Romney the revolutionary: 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 in his career he was a revolutionary. Hard though it may be to 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 revolutions.
The first was the rise of meritocracy in corporate America. In the 1950s and 1960s many people thought management was just a matter of 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 as Kohlberg Kravis Roberts 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, BCG’s founder, recruited the smartest kids from the nation’s best business schools. Mr Romney was the archetype of this new breed: he graduated 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 around 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 than serving the interests of their principals (shareholders). The solution was to force managers to focus on shareholder value.