Were Romney's Business Dealings Unethical?
Everyone's saying Romney gets the Republican nomination now that Santorum dropped out of the race. So get ready for the attacks on Romney to start up more intensely.
In the past, Romney has been accused of being somehow unethical when he worked for Bain Capital, the private equity firm he ran. Reports say that Bain bought companies, fired employees, then re-sold the company for a fat profit. Some reports also pointed out that after Bain took over a company, they had the company borrow money so the partners at Bain could take that borrowed money as bonuses for themselves, leaving the company with extra debt that it didn't have before.
Let's figure this one out and see if Romney's gotten a fair shake in all this.
First let's clear the air on the political front. Romney is a Republican candidate for president. Criticism of his activities has come from different quarters, but the liberal media, which tends to support the cause of Democrat candidates vs. Republican candidates, has pressed this issue fervently. You might think that Romney practiced these kinds of business practices because he's Republican. If you do, wake up. Many, if not most, people in the financial services industry - particularly those in positions of power - are Democrats, not Republican. You're excused if you didn't know this. But now you do now, so no more excuses. Forget the political angle - it's bogus. Democrat private equity principals do the same stuff Romney is accused of doing.
So what about this stuff these private equity folks do? Remember what the private equity business is. We'll take an example of when they buy a public company and take it private:
They buy the company because they think it's being run somehow inefficiently. They acquire the company, frequently against the wishes of the managers of the company and, possibly, the company's Board of Directors in order to "fix" the company in some way. The company is now private and so they can do whatever they want to make it worth more than when they bought it. After all, now they're the owners and have no shareholders to answer to. They do this so that they can sell it again - i.e., take it public - and make a profit when the public buys shares of the company.
So, first of all, if Romney's private equity firm bought a company because they felt that the company wasn't being run well. So ask yourself if there's anything wrong with sprucing up the company, adding value and selling it at a profit. You may not like the fact that employees get fired, but there's nothing illegal about that. Whether you think it's unethical or not, just remember that this is precisely what private equity firms do. There's nothing special about Romney's firm here.
We can debate whether the firing of employees as a general practice is good or not. If we do, let's at least admit that there certainly may be situations where some employees are lazy or incompetent, and maybe should be fired. But once we admit that, we can go on to debate whether people who put in a day's work for a day's wages deserve to be fired in order to reduce expenses and prop up profits. Of course, this goes for any company that fires employees in order to boost the bottom line. In any case, there's nothing specific to Romney's business practices here. It's common practice to fire people in order to show more profits. Whether we think that's ethical, or something that undermines the common good is a separate issue.
So what about the practice of buying the company and having that company borrow money, thereby saddling it with debt? Well, here's something critics can sink their teeth into.
It's one thing if the company takes on debt in order to invest those dollars in the company's business, thereby increasing its ability to manufacture whatever it makes, or increasing its ability to provide whatever valuable service it provides. But in the case of private equity firms, that's usually not the reason they borrow money. They do it so they can take the money they borrowed and then pay themselves with that money. The company doesn't benefit. Worse, the company is now saddled with the debt.
Another thing: the money that the private equity owner's pay themselves from the money they borrowed is paid to them in the form of a dividend, which provides them with a tax advantage.
So here we have, I think, a legitimate criticism of Romney, in cases where he participated in this sort of private equity activity. Just remember that this practice is perfectly legal, and is by no means unique to Bain Capital, Romney's company. The real issue here may be whether this kind of activity should be legal and, of course, whether it is ethical.
So if people criticize Romney for this sort of activity, you have to admit they've got a point, don't you? Just remember that if Democrats criticize him, especially Democratic candidates, they very well may be running their campaigns with funds they get from private equity partners who engage in the same sort of practices.
In the past, Romney has been accused of being somehow unethical when he worked for Bain Capital, the private equity firm he ran. Reports say that Bain bought companies, fired employees, then re-sold the company for a fat profit. Some reports also pointed out that after Bain took over a company, they had the company borrow money so the partners at Bain could take that borrowed money as bonuses for themselves, leaving the company with extra debt that it didn't have before.
Let's figure this one out and see if Romney's gotten a fair shake in all this.
First let's clear the air on the political front. Romney is a Republican candidate for president. Criticism of his activities has come from different quarters, but the liberal media, which tends to support the cause of Democrat candidates vs. Republican candidates, has pressed this issue fervently. You might think that Romney practiced these kinds of business practices because he's Republican. If you do, wake up. Many, if not most, people in the financial services industry - particularly those in positions of power - are Democrats, not Republican. You're excused if you didn't know this. But now you do now, so no more excuses. Forget the political angle - it's bogus. Democrat private equity principals do the same stuff Romney is accused of doing.
So what about this stuff these private equity folks do? Remember what the private equity business is. We'll take an example of when they buy a public company and take it private:
They buy the company because they think it's being run somehow inefficiently. They acquire the company, frequently against the wishes of the managers of the company and, possibly, the company's Board of Directors in order to "fix" the company in some way. The company is now private and so they can do whatever they want to make it worth more than when they bought it. After all, now they're the owners and have no shareholders to answer to. They do this so that they can sell it again - i.e., take it public - and make a profit when the public buys shares of the company.
So, first of all, if Romney's private equity firm bought a company because they felt that the company wasn't being run well. So ask yourself if there's anything wrong with sprucing up the company, adding value and selling it at a profit. You may not like the fact that employees get fired, but there's nothing illegal about that. Whether you think it's unethical or not, just remember that this is precisely what private equity firms do. There's nothing special about Romney's firm here.
We can debate whether the firing of employees as a general practice is good or not. If we do, let's at least admit that there certainly may be situations where some employees are lazy or incompetent, and maybe should be fired. But once we admit that, we can go on to debate whether people who put in a day's work for a day's wages deserve to be fired in order to reduce expenses and prop up profits. Of course, this goes for any company that fires employees in order to boost the bottom line. In any case, there's nothing specific to Romney's business practices here. It's common practice to fire people in order to show more profits. Whether we think that's ethical, or something that undermines the common good is a separate issue.
So what about the practice of buying the company and having that company borrow money, thereby saddling it with debt? Well, here's something critics can sink their teeth into.
It's one thing if the company takes on debt in order to invest those dollars in the company's business, thereby increasing its ability to manufacture whatever it makes, or increasing its ability to provide whatever valuable service it provides. But in the case of private equity firms, that's usually not the reason they borrow money. They do it so they can take the money they borrowed and then pay themselves with that money. The company doesn't benefit. Worse, the company is now saddled with the debt.
Another thing: the money that the private equity owner's pay themselves from the money they borrowed is paid to them in the form of a dividend, which provides them with a tax advantage.
So here we have, I think, a legitimate criticism of Romney, in cases where he participated in this sort of private equity activity. Just remember that this practice is perfectly legal, and is by no means unique to Bain Capital, Romney's company. The real issue here may be whether this kind of activity should be legal and, of course, whether it is ethical.
So if people criticize Romney for this sort of activity, you have to admit they've got a point, don't you? Just remember that if Democrats criticize him, especially Democratic candidates, they very well may be running their campaigns with funds they get from private equity partners who engage in the same sort of practices.
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