Bain & Company
Bain & Company is the consulting firm the world's business leaders come to when they want enduring results, and a partner who cares as much as they do about getting them. Together, we find value across boundaries, develop insights they act on, and energize their teams to sustain success.
Founded in
1973, Bain & Company began its management consulting practice with a commitment to work for only one client per industry sector. This was intended to assure that client that Bain & Company wouldn't be providing similar guidance to the client's competition. Confidentiality was paramount, even to the point of referring to clients by code names within the confines of Bain & Company.
Success was measured by an improvement in the client company's stock price, and this metric was eventually used as the primary basis of Bain & Company's marketing of new clients. It's a very compelling argument.
To put their money where their mouth was, Bain also accepted equity in the client firm as a form of compensation for their services. An estimated 10% of their revenues was derived from equity, a pioneering strategy in management consulting at the time.
By the 1980's, Bain & Company was beginning to face growing pains of its own. Their "one client per industry" stance resulted in the need to turn away potential new business at the same time that economic forces were creating challenging headwinds to the firm's growth. These market forces would have been enough of a setback, but...
...it was internal infighting among the senior partnership that threatened to tear the firm apart. In response, Bain & Co. was formally incorporated in 1985 and, over the course of two years, an Employee Stock Ownership Plan (ESOP) was established. Bain's senior partners began borrowing against their equity for cash, eventually leaving the firm with a heavy debt load.
As business slowed, this debt load began to squeeze the firm. Bain ultimately found itself in non-compliance with Bank of New England loan covenants. The resulting debt write-off at the Bank of New England eventually resulted in that bank's failure in 1991.
So, to recap: a brilliant management consulting firm plunders its employee stock ownership plan, drowns itself in debt, and brings down a bank.
Follow along below the money pit for the rest of the story...
In 1991 when things were looking bleak indeed for Bain & Company, who could answer the call and save the day?
Facing financial duress, Bain Capital partner Mitt Romney was asked to rejoin and lead Bain & Co. as interim CEO. Bringing along two lieutenants from Bain Capital, Romney began a traveling campaign to rally employees at all Bain offices globally. Romney also negotiated a complex settlement between the Bain partnership and the firm's lenders, including a $10 million reduction in the $38 million Bain owed the Bank of New England, which by that time had been seized by the FDIC and placed in Chapter 7 liquidation.
The Boston Globe pointed out that:
"Over several weeks, Romney managed negotiations with the banks and among the partners... The moment came when negotiations produced a package in which Bill Bain and the founding partners would give up control of the firm, turning back $30 million they had taken from the ESOP and $100 million in notes they held against the firm."
So, to recap again: Mitt rides in, creates a bunch of complex deals, ousts Bill Bain, and oh, yeah... the Bank of New England gets the shaft. All in a day's work.
With that nasty business behind them, Bain & Company returned to what they did best: adding value to their clients' operations and profitability. They also relinquished their quaint moral-high-ground policy of only working for one client per industry. The moral high ground is a fine place to be, unless you want to make a whole lot more money.
Fast-forward to the present day, when Bain & Company is a major presence in management consulting:
Bain is the best consulting partner for companies that are committed to quickly achieving and sustaining their full potential. Our clients realize, on average, results yielding 25 times returns on our fees and margin improvements of seven percentage points within two to three years
Their web site features this very compelling graphic:
That's pretty amazing! If you're a prospective Bain & Company client, what's left to say but "where do I sign up?!"
If you're still not convinced, you can plough through all sorts of positive-sounding corporate-speak pronouncements on their web site, such as this:
Our consulting services focus on our clients' most critical issues and opportunities: strategy, marketing, organization, operations, technology and mergers & acquisitions, across all industries and geographies. We bring deep, functional expertise, but are known for our holistic perspective: we capture value across boundaries and between the silos of any organization. We have proven a multiplier effect from optimizing the sum of the parts, not just the individual pieces.
Then of course, there's real life which so often fails to live up to the hype. My former employer turned to Bain & Company in 2008 to assist with mergers and acquisitions and a plan for aggressive growth.
The executive team had big plans, and brought in the Bain Kids to help out. I met with some of them, and found them to be bright young MBA holders who asked a lot of questions. Our job was to explain the business to them or, really, to subsidize their learning curve. After literally months and months of this process, the Bain Kids provided some advice on how to restructure the company for the exciting world of growth.
It was a controversial and costly plan, viewed with deep skepticism by many of our staff and management. As someone with over 30 years of experience in this industry, I couldn't see the "logic" of Bain & Company's recommendations to develop a massive management superstructure that couldn't possibly be supported by our operations.
Rather than bore you with all the details, I'll let this sad little picture tell the story. It's a graph of my former employer's stock price over the past 5 years.
Doesn't look much like that exciting red graph from the Bain & Company web site, does it? I guess that red graph is either an amalgamation of the "success stories", or maybe Bain & Company has hit the jackpot on enough of their deals that suboptimal outcomes like the one I went through can be averaged in without detracting too much from the happy web site story.
Oh, and if you think it was just "the economy" that tanked the company, here's the graph of the S&P Index for the same 5-year period:
As you can imagine, when the graph of your company's stock price looks like one side of a ravine, it's only a matter of time before that ravine begins filling up with the bodies of those folks laid off to placate the Gods of Wall Street. Most of them were just staff people who were doing their jobs. Some middle managers were let go, and a handful of VPs. Oh, and your intrepid diarist.
The executive team is still there... still working with Bain & Company. Their latest recommendations? Dismantle that gigantic management superstructure to cut costs and streamline operations.
Ya think???
All the while, Bain & Company made millions in fees. Too bad this wasn't an equity compensation deal. I'm sure they learned from Mentor Mitt: take the cash, kids. Always take the cash.
I took Mitt's advice myself. Armed with my severance pay*, I've started my own business, free from greedy and witless executives, crushing management superstructures, and overpaid and underperforming management consultants. Getting thrown into the tar pits was painful, but these days, I'm feeling like a wily little mammal eating the eggs of the dinosaurs whose extinction is looming. It's all good.
* which was less than half of what it would have been under my terms of employment, until the Bain Kids advised my employer to cap everyone's severance regardless of tenure. They're so clever!