Mitt Romney's career says a lot about how American business has changed
IN A Republican primary field full of radicals, Mitt Romney is the establishment candidate. yet earlier is his career he was a revolutionary . hard though it may be a imagine Mr Romney waving a pitchfork or manning a barricade , schumpeter is not joking , as a businessman , Mr Romney was at the heart of three revolution.
The first was the rise of meritocracy in corporate America. in the 1950s and 1960s many people though management was just a matter a applied common sense. companies wanted their executives to be "well - rounded men", not rocket scientists .but the 1960s and 1970s saw the rise of a new kind of brain-intensive company :private - equity outfits such a Kohlberg Kravis Rberts and strategy consultancies such as the Boston Consulting Group (BCG) and its stepchild Bain and Company.
These companies valued analytical skills above all else- certainly above experience or golf handicap . Bruce Henderson , GCG's founder , recruited the smartest kids from the nation's best business school. Mr Romney was the archetype of this nrw breed : he graduated the earnest in the top 5% of his class at the Harvard Business School . the earnest young man also loved looking under the hood of companies to see how their wiring might be improved . he joined BCG in 1975 and left a couple of years later to join the even more brain-obsessed Bain and Company.
The second revolution , as Benjamin Wallace - Wells wrote in New York magazine , was the idea that a company's purpose is to make money for shareholders . post - war American capitalism was dominated by managers, not shareholders . these salaried sultans ruled over sprawling conglomerates with elaborate hierarchies and ornate headquarters . the three - martini lunch was de rigueur. and why not ? American business was on top of the world . Wall Street was a complacent club . Japanese companies were not even on the radar .
But by the time Mr Romney came of age in the 1970s this comfortable world was crumbling . post - war prosperity had given way to stagflation . the Japanese had started to run rings round slow American giants . and in 1976 a brilliant article by two business academics , Michael Jensen of Harvard and William Meckling of the University of Rochester , offered a radical diagnosis . Corporate America had a principal-agent problem, they said. Agents (ie, managers) were feathering their own nests rather then serving the interests of their principals (shareholders) . the solution was to force managers to focus on shareholders value.
Bill Bain heartily agreed . he had left BCG because he was frustrated with a business model which hinged on consultants producing a report and then moving on to a new client . he wanted to forge more intimate relations with fewer companies . and he took this line of thinking a big step further . why not buy out bad managers and let your brilliant young consultants rebuild their companies from the ground up ? the result was Bain Capital , a company that Mr Romney ran from 1984 to 1999, earning a fortune estimated at $200m.
Bain Capital was a wallet-bursting success . it turned $37m of capital under management in 1984 into $50m in 1994 (and $66billion today) . it kick-started business such as staples(which now has 2,000 stores selling office supplies) and the sports authority. but it was also a symptom of a wider change. it was not just people like Mr Romney who were pushing American companies to shape up. it was also the new rigours of global competition . firms of every description sought to squeeze out inefficiencies , sell off non - core business and close redundant operations , all in the name of shareholder value.
The third revolution was the shift from manufacturing to services . George Romney , Mitt's father , made solid things for 23 years, running the American Motors Corporation for eight of them . such careers are now unusual . bright, ambitious young American seldom spend their whole lives making products with ballbearings in them . Bain Capital "re-engineered" 150 companies in a bewildering.
