The game is devoid of business ethics; the goal is to maximize value by boosting output. Tiny Tower functions, in other words, strikingly like Bain Capital did under Mitt Romney.
I thought of the similarity as I read a powerful report by Bloomberg News this week on Romney’s adventure with Bain in the Italian yellow-pages business. The news service revisited Bain’s experience in the privatization of the Italian phone directory Seat Pagine Gialle SpA, which generated $1 billion in profits for Bain (and $50 million to $60 million for Romney) when Bain’s investment group sold the company for about 25 times the original purchase price two years after buying it.
That’s a lot of tower bux.
According to the Bloomberg account, Bain invested 36 million euros as part of a group that bought a majority of Seat for 853 million euros in late 1997. In February 2000, during the dot-com bubble, Telecom Italia bought back the Seat shares it didn’t own for 14.6 billion euros – generating a windfall for Bain.
Three years later, according to the report, Seat’s value had collapsed to 3.7 billion euros, and today it’s worth just 57 million. The plunge didn’t matter to Bain, however; it had moved its profits into subsidiaries in Luxembourg, avoiding taxes in Italy.
More troubling than the Bain windfall were the responses to Bloomberg from Bain and the Romney campaign. Bain noted that it was “in full compliance with all tax and reporting requirements.” A spokeswoman for the Romney campaign argued that Romney and Bain “partnered with a new management team to transform this company, and grow it into a tremendous success.”
A tremendous success that quickly toppled, like a child’s tower.
Both responses relied on Tiny Tower-style ethics: Romney and Bain followed