Tuesday, July 17, 2012

Bain & Company/Bain Capital's Obama Administration Connection

The Obama Administration’s Office of Management and Budget deputy director, Jeff Zients, apparently used to work for GOP presidential candidate Mitt Romney’s Bain & Company during the late 1980s. As the Bain & Company website observed:

“When Barack Obama took office in 2009, the new president was looking for someone to fill a new—and daunting—post: the first-ever chief performance officer, housed in OMB. Zients had a reputation in Washington circles as a veteran business executive who produced results. He landed the job even though he had no government experience. `In many ways, the content of the job is similar to what I did at Bain and in the private sector,’ recalls Zients….

“From his marriage, to his White House appointment, Zients' career path is populated with Bainies. He met his wife, Mary, at the Boston office, and a Bain recommendation led to his hiring at The Advisory Board. Its founder, David Bradley, wasn't a Bain alum, but he was connected: Bradley went to the Harvard Business School with a group of future Bain Partners, including Bain Chairman Orit Gadiesh. Zients' path crossed with Gadiesh while he was an AC. She was on a Bain team that gave Zients a crash course in delivering results. Two decades later, the results-oriented approach Zients learned as a consultant is guiding his strategy to weed out waste and make government more productive and efficient.

“The task is remarkably similar to one of his initial Bain assignments. Back in 1988, 21-year-old Zients was dispatched to Detroit to work with a Big Three automaker... His team included Orit Gadiesh, David Harding and Jon Mark….After cutting his teeth on one of the Detroit Big Three, Zients now is applying those lessons as he faces the behemoth of complexity—a $3.55 trillion federal budget. He calls the Bain approach `central’ to his efforts to tame government complexity. `[They] taught me to be rigorous analytically and then how to take the insights and present them in a simple fashion so that the client could understand and implement them,’ says Zients. `It's served me well.’

“To help him navigate through the federal budget thicket, Zients brought in Michael D'Amato, a former Bain Senior Partner and colleague at The Advisory Board and Corporate Executive Board. D'Amato describes the chief performance officer's job as `a Bain consultant's dream.’ As Zients' right-hand man, D'Amato and his boss spent the first three months mapping the government, and then setting priorities that could generate quick wins.`We ended up with six areas, chosen because they all affect structural aspects of government, and therefore are changes which will have the longest-term impact on government performance,’ explains D'Amato.
“The job grew even more complicated last summer when Zients took on the added responsibility as acting OMB head…”

During the 1980s and 1990s, Bain & Company apparently exercised veto power over Bain Capital's investment decisions. And the fundinguniverse.com website includes the following additional interesting information about Bain & Company/Bain Capital's business history during the 1980s and early 1990s:

“Despite criticism, Bain achieved some notable successes in the early 1980s. When National Steel hired Bain in 1981, it was the highest-cost steel producer, but by 1984, after applying Bain's recommendations that it simultaneously downsize and modernize, it became the lowest-cost producer...Rather than just rely on fees to provide growth, Bain began to look for direct investment in companies, which ultimately led to the acceptance of equity as part of its compensation, not only to more closely align its interest with the clients but also to reap the rewards of its successful strategies…In 1984, it created Bain Capital, a limited partnership headed by W. Mitt Romney, son of politician George Romney, which invested in start-up companies and buyouts that could be readily improved. According to The New York Times, Bain Capital "has managed to steer clear of conflicts of interest by having Bain & Company retain veto power over investments. But it is not entirely a neutral operation.’… The firm was…housed in the same building as Bain & Company and its employees shared the same cafeteria.

Bain Capital provided an investment opportunity for Bain partners…In 1987, the firm… became entangled in a scandal involving one of its clients, Guinness plc, which had been one of Bain's notable success stories. The relationship began in 1981, at a time when Guinness shares were trading at penny stock levels after a decade of diversification efforts that took the company far from its core business. After selling off some 150 companies, Guinness' head, Ernest Saunders, then took Bain's advice and looked to move into the hard liquor market by acquiring two scot whiskey producers: Arthur Bell & Sons and Distillers Inc. By the end of fiscal 1986, Guinness and Bain were flying high, with the client posting profits of nearly $400 million, a six-fold increase since contracting Bain, while at the same time the company's stock reached a high of $5.75 per share. In December 1986, however, Britain's Department of Trade and Industry began to investigate the $3.8 billion stock acquisition of Distillers, masterminded by a "war cabinet" that included a Bain associate named Olivier Roux, who had been "lent" to Saunders and became one of his top aides. At issue were acts taken by Guinness to illegally inflate the price of its stock to fend off a competing offer from Argyll Group, including the charge that Guinness bought its own stock during the offering period and indemnified other companies against loss if they purchased stock on behalf of Guinness. In the end, Saunders went to jail for his part in the scheme...To bring peace to the situation, Mitt Romney was brought in to replace Bill Bain as the head the company….

“…A major step in the revitalization of Bain's fortunes came in 1993 when one of the younger partners, Orit Gadiesh, was named the new chairman...Born in Israel, she earned a degree in psychology from Hebrew University, then spent two years in the Israeli army, serving in military intelligence...When Romney left to pursue politics, Gadiesh continued the revitalization of Bain that he had initiated…

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