A Promise Not Kept: Profits Over People
(Occasionally, I'm contacted by friends in legitimate journalism as well as ordinary readers like you and given news articles to read or pass along. Last night, I was emailed by my old friend Barbara O'Brien at the Mahablog who's also involved with www.mesothelioma.com. At the top of the index page is a nuclear-tipped mortar of an article by Pulitzer Prize-winning journalist Gary Cohn who uncovered during a three-month investigation Bain Capital's involvement with a steel mill. The results are perhaps the scummiest example of corporate greed ever, which, considering your typical corporation, is saying a lot. Barb asked me to share this article by cross-posting it at Pottersville. After reading it, there was no doubt as to whether or not I would. Bain Capital, in my mind, is the very face of heartless, sociopathic avarice and Mitt Romney its very... well, what passes for a soul. If this story doesn't go viral between now and the election, then we're more seriously fucked as a nation than I'd hitherto judged. Read and be thou amazed. Note: Cohn's article has been reproduced in full with no editing. So I'm in the unique position of saying that any mistakes are not mine but someone else's.)
Posted by Gary Cohn
(Originally posted at www.mesothelioma.com)
In early 2012, reports circulated detailing some of the profit-centered entitlement raids that occurred at Bain Capital under Republican Presidential nominee, Mitt Romney. The Mesothelioma Cancer Alliance became intrigued when asbestos industry defendants appeared on a list of these types of corporate liquidations and commissioned a three-month investigation of the company’s handling of GS Industries through journalist, Gary Cohn. What we uncovered is the true human tragedy of collateral damage stemming from this profit model. We found a community affected by decades of toxic exposure, gasping for breath while picking up the pieces among an uncertain future.
A Promise Not KeptJohn Cottrell had health problems, but in his heart he believed he was covered. After all, GS Industries, the Kansas City steel company where he had worked for 30 years had guaranteed his health insurance and pensions in the event of a shutdown. John retired in poor health from asbestos-related respiratory problems in 2000, but he and his wife Shirley felt secure knowing that their most critical employee benefits were guaranteed for life.
Then everything changed. Bain Capital, the private equity firm which gained control of GS Industries in 1993, declared bankruptcy for the mill in 2001, and quickly shut down the plant. A few months later, Bain dropped another hammer on the workforce: it was reneging on its promise to cover the lifetime worker benefits. Suddenly, the Cottrells’ future was very much in doubt.
“He thought these things couldn’t be touched. He and the other workers trusted the company’s promises.” – Shirley Cottrell“He thought these things couldn’t be touched,” said Shirley Cottrell in an interview. “He and the other workers trusted the company’s promises.”
These are the personal stories of Cottrell and other GS Industry workers and how their peace of mind and medical safety net were ripped apart. It will portray the suffering on an individual level, and show the damage done when people’s futures are controlled by a company that bases life-changing decisions primarily on financial considerations, regardless of the promises it made and the healthcare repercussions suffered by its workforce.
“They left us high and dry.”John Cottrell had been on the job for 23 years when, in 1993, Mitt Romney’s Bain Capital assumed control of Worldwide Grinding Systems, the 105-year-old Kansas City steel mill where he worked. In the next seven years, before Cottrell retired in poor health in 2000, the mill went through some tough times, due in part to outdated machinery, the cyclical nature of the steel industry, and emerging international competition.
In response, Bain merged Worldwide with a steel mill in South Carolina, and renamed the new company GS Industries (GSI). In 1997, it endured a nasty 10-week worker strike that was motivated by the union’s skepticism that, if there was a shutdown, GSI had not earmarked sufficient reserves to cover its benefit and pension commitments.
Ultimately, a settlement was reached that increased employee pensions and guaranteed that employees would continue to receive health and life insurance, even if the plant closed down.
Which it did. In 2001, just one year after Cottrell retired with guaranteed lifetime benefits, Bain elected to put GSI into bankruptcy and close down the plant, along with its 750 jobs. The private equity firm then announced it would no longer honor its recent promise to cover employee healthcare and pension benefits if the plant closed.
Bain’s decision under Romney is ironic, considering the candidate’s recently released statement where he classified 47% of Americans as freeloaders who refuse to “take personal responsibility.” The sole reason that GSI’s workers did not lose their entire pensions was because the mill's Bain-backed management applied for, and received, a bailout from the U.S. Pension Benefit Guarantee Corp. This federal handout came to $44 million; a sum that covered only the non-supplemental portion of the workers’ “guaranteed” pensions.
The workers did still have a healthcare option, though it was costly. They could continue to get coverage under GSI's existing healthcare plan through COBRA, but the company would now contribute nothing, so the workers were on the hook for 100% of the premiums -- if they could afford them. Not surprisingly, this additional expense proved prohibitive for many workers, especially older or retired ones who were suffering from asbestosis or other serious medical disorders picked up in their longtime service to the plant.
The Cottrells were stunned. “They took away something from the people who worked all those years and left us high and dry,” said John Cottrell’s wife Shirley.
John Cottrell had a stroke in 2006 that severely limits his activities and ability to communicate. Significant medical problems stemming from his asbestos exposure clearly manifested while he was still working at the steel mill, and forced his retirement.
Asbestosis, which John contracted, is a degenerative respiratory condition that often manifests as a pre-cursor to mesothelioma, an aggressive occupational-related cancer that develops in the lining of the lungs and abdominal cavity. There is no known cure for mesothelioma.
“They took away something from the people who worked all those years and left us high and dry.” – Shirley Cottrell“Yes, John had to retire due to his asbestos problem”, said Shirley Cottrell. “His doctor told him in November, 1999, that he could no longer go back to work there because of the dirty air he had to breathe, which caused him to constantly have bronchitis."
“His breathing capacity was very bad and he had to have lots of different treatments from this doctor. It was attributed to his working environment,” she added.
But just a year after John’s retirement, Bain shut down the plant and broke its promise of continuous benefit payments, so the Cottrells were cornered into making a gut-wrenching healthcare decision. Now faced with prohibitively expensive COBRA insurance premiums, the Cottrells felt they had no option but to roll the dice. “I know that because of the expense of this insurance, I dropped my coverage, but we kept John's insurance because of his health issues,” Shirley Cottrell explained.
In Shirley Cottrell’s mind, the injustice of their circumstances is clear. “I do know that he gave 30 years to that plant and is suffering today for some of the mistakes that were made in their daily operations,” she concluded.
“I was one of the lucky ones.”While undoubtedly the physical condition of some workers suffered from losing their healthcare and pension benefits, the mental anguish they experienced was often just as debilitating. Compounding their healthcare uncertainty, anxious workers now also had to deal with the real and present danger of having to drain their retirement funds to pay for unanticipated medical expenses.
To ex-crane operator Ed Mossman the effects were obvious. He worked at the plant almost 30 years, from 1972 until it closed in 2001. Like most others, Mossman was caught flat-footed by the sudden change to his health insurance benefits. “I hadn’t had time to get anything done yet,” he said in an interview. “I was assuming I had health insurance. Why didn’t they tell me when they cut my health insurance?”
Mossman does not have an asbestos-related disease, but he knows plenty of co-workers who do. “A lot of guys my age have it. I was one of the lucky ones,” he said.
Mossman also considers himself lucky for another reason. As ex-military, he had a viable back-up health insurance option, so he wasn’t subject to the exorbitant increase in coverage premiums like most others. “I was fortunate to be a veteran because health benefits were cut right after we shut down,” he said.
Not that Mossman got away unscathed: he says his monthly pension was reduced by 35%, from $1,400 to $900. “I lost over a third of my pension – that’s a lot of money for working people.”
“I hadn’t had time to get anything done yet. I was assuming I had health insurance. Why didn’t they tell me when they cut my health insurance?” - Ed MossmanMossman managed to adjust, but he couldn’t help but notice the tangible distress caused by the unexpected loss in benefits. “It was stressful,” he said. “A lot of people lost their marriages. We all lost all of our health insurance.”
The worst part, said Mossman, was the uncertain future now faced by older, longstanding workers. “We lost any peace of mind,” he said softly, before channeling his resentment toward the mill’s management. “My opinion is the company did not keep its word the last one-and-a-half years on anything.”
The belief that management broke its word seemed to be a common theme among the GSI rank and file. Ed Stanger, a 30-year veteran with the plant, echoed the sentiment. “I believed we were promised health insurance for life,” he said in an interview. “They (Bain) put the screws to so many people – It cost me my life insurance and hospitalization (health insurance), and my pension took a beating.”
Ed Stanger is now 71 and living with his wife in Independence, Missouri. He worked at the Kansas City plant for 30 years, from 1965 to 1995. The Stanger family’s service to the plant is multigenerational: his father worked for Armco (GSI’s previous name) for almost 35 years.
For the Stangers, the unforeseen increase in insurance premiums was potentially devastating. “They (COBRA) wanted $1,300 a month,” he said. “I lost my health insurance. We went without health insurance, the wife and I.”
”Everyone was around it (asbestos) year after year. You do your job and don’t think anything about it. I have COPD. I’m the only one in my family that has it.” - Ed MossmanFortunately, the Stangers made it through and are now covered by Medicare. But Stanger is still dismayed and angry at Bain. “Promised? We always thought we’d have hospitalization (health insurance) for life. It’s a crying shame.”
David Foster goes further in his condemnation. Foster was the Steel Workers regional director in charge of coordinating union bargaining during the period the “guaranteed” deal was negotiated.
In an interview, Foster explained the details of labor deal. “Bain assumed all the liabilities associated with the Kansas City plant, including pension and retiree health insurance under contracts (previously) negotiated; there were shut down pension penalties if closed by owners -- this was a financial incentive not to shut down,” he said.
Because Bain put GSI into bankruptcy, there were no legal ramifications for breaking its promise of continued worker benefits. However, Foster believes the company is still culpable for its actions. “There’s a strong moral obligation,” he said. “They took on the responsibility of management and should stick with it through good times and bad times.”
Foster witnessed firsthand the suffering and anguish this caused, especially for older workers. “The loss was significant and devastating,” he said, especially “for many of the workers between 55 and 65.”
One of those workers was Donnie Box, who worked for the company for 32 years as a skilled craftsman and an assistant chief union steward. “They notified us they were cancelling our health insurance, plus I lost a big chunk of my pension,” he said in an interview.
“It was choreographed. They could make money quicker by shutting the place down.” - Donnie BoxAs an overhead crane operator, Box was exposed to asbestos on a regular basis. “I was up in rafters all the time among asbestos-wrapped pipes,” he explained. Box has respiratory problems, though at this point has not been diagnosed with a specific asbestos-related disease. But his symptoms are troubling: “I have problems because of exposure…had pneumonia four years in a row,” he said.
Adding insult to injury, Box feels that it was greed, pure and simple, that motivated Bain’s actions. “They said they just didn’t have money for it. At the same time, they were paying bonuses to managers”, he remembered. “It was choreographed. They could make money quicker by shutting the place down.”
“It was indefensible management.”Though not unanimous among people associated with the situation, the perception that Bain’s greed and operational mismanagement contributed significantly to, or actually caused, the plant’s downfall was a common theme.
Romney ran Bain until 1999, when he left to run the Salt Lake City Olympics. He was in position to oversee the majority of operational and financial changes the private equity firm made for GS Industries before Bain put it into bankruptcy in 2001. Despite his departure, Romney still maintained a significant financial stake in Bain, and continued to collect dividends from Bain afterwards.
Significant criticism, much of it by people not associated with Bain, Romney, GSI or its workers, has been made against Bain’s management of the steel company, according to prior coverage. Commonly cited operational problems included hiring supervisors with little or no industry experience and introducing numerous cost-cutting measures that backfired, eventually costing the company extra.
However, it was the financial actions taken by management that various outsiders and insiders alike believe were the primarily causes of GSI’s downfall. Many believe this trend started early in Bain’s tenure, when it paid itself hefty dividends soon after acquiring the mill. Ultimately, it was this action that may have burdened the struggling company with a too-heavy debt load and prevented much-needed financial flexibility.
Many couldn’t help but notice that, despite the mill’s spiraling financial situation, Bain profited handsomely from its investment in GSI. According to published reports, for its $8 million original stake, Bain took back $12 million, plus a minimum of $4.5 million for consulting services.
David Foster was a union negotiator and the Steel Workers Union regional director during the period when the “guaranteed” deal was made. Although over a decade has passed since those events, the facts remained clear in Foster’s mind.
In a recent interview, Foster recounted the chain of events, and Bain’s perceived culpability, after it acquired majority control of GSI in 1993. “There was an uptick in the steel industry, but what Bain did, instead of using this period to pay down debt and reinvest, was to load up on debt and pay themselves a dividend,” he said. “It was a situation that put the company on a disaster course and inevitably led to bankruptcy and collapse.”
“There was an uptick in the steel industry, but what Bain did, instead of using this period to pay down debt and reinvest, was to load up on debt and pay themselves a dividend” – David FosterFoster added that Bain “loaded the company up with debt; toward the end of the decade there was an oversupply in the global market and prices started to drop. When the crash came in 2001, GSI had no capacity to weather the business downturn; it was indefensible management…unsustainable.”
But Foster believes that this was Bain’s fallback plan all along. Bain’s goal was to “pull cash out during boom times and be prepared to walk away from it,” he said. “It was a no-lose proposition.”
No-lose for Bain, perhaps; for the workers it was a much different story. “The 750 union employees were big losers,” said Foster. “They got nothing for retiree health insurance. They shut down pensions. The promises Bain had stated were wiped out. This was a financial stripping of the company by Bain Capital. The looting of the company and the destruction did not have to happen.”
So, despite shutting down the plant, Bain got rich (or richer). Not surprisingly, many in GSI’s workforce firmly believe it was at their expense.
Ed Mossman agrees. When asked whether he thought Bain’s mismanagement caused the company’s downfall, he was emphatic. “Absolutely. There’s no doubt in my mind,” he said.
It was Ed Stanger who probably best summed up the feelings of the GSI workforce. “The Bain Corporation is the one that did it. It really ticks me off the way this thing was handled,” he said. “They didn’t care about the little guy -- we were expendable.”
“They left us with the bones…”The upcoming presidential election may hinge on which candidate the public believes can best fix the nation’s struggling economy. Mitt Romney, the Republican candidate, has repeatedly promoted his track record as a successful businessman; that his financial experience makes him the best candidate for this responsibility.
Many disagree with this premise, and point to Bain’s handling of GSI as a prime example of its disproportionately profit-centric approach. Specifically highlighted was Bain’s willingness to fire workers and cut benefits while ensuring it made a sizable profit.
Former union executive David Foster believes that, in general, private equity firms like Bain sometime follow an unethical and unsustainable economic path to cultivate profits. “There’s nothing ennobling about this model and certainly nothing about job creation,” he said. “They took as much out as fast as they could. It was finding a way to dip your hand in cookie jar when nobody was looking and eat your fill.”
He continued: “It certainly says to me about Romney that he doesn’t have the kind of values I want sitting in the White House. GST steel was built up over lifetimes. He pulled money out of the company and walked away from his obligations. Bain looked at the risk and walked away from it.’
“This was a financial stripping of the company by Bain Capital. The looting of the company and the destruction did not have to happen.” - David FosterFoster ended by saying that Bain was “draining cash out of the company. They were about maximum short term gain for investors. I think it was financial hucksterism at its worst.”
Whether hucksterism or not, Bain’s choices have clearly caused distress and disillusionment for many of the GSI workforce and their families. This seems especially true for people like the Cottrells, who like many others, still suffer from asbestosis, or other serious medical problems, that were triggered by their long-term service to the company.
Among the GSI community, perhaps Shirley Cottrell best summed-up the general sentiment toward the company that profited significantly while reneging on its benefits obligations. “No, (Bain) was not a good thing," she said. "They took all the gravy and left us with the bones."
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Rick Feldman contributed writing and editing to this story.
Note* In the interest of journalistic fairness, the author of this story attempted on many occasions to reach Mitt Romney’s presidential campaign for comment. Those attempts to obtain comment were unsuccessful.