Can McKinsey & Co. or Bain really fix the US Government?
Mitt Romney told the Wall Street Journal last week that if he is elected President, he will "probably" hire McKinsey, the management-consulting firm, to tell him how to reorganize the government. "I'm not kidding," he said, tactfully adding that it might be another management-consulting firm such as Bain (where Romney worked for years and where he got rich) or the Boston Consulting Group. Or he just might call on Jack Welch, who retired years back as CEO of General Electric but has yet to be replaced in the Lee Iacocca Chair as America's semiofficial Business God.
wrote that in Time Magazine on Thursday, Nov. 15, 2007. It's a good read.
Today the WSJ tallied up a mixed set of results from Romney's stint at Bain.
The Wall Street Journal, aiming for a comprehensive assessment, examined 77 businesses Bain invested in while Mr. Romney led the firm from its 1984 start until early 1999, to see how they fared during Bain's involvement and shortly afterward.
Among the findings: 22% either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses. An additional 8% ran into so much trouble that all of the money Bain invested was lost.
Another finding was that Bain produced stellar returns for its investors—yet the bulk of these came from just a small number of its investments. Ten deals produced more than 70% of the dollar gains.
Some of those companies, too, later ran into trouble. Of the 10 businesses on which Bain investors scored their biggest gains, four later landed in bankruptcy court.
Mitt Romney's history and pride in Bain raise a character question, but also a national strategic issue and begs the question if he knows how to govern in a democracy, one we all want to thrive and grow. Mitt Romney sometimes falsely refers to himself as a venture capitalist, an investment banker, or an entrepreneur. He's none of these. He was a demolition guy. Romney was a corporate raider - a private equity/leveraged buyout (PE/LBO) champion - who was as well compensated by the losses as by the wins. Romney risked none of his own money and raided corporate assets, pension funds, debt, and government insurance with no other goal than running the company into the ground.
If you read Laid Off by Bain—My Story, the diary currently on the Rec List by kossack NCJimFollow you have a crystal clear picture of the generic process companies like Mitt Romney's Bain or its bigger brother, the premiere global management consulting firm, McKinsey & Co., implemented on one company after another like a corrupt cookie cutter robot in yesteryear's Mom and Pop bakeries.
These elite go-to consulting firms started as the ultimate old boys’ clubs. They developed a cradle-to-grave dominance in corporate America. They invented ways to acclimate CEOs and Boards to their vision for a New Economy and proved they could successfully customize and implement the vision on demand. First they manage the input queue by leading US schools to grow MBA crops by generating so-called best practices and picking the elite of the hotshots for their aggressive graduate hiring practices. Hire the cream of the creme of the crop and keep the few extraordinary producers. At the other end, highest levels, they provide a steady supply of globally trained, connected, road tested and polished senior management and Board members with a degree of incest only otherwise possible in the Garden of Eden.
Romney's company was the bottom feeder of management consultancies, specialized in the PE/LO segment, in a small class of top firms like McKinsey & Co. The partners and associates of these firms, those elite of the elite who not just make it through the grinder but thrive in it, move on to Goldman Sachs and top business and government leadership positions around the world, much like seminaries feed the bishopricks [sic] and Vatican. Along the way, a generation of blue and white collar American workers were put through the ringer of contraction, productivity increases, mergers, acquisitions, down sizing, re-engineering, reorganizing, globalizing and liquidation. Boomers and their parents have witnessed it all.
Integral in the story is the cold hard reality that there are people almost pathologically hyper-able to be trained to do really big things and achieve really big goals constrained within data driven processes with no ingenuity, no innovation, and no concern for the collateral damage to people, communities, industries, or the US. And they're fast.
These are talented people, some of whom do have integrity.
President Obama staffed two key positions with people from McKinsey - Peter Orszag, economist and Obama's OMB director, former CBO director, and formerly of the Brookings Institution (another incestuous cousin), and Susan Rice, US Ambassador to the United Nations (2009–Present), United States Assistant Secretary of State for African Affairs (1997–2001), also formerly of the Brookings Institution.
But Mitt Romney was not your run-of-the-mill hot shot Bain associate. Romney was a leader in the genesis of corporate raiding.
Of course, from an equity position, destruction is faster than change, and may be preferable. While some aged management-laden legacy companies labor to form committees to tackle the inertia of trying to change a sluggish corporate culture, McKinsey or Bain types will have conducted a flash mob equivalent of change management - liquidate the old, build a new corporation with a boiler plate state of the art culture, hire a bunch of grads to crank out the product charged at enormous contracting rates, cash out their bonuses and move on to the next "opportunity" leaving behind companies stripped of assets, mired in debt and under-capitalized pension obligations.
In the world of international diplomacy and war, these are the warriors. Clearly,a nd fortunately, the US has the capability to do business as swiftly and efficiently as we can conduct shock and awe incinerating an entire city of innocents to kill its despotic leader. But when, if ever, is either a good idea? We have the money, resources, methods and technology to do almost whatever we want. Reliably. It's the people at the top who decide what to do and their values and vision guide those decisions. Corporate raiders are to business like Blackwater is to war, no longer a last resort, diplomacy not an option, they're mercenaries hunting for sure money, blasé about the bodies in their wake.
Back to Michael Kinsley's Time Magazine article from 2007, where then Republican presidential candidate Romney, the ultimate "prag", pledges to hire Bain or McKinsey to retool the Government.
If Romney stands for anything, he stands for management consultant ship. This is a belief that pragmatism and brainpower are superior to ideology in understanding the world, although this amounts to an ideology of its own. Romney went on and on about how much he loves "data." Give him a problem, give him the data, give him Jack Welch.
The myth of the management consultant in general and McKinsey in particular has never been stronger. McKinsey consultants are restructuring the educational system of Israel, advising insurers on dealing with Hurricane Katrina, comparing the performance of Indian and American companies, reforming the North Carolina Department of Transportation. Even Time Inc. is a client. And a 36-year-old former McKinsey consultant, Bobby Jindal, has just been elected Governor of Louisiana.
We ask how safe this corporate raider mentality is and what it says about character.
But also, we have to be ready for a diversity of answers from Independents and even some Democrats. Americans want action. Action-failure-reaction is often preferable to inaction. Americans need more than headlines or sound bites to understand the short and long term impact of a President with such a malodorous history and character. These guys look at politics in a way that may be becoming popular, as an unnecessary distraction to governance. They look upon President Obama as one of those golden grads who get hired from Harvard and other top schools but nevertheless don't make it past the entry level. How many Americans are sympathetic at least to the diminished necessity of politics as a practice?
The notion that the cacophony of politics can be replaced with the smooth hum of expertise and that all the challenges our society faces can be solved by making the government run more efficiently has a long and generally laughable history. It is not inherently either liberal or conservative. President Dwight Eisenhower actually did hire McKinsey to redesign the presidency. President Jimmy Carter talked endlessly of "reinventing government." He took the Department of Health, Education and Welfare and turned it into two departments. Then there was Ross Perot, the presidential candidate who babbled about opening the hood of a car and tinkering with the innards. President Bill Clinton showed his lack of interest by assigning the subject to Vice President Al Gore. And now there is Romney, who told the Journal that--depending on the data, of course, and whatever McKinsey recommends--he would create a layer of "super-Cabinet" positions so that the President doesn't have "30 direct reports."
If big-shot CEOs are happy to hire McKinsey and then do whatever its 25-year-old hotshots recommend, why shouldn't voters do the same? If you're looking for a reason, look no further than the Times of London, Oct. 29, in which the head of McKinsey, one Ian Davis, addressed the topic of "government as a business." We "must enter the dialogue on how to help resolve" disputatious issues, he recommends. Well, isn't that the definition of politics? But Davis rejects politics. "This is not a partisan issue but an issue beyond political stance."
And this was back in 2007.
Implications for the 2012 election and first to further define Mitt Romney, his character, and his intentions as President. Also both parties know that there are millions of formerly hard-working blue and white collar Americans (i.e., likely voters) across the country - in every city, every financial and industrial sector, at every level - most of whom have been laid off by a Romney and the rest "retained" to witness from the inside of a tiny core whose productivity suddenly became 5 times what it was, just to keep the lights on, as the business was either reorganized, merged, acquired, or was liquidated. Some might clinically call this overarching process, Change Management.
The number of voters with a clear and visceral sense of negative emotions (e.g., anger, rage, bitterness, disgust, apathetic resignation) is high and highly distributed across every pool of likely voters. Democrats have an opportunity to be smart, drag Romney through the mud of his life's accomplishments, while simultaneously making the case for the more expert politics and the better management strategies, the better results in the short and long term.