Asymmetrical Information - Megan McArdle
10.10.12 5:00 PM ET
Who Was Running Bain in 1993?
Harold Pollack calls it "the first story about Mitt Romney's Bain years that genuinely angers me". It's a lengthy new piece at the Huffington Post on the strategy consulting services that Bain & Co provided to Phillip Morris in the early 1990s as the company expanded into post-Soviet Russia.
In one document labeled “Corporate Affairs,” Bain argues that the cigarette maker needs a “coordinated, long-term approach to legal/regulatory/public opinion opportunities and challenges to maximize shareholder wealth.”
Bain’s advocacy amounted to an early example of corporate “astroturf” tactics that are now commonplace…. In the same “Corporate Affairs” document, under “mobilizations,” Bain consultants encourage the company “to conduct federal and local grassroots programs in support of the company’s legislative and regulatory efforts.”
For one such mission, Bain called on the company “to initiate and execute programs to support smokers’ rights, combat regulatory moves and improve corporate image.” Specifically, Bain felt Philip Morris could build support within the hospitality industry and by openly seeking to curtail access to cigarettes for young people.
Jason Cherkis and Zach Carter argue that Mitt Romney has responsibility for this advice:
Despite repeated requests, neither the Romney campaign nor Bain would provide specific start and end dates for Romney's tenure running the consulting firm. The campaign has asserted that he "returned to Bain & Co. 1990-1992" -- a key period in the firm's tobacco work. However, government records and several media reports place Romney at Bain & Co. as late as the summer of 1994. Romney's Senate campaign told the Boston Herald in a July 24, 1994, article that their boss was juggling Bain & Co. meetings with the demands of his political race.
The CEO does not write these sorts of documents (or even necessarily look at them). However, it's fair to say that the CEO does have responsibility for the firm's output. And it does seem to be true that Mitt Romney was CEO of Bain when they won some Phillip Morris business--though as far as I can make out from the article, that early business was mostly focused on getting people to switch to Phillip Morris cigarettes from other brands, not making new smokers.
And the Russian strategy stuff, which sounds more damning, seems to have mostly happened from 1993-1995, except for one (failed) privatization deal. I don't think there's actually any question about who was the head of Bain during that time: it was Orit Gadiesh, the woman who is still Bain's chairman today. (She's a rather remarkable story, actually: an Israeli who got a Harvard MBA in 1977 and became one of the first women to head a major consulting firm. A lot of women I knew in business school looked up to her example--which does make it a bit galling that she's not even mentioned, while the story suggests that a man was actually doing her job.)
Unless the Romney campaign has been running an extraordinarily long game, getting Forbes and the New York Times to write up her leadership in pieces dating back as far as 1994, I think we can safely assume that Mitt Romney was not, in fact, in charge of Bain during the critical period. And I don't think we can assume that she was some kind of Mitt puppet, since she's now been running the firm for two decades. It may be perfectly true that Mitt Romney was meeting with people at Bain & Co (or it may have been a misprint by the Herald). Perhaps Cherkis and Carter have direct evidence that Mitt was actually controlling things while she was nominally in charge, but if so, I don't think they made it clear in the article. And unless they do, then I don't think you can argue he was still running the place. He still had a leadership role at Bain Capital, of course, but they are different firms, each with their own management.
It's possible that he profited off of Bain's Russian tobacco adventures, and I believe he may have had ties to the board. But I'm not sure that this is enough to tar him with something a team of consultants said while he was off running his private equity business.
More broadly, I'm rather hesitant to criticize people for being associated with a firm that took tobacco business twenty years ago. Society's views of tobacco have shifted rather dramatically since then, and there are limits to how much we can expect people to have retroactively embraced modern mores.