Thursday, July 12, 2012

What quirk?

A story in today's Boston Globe validated reports that Mitt Romney continued to be listed as an owner, officer and director of various Bain companies for three years after Romney and Bain have said that Romney left Bain. In response, a Romney campaign official was quoted in a CNN report as follows:

"Although Governor Romney was not involved with Bain Capital after he left to head the Winter Olympics in 1999, he was still listed on some technical filings. This is nothing more than a quirk in the law. When Governor Romney took over the Olympics, he was not involved in the operations of any Bain Capital entity in any way. He was too busy working to make the Olympic Games among the most successful ever held."
What is this story about? Does it depend on what the meaning of "left" is? In a way, yes, but this controversy is not just about whether Mitt Romney was spending some of his time managing Bain during the years 1999-2002, or whether he was spending all of his time managing the Olympics. Let's take Romney and his friends at Bain at their word and assume for purposes of discussion that Romney was spending all of his time managing the Olympics, and had nothing whatsoever to do with Bain in any way, shape or form.

Would that end the controversy? NO. Because it is not just a quirk in the law that Mitt Romney was reported in numerous SEC filings to be the owner, director and an officer of various Bain entities. Those concepts all carry legal responsibilities.

Being the owner of a corporation might be the least of Romney's problems, because ownership by itself does not necessarily carry liability for the actions of a corporation that you own. In fact, the whole point of creating a corporation is to insulate the owners from responsibility in most cases for the corporation's actions. So let's take another leap of faith and assume that Romney was merely a passive investor in Bain during those years. As an owner, he still profited from Bain's activities, and therefore might still have some moral responsibility for Bain's actions. But legally, he could still claim it is unfair to hold him responsible for the actions of a corporation he did not manage.

Being an officer and director is a whole different matter, however. Officers and directors have fiduciary obligations to the corporations. They also face potential liability to people who deal with the corporation for fraudulent and other wrongful acts by the corporation. They have a legal responsibility to manage the business. Romney does not avoid that legal responsibility by claiming that he delegated management responsibilities to others. In some ways, it is worse for him if he did that, because that would almost prove by itself that he was not living up to his legal responsibility to manage the business. In other words, either Romney is being untruthful in claiming that he was not involved in the management of Bain in any way, or he has admitted to a dereliction of his legal obligations. It must be one or the other.

Romney cannot avoid this dilemma by claiming that these were merely "technical" requirements or "quirks" in the law. According to the way the Romney campaign is trying to paint the story, it simply took Bain some time to get the paperwork right. Romney had already surrendered his management responsibilities in fact. It just took a while for Bain to update its SEC filings to reflect what had already happened. This explanation will not suffice. This is the SEC we are talking about. Whatever you might think of the SEC, it is not a "quirk." It is supposed to serve a real purpose by giving the investing public accurate information about the operations of companies. That means that if Mitt Romney is no longer serving as the officer and director of a company, the company is supposed to file reports identifying the people who are now serving in those capacities. That is the whole point of those SEC filings. Does it take three years to amend those reports? No. Is it difficult? Not particularly. Mitt Romney could have called a shareholders meeting the night he left for Salt Lake City in which he accepted his resignation as an officer and director, and appointed new people to take his place. His lawyers could have documented that transaction the following morning, and accurate information could have been quickly submitted to the SEC. Somebody needs to be identified as holding these positions of responsibility, and it does not take very long at all to complete the necessary paperwork to identify who those people are. If Bain never got around to changing those names in its "technical filings," that means Bain either chose to keep Mitt Romney on public display as the legally responsible officer, regardless of who was actually running the company, or Bain simply could not figure out who was actually running the business for all that time. (or Romney was actually running Bain, which again I am assuming for the sake of argument he was not)

All this means that either the SEC filings that Bain submitted are accurate, which would mean that Mitt Romney (however much time he did or did not spend managing Bain) continued in his legal capacity as an owner, director and officer during the entire period from 1999 through 2002. Or the filings were inaccurate, which would mean that Bain was not complying with its disclosure requirements. Nobody is saying that Bain filed false information with the SEC. Instead the Romney campaign just seems to be suggesting that these filings were some kind of technical, unimportant matter. Or they are trying to distract attention from the real issue by pretending that this is all about how much time Romney spent at one job or the other.

Why does any of this matter? What is it really about? I would submit that it is about assuming responsibility for one's own actions. All Mitt Romney has to do to put this controversy to rest is to say he takes full responsibility for whatever Bain did at least up until 2002, when he formally relinquished control. The interesting question is why Romney is so reluctant to do that. Isn't Mitt Romney supposed to be proud of his record in business, the entire basis for his claim that as president, he would do a better job of improving the economy than President Obama has done? What has Bain done during this period that Mitt Romney is so ashamed of?

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