Romney Link to Union Suppression Ruling
Appeared in the Financial Times on August 16, 2012
By Robin Hardin in Washington
A company controlled by Republican presidential candidate Mitt Romney’s Bain Capital ran an unlawful campaign to suppress a potential union in the 1980s, according to U.S. court and federal agency documents.
Key Airlines, an early investment for the private equity firm founded by a young Mitt Romney and two associates, broke the law by attempting to coerce and then dismiss two pilots who tried to organize a union. Two months after a union vote failed, Bain agreed to sell Key Airlines at a large profit.
“The anti-union activities in this case are not merely unfair labour practices as Key argues, but blatant, grievous, wilful, deliberate and repeated violations of the Railway Labour Act,” Roger Foley, federal judge for the District of Nevada, wrote in 1992, in a case brought by two Key pilots.
The case illustrates an episode in Mr. Romney’s business career and raises questions about how it has prepared him to manage the US economy.
Key Airlines was a small charter carrier with a military contract to ferry personnel to bases in the Nevada desert. The union effort was suppressed under Bain’s ownership in 1985 and 1986 although a court judgment against the company and its management – including Bain Capital founding partner T Coleman Andrews III – did not come until 1992. The judgment was later qualified by a subsequent court ruling in 1994, together with an agreement to settle an appeal.
According to regulatory filings, Mr Romney was a director of Key Airlines and had a personal shareholding in the airline. Neither Mr Romney nor Bain Capital were named or cited in the federal court ruling in Nevada.
Mr Romney’s campaign referred to a statement on its website supporting the right of workers to join – or not join – a union: “To exercise that right freely, workers must have access to all the relevant facts they need to make an informed decision. This means hearing from both the union about the potential benefits and from management about potential costs.”
“Despite unemployment over 8 per cent for more than three years, President Obama continues to put the interests of labour bosses ahead of the interests of Americans looking for work,” added Michele Davis, a spokeswoman for the campaign. “By contrast, Governor Romney has grown companies and created jobs, in the private sector and as Governor of Massachusetts, and will get America working again.”
Key Airlines was initially acquired in 1983 by investors including partners of the Bain & Company management consultancy. When Bain Capital was set up in 1984, according to a prospectus aimed at marketing funds managed by Bain, one of its first investments was a $2m injection into Key.
In the autumn of 1985, 21 pilots at Key planned to form their own union, citing safety concerns. Management said that the campaign was actually motivated by low pay.
According to the court ruling, Key held coercive meetings with pilots; said management would leave and the company lose contracts; and told pilots that salaries, bonuses and benefits could be frozen. Federal labour law forbids an airline “to interfere in any way with the organisation of its employees”.
Two union organizers – Olen Rae Goodwin and Lawrence Schlang, a former naval aviator – were instructed to sign resignation letters, according to a separate report by the National Mediation Board, which oversees union elections in the sector. The report described the company’s excuse for this dismissal as “little more than pretext”. When a union election was finally held only two pilots voted “yes”.
Mr. Schlang confirmed the events but asked the Financial Times to rely on the written court records. He is now 76. Mr Goodwin was reached at his home but declined to comment.
Court and regulatory files and an internal Bain & Company memorandum reviewed by the FT also reveal extensive details about the financing and performance of the deal.
The initial $5m purchase was funded entirely with debt: the Bain & Company partners guaranteed some of the borrowing but put in no capital themselves. Mr Romney personally owned 5 per cent of Bain’s stake. Key Airlines grew during the period of the Bain investment, more than doubling its sales from 1983 to 1986, and creating jobs.
Bain also sold off assets from the operating company. When Key Airlines was sold for $18m in 1986, its total balance sheet amounted to $2m compared with $13m at the time of purchase.