Benjamin G. Davis, Associate Professor of Law, University of Toledo, College of Law
(Update 7/15: Today on Up Ed Conard formerly of Bain Capital was on and his take on the 1999-2002 point was that after Romney left in February 1999 a negotiation began as to the compensation for Romney. That negotiation had an impact on the potential compensation of other partners and so it was a protracted two year negotiation process. A funding document done (2001?) shows that Romney was no longer included as operating the company and was in Salt Lake (I would say that was a great marketing aspect in such a document – a disclosure that is golden for marketing one’s fund – two for one!). Conard said in so many words that Romney was “out of the loop” and only negotiating his cash-out or departure through his lawyers with a management committee running Bain Capital. Why would Romney not relinquish titles and ownership in 1999? Put simply, it looks to me that he left abruptly and was making sure he got paid before he gave up anything. Romney getting paid involved discussions of how lots of others were going to get paid in this negotiated cash-out or departure kind of space. So, from the MBA vision one can see why Romney would say he was out of there with no responsibility as of February 1999. From, the JD perspective, because of the formal roles he held as detailed on the filing documents, the law gives him certain authority and responsibility from being in those roles independent of how he exercises that authority and delegates that responsibility – so one can see how the Obama side will stay relentless on this. Those who come from this rarefied space (let’s call them the 1 percenters – great white sharks or killer whales) will understand all this and think Obama is being unfair or lying in asserting the JD perspective on Romney. Those who do not come from this rarefied space (let’s call them the 99 percenters – other whales, tuna, walruses, seals, down to the minnows) will look for analogies from their own work situations and not understand how Romney can have all these roles of authority and responsibility and they will think Romney is being disingenuous or lying or will not care if they hate Obama or like Romney enough. As a JD-MBA, I can see both perspectives as I imagine Romney can see both perspectives. In that sense, Romney is stuck in arguing the MBA vision even though he can understand the JD vision.
One thing about a negotiation though is Romney’s lawyers must have been in contact with the Bain management committee as part of the negotiation of the cash-out or departure. Those lawyers may have been in meetings at Bain but most certainly would have been in exchanges with the management committee and Bain’s lawyers. In that sense, Romney was off doing Salt Lake Olympics but, through his lawyers, was very much present at Bain in making sure he got paid. That, JD or MBA point of view, is common sense. Part of all that would be due diligence work to make sure that the knowledge was complete of just what the valuation of Bain and Romney’s shares were (this is private equity not traded on an exchange). So we get to the question of knowledge that can be attributed to Romney through what his lawyers worked on – even with Romney 2000 miles away in Salt Lake.
In an analogy from nature, as the Founder and shareholder, Romney was THE killer whale in a pool of great white sharks and killer whales have the smarts to kill great white sharks – that’s why great white sharks are spooked by them. Romney was trying to make sure that he ate what he had killed including making all that value for the company which he had filled with all these great white sharks.
Hope this perspective of a JD-MBA vision in a real world setting (case study for a JD-MBA program) is of assistance to those teaching law and/or business students.)
Over the past few days there has been a political firestorm over the date at which Romney left Bain Capital: was it February 1999 when he left to head up the Salt Lake City Olympics as he said or was it later in 2002 based on his name on Rule 13(g) SEC filings and state filings where he is listed in various management capacities and sole shareholder of Bain Capital as well as having received compensation. The end date is important because in the 1999-2002 period Bain Capital accelerated its investing in companies that outsourced and also in a company called Stericycle – a medical waste company – that disposed of aborted fetuses (obvious political bombshell in this Presidential election).
Romney took the position yesterday that he left Bain Capital in February 1999 and recent reports of internal documents discussed at Fortune from Bain people have been used to back up his view (He was not listed on something called Fund VII from that period which shows that he was not involved). On the other side are the filings with the SEC and Massachusetts and evidence of him having attended some meetings in the period (of which he does not now have a recollection, except for Staples which was a private matter he says and after Bain Capital no longer had a stake – whew!).
So, is Romney lying or is the Obama campaign lying? I think this is a wonderful teaching moment for potential law and business students about the JD-MBA vision vs. the MBA vision. Here’s why.
The MBA vision is on running the entity to make a profit. The JD vision is on the applicable law and legal regimes. Business people’s eyes glaze when the lawyers start to speak legalese. Lawyer types’ eyes go blank when the business people start to speak businessese. As one advances in either business or a corporate practice in the law, each of these separate visions of the world are somewhat fertilized with the ideas and ways of thinking of the other vision. The legal environment and the business environment shape each other and the principal actors in each of these environments come to them from different starting points.
So, if I was putting on a lawyer hat only I would imagine a hypothetical in which I said to myself “if I was suing Bain Capital back in the 1999-2002 period for some fraud I alleged it had done and I was seeking to pierce the corporate veil alleging that Bain Capital was a mere instrumentality of its principal shareholder, who would I have named as the Respondents?” Clearly, I would have sued Bain Capital for one and just as clearly I would have sued Mitt Romney as the 100 per cent shareholder of Bain Capital. And, if I was able to make my argument successfully I would have been able to reach Romney for what I alleged Bain had done at his behest. Romney being listed as an officer too, I would also imagine that he would be on any insurance policy for Directors, Officers, and Employees at the time as evidence of a further link. All of these things would be looked into, along with others to show that whether or not Romney was active in the decisionmaking, he was responsible. This is the line of attack that I see Obama and the Obama campaign making and they will be tenacious on this view. This is the JD vision.
If I put on my businessperson hat, all the legal mumbo jumbo and filings are things I sign because the lawyers say I have to sign them to be in compliance. My focus is on running the business and making a profit and the lawyers are there to make sure this business is within the lines of legality. I can fully understand Romney’s vision that in February 1999 he stepped away from everything related to Bain Capital and was not making decisions. In other words, all the tasks of running the company that he had done before February 1999 were then delegated to “others” while he focused on the Salt Lake City Olympics for the next three years. Maybe he received money and maybe his name is all over the place at Bain, but he let others “call the shots.” He might have shown up at a meeting along the way, though he has no recollection. He had had to leave abruptly and he handed the business over to people that he trusted. A blind trust without all the formalities might be the closest he would get to legal stuff. There was no time for the legal niceties but the substance was that he was “out of the loop” on Bain Capital business during the 1999-2002. This is the MBA vision.
Under the JD-MBA vision, one understands in some depth both the JD vision above and the MBA vision above. One understands how to shape the space on the legal side to optimize one’s legal position and also, one understands how business works and how to use the language of marketing, production,and finance of business to one’s advantage to sell oneself and one’s ideas. That matrix vision is built in the joint program where one shuttles back and forth from the two spaces and, if the career path permits it, gets enhanced in later work – thus finance (regulated area with high legal and business aspects) or, to a lesser extent consulting (strategic business and legal considerations together) being areas where one finds JD-MBA’s.
Add to this the fact that Bain Capital is private equity and Bain and Company is a private consulting firm and one sees a further aspect of this. These companies not being publicly held, other than the required filings where they intersect with regulatory obligations, we can only know what those who control these companies want us to know or is leaked. For example, Romney can say he was not involved with the Bain Capital enterprise in the period and I can understand that as meaning Bain Capital, but it may be that what he is saying includes a footnote where there is a definition of Bain Capital enterprise which was a limited liability entity spunoff from Bain in 2001 (for example). Romney knows the inside story and can say things that are truthful but may not be a complete picture of the Bain world. Independent sources to go behind the statements are hard to make.
So Obama sticks to his guns and Romney sticks to his guns and both may be telling the truth – each telling his own truth based on a JD vision and a MBA vision. The nuance is that one is also operating with a JD vision with regard to an entity (the Bain entities) for which publicly available information is limited.
Just to round out this discussion, something true both for JD’s and MBA’s, doing public service is altruistic but it is also in the interest of the lawyer or businessperson’s bottom line. One advantage of doing public service is that the lawyer can appear in settings wearing the hat of this or that entity and meet with people who would not meet with them as a lawyer seeking business with his/her lawyer hat on. I learned about this from a great lawyer many years ago who was explaining to me the benefits of public service. The same is true for the businessperson. Obama’s community service work helped him meet all kinds of movers and shakers in his community. Romney’s Olympics work was a enormous marketing boon for Bain – they would have been crazy not to milk it for all it was worth during the 1999-2002 period. Romney did not need to do that, he had people who could take advantage of it.
Both of these guys are the smartest guys in the room. Politics is a contact sport.