnson who worked in Marion, Indiana at American Pad and Paper Co. in the 1990's.
Johnson also told Bloomberg News:
“None of what happened in Marion in the 1990s would be very interesting,” Johnson notes, “if Mitt Romney had not built his entire political career on the claim that he’s a job creator.”
Despite laying off workers in the name of streamlining, at the same time Ampad was buying up other firms and amassing a significant debt. As Politico explains:
The company went into bankruptcy in 2000, holding a debt load of more than $400 million. Bain's return on its $5 million investment was $100 million.
At the final bankruptcy of Ampad, it became apparent that Bain was a big winner and everybody else as a big loser, including Ampad creditors. Politco gives us these details:
Out of a debt load of $170 million owed to unsecured creditors, Ampad ended up paying out less than $330,000, the filings show.

That amounts to two-tenths of a cent for every dollar owed in that case.

Among those owed money was the pension fund for Niagara Envelope, a New York-based company that Ampad picked up during Bain's tenure, and where there were a number of job losses. It was owed over $700,000, but was on track to get back under $1,500, the records show.
So Bain Capital and Ampad’s hard nosed approach with labor did not result in a stronger leaner and more efficient company. The end and sole result was profit for Bain and a staggering loss for everyone that trusted in the management. 
The management at Bain Capital gave the all too familiar excuse. A Bain public statement reads:
“We acquired Ampad from Mead Corp. in 1992, and grew the overall business during the four years we controlled the company. ..“Our control of Ampad ended in 1996, fully four years before it encountered financial difficulties due to overwhelming pressure from ‘big box’ retailers, declines in paper demand, and intense foreign price pressures. Despite political attacks that emphasize the few companies that have struggled, the facts are that during Bain Capital’s ownership, revenues grew in 80 percent of the more than 350 companies in which we have invested.”
What that statement fails to mention is that, according to ABC News, up until 1999, Bain owned a nearly 36 percent stake in the paper supply company through stock ownership in five investment funds that bought shares in the company, according to public records.
In fact, in 1999, Bain was actually the largest single shareholder of Ampad. In addition, in that year, three Bain executives were sat on Ampad’s board of directors.

On the subject of those directors: the Romney campaign has recently accused Obama of hypocrisy when it comes to Ampad. One of those Ampad directors from Bain, Jonathan Lavine, now works as a top Obama donor and fundraiser. Commentary Magazine reports:
Lavine’s placement on the board of Ampad suggests he had a more direct role than Romney in the series of events surrounding the layoffs, labor disputes and eventual bankruptcy of the Marion, Ind., factory.
The Boston Globe reporter Yvonne Abraham noted that the former CEO of Ampad had a very different opinion.
“[Charles Hanson III] was CEO of Ampad from 1992 until 1998, when Bain asked for his resignation. Hanson said that though he had had no direct contact with Romney after Bain took over Ampad in 1992, it was clear to him that ‘any significant direction we received would certainly have been authorized by him.’ Bain Capital, he said, was interested from the start in a ‘rollup’ of Ampad, a consolidation of its resources that clearly involved the layoffs the workers decried yesterday. And Hanson said he had no doubt Romney approved of that strategy.”
To conclude the story: When Bain Capital cites reason for Ampad’s collapse, it neglects to reveal another factor. The Boston Globe in 2008, reporter Robert Gavn gave us a more complete picture:
“Ampad..became squeezed between onerous debt that had financed acquisitions and falling prices for its office-supply products. Its biggest customers — including Staples — used their buying power and access to Asian suppliers to demand lower prices from Ampad.
As Ampad slid into decline and bankruptcy, with creditors stuck with the debt that Bain had racked up, and with American workers- even the ones that had accepted the cut in wages and benefits- dumped in the unemployment line, where was Mitt. Romney was sitting on Staples board of directors.
*   *   *   *
At the time of the closing of the Marion plant, the then- president of the Massachusetts AFL-CIO, Joseph Faherty, told reporters that the American workers would not forget.
"Romney never intended to give the Ampad workers a fair deal. This looks like the robber baron's revenge”.
And Faherty went on to warn:
‘Should he decide to seek office in the future, we will be there to expose his record for the sham it is.’”
This, Mr. Faherty, looks like your golden opportunity has finally come.