Shocking New Romney Scandal: He Employed THE Standard Model of Investment While at Bain
Sit down. It is indeed shocking. Mother Jones has unearthed a video of Mitt Romney talking about employing a strategy that was pioneered by a major US management consulting group and that has been taught as a standard methodology in every business school in the world ever since. First the shocking revelation:
Mother Jones, the magazine that published a secretly-made tape of Mitt Romney’s May remarks to donors, released another video yesterday that shows the Republican nominee in 1985 characterizing Bain Capital LLC as a partnership created to invest in companies, help manage them and “harvest them at a significant profit.”
Mother Jones said the video was on a 1998 CD-ROM marking the 25th anniversary of Bain & Co., the consulting firm that Romney left to co-found Bain Capital.
What is being described here is a portfolio assessment and strategy model called the BCG Growth/Share Matrix. Here is a picture of the simplified model.
Learn more here. The BCG matrix is not just a standard, it is the standard. It is one of the first things that every business school student learns in how to approach making decisions on a portfolio of businesses. You’ll note that the model starts with an assessment and ends with a strategy directive. So, businesses determined to be “Stars” are slated for investment, “dogs” for divestment. Notice the strategy implications for “cash cows”? Fructify. That is another word for “harvest.” Let’s look at another picture of the model.
Notice the arrows? The goal is to get every viable business into the cash cow quadrant where it can be harvested. That’s the whole point, you build a business by investing in it until it reaches it’s logical maturity and then you harvest its cash for reinvestment in the cycle all over again, i.e. to bring the question marks of tomorrow into stars and to build future stars into mature businesses. The cycle is repetitive, like say, harvesting cash flows from photographic film businesses into digital photography. Or harvesting copper line telephony cash flows to invest in mobile voice and data transmission.
Private equity firms – every private equity firm – get involved in the cycle and seek to move businesses successfully from one quadrant to the next. This is the business world’s equivalent of the cycle of life. It’s the way of the world. That Romney articulated this as Bain’s strategy is no different than saying birds fly, fish swim, the sun rises in the east and sets in the west. I can’t imagine a less controversial description of Romney’s activities at Bain Capital. Usually I don’t ascribe to evil what can easily be explained by stupidity, but this is Mother Jones we’re talking here, so I’m call this a shameless hit job.
This is Bloomberg News’s second bit of Romney nonsense in as many days.