James Sanderson had encountered a rare moment of industrial harmony. It was the early 1990s, and the 750 men and women at Georgetown Steel were pumping out wire rods at peak performance. They had an abiding trust in management’s ability to run a smart company. That allegiance was rewarded with fat profit-sharing checks. In the basement-wage economy of Georgetown, South Carolina, Sanderson and his coworkers were blue-collar aristocracy.
“We were doing very good,” says Sanderson, president of Steelworkers Local 7898. “The plant was making money, and we had good profit-sharing checks, and everything was going well.”
What he didn’t know was that it was about to end. Hundreds of miles to the north, in Boston, a future presidential candidate was sizing up Georgetown’s books.
Mitt Romney had been running Bain Capitalsince 1984, minting a reputation as a prince of private investment. A future prospectus byDeutsche Bank would reveal that by the time Romney left in 1999, Bain had averaged a shimmering 88 percent annual return. Romney would use that success to launch his political career.
His specialty was flipping companies — or what he often calls “creative destruction.” It’s the age-old theory that the new must constantly attack the old to bring efficiency to the economy, even if some are destroyed along the way. In other words, people like Romney are the wolves, culling the herd of the weak and infirm.
His formula was simple: Bain would purchase a firm with little money down, then begin extracting huge management fees and paying Romney and his investors enormous dividends.
The result was that previously profitable companies were now burdened with debt. But much like the Enron boys, Romney’s battery of MBAs fancied themselves the smartest guys in the room. It didn’t matter if a company manufactured bicycles or contact lenses; they were certain they could run it better than anyone else.
Bain would slash costs, jettison workers, reposition product lines, and merge its new companies with other firms. With luck, they’d be able to dump the firm in a few years for millions more than they’d paid for it.
But the beauty of Romney’s thesis was that it really didn’t matter if the company succeeded. Since he was yanking out cash early and often, he would profit even if his targets collapsed.
Which was precisely the fate awaiting Georgetown Steel.
When Bain purchased the mill, Sanderson says, change was immediate. Equipment upgrades stopped. Maintenance became an afterthought. Managers were replaced by people who knew nothing of steel. The union’s profit-sharing plan was sliced twice in the first year — then whacked altogether.
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