Thursday, January 19, 2012

Bain Capital v. Benefit Corporations – Where Would You Invest Your Money?

After I heard that Bain Capital had earned its investors an 88% return on their money while Mitt Romney was CEO, any concerns I had about his management of the private equity firm vanished. 

“And they [Bain] made 88 percent a year for their investors under Romney's tenure, which is -- was one of the best records in the business at that time, from '84 to '99.”

As long as the profits were not obtained illegally, it seems that Bain did exactly what its shareholders and other investors expected – it maximized their returns and increased wealth.  Nothing shameful in that.

What investor wouldn’t want an 88% return on his or her money? And remember that investors in firms such as Bain Capital frequently include large pension funds.  The money distributed to these pension funds benefits many individual wage-earners, not just wealthy individuals like Mitt Romney.  Again, nothing shameful.

Even Democrats are lauding the work of Bain Capital.  Jeff Bussgang, in a recent blog post on CNNMoney, asked 

“should hard-working pensioners and retirees be allowed to invest their savings in an asset class that outperforms nearly every other one available? Private equity has an important role and should be lauded, not lambasted.”

Bussgang labels himself a “card-carrying Democrat” who will vote for President Obama again in November.

Because it seems to me the attacks on Bain and other private equity firms have been unfounded, or at least over-wrought, I was interested to see the article in the January 19, 2012, Wall Street Journal on “benefit corporations” now authorized in seven states.  This new type of for-profit corporation is specifically authorized to have goals other than maximizing profits for shareholders, and to consider social or environment objectives ahead of profits.

Is this a good idea or not?  Should corporations be allowed to deviate from seeking the maximum legal return for its shareholders?  I suppose transparency is key -- what have the corporate managers told their investors about how they will run the company?  The Wall Street Journal article states that these corporations must set out their social and environmental goals in their bylaws and publish an annual "benefit report" to measure itself against those goals. Critics argue that management of these benefit corporations will not be accountable to shareholders, and that there will be little shareholders can do if their investment does not do well.

What do you think? Where would you invest your money -- with a company with a track record like Bain Capital, or in a benefits corporation that might not focus on profits but might suit your view of the world?


  1. Help my memory here -- was it Mitt Romney who ran the Olympics in Salt Lake City several years ago that actually made a profit rather than cost the taxpayers dearly?

    1. Thanks for the comment, Peg. Romney did run the SLC Olympics, and that Olympics did make a profit (based on some quick Google research). But I think some other Olympic Games have made profits also. I don't know where the SLC games stack up in terms of profitability.

  2. Sara, you give me too few options. I sidestep all criticism by investing in indexed mutual funds.