WPost’s Kessler Earns 4 Pinocchios

Exclusive: Newspaper “fact-checking” is only valuable if the people doing it have the courage to apply careful journalistic standards to their criticisms, not simply show off an artificial “balance.” The Washington Post’s Glenn Kessler is one “fact-checker” who ignores the facts to shield Mitt Romney, reports Robert Parry.

By Robert Parry

The Washington Post’s political “fact checker” Glenn Kessler is turning the concept of his job inside out by defending Republican Mitt Romney from criticism that is factually accurate and may even be understated.

On Sunday, Kessler gave “four Pinocchios” his worst rating reserved for “whoppers” to the Obama campaign’s characterization of Romney as “a corporate raider” who “shipped jobs to China and Mexico.” Yet, to do so, Kessler relied on his own narrow interpretation of “corporate raider” and then airily dismissed the findings of an investigative article by veteran journalist Tom Hamburger about Romney’s role in job outsourcing, a story that was the Post’s lede just two days earlier.

After studying Securities and Exchange Commission filings, Hamburger reported that Romney’s Bain Capital “owned companies that were pioneers in the practice of shipping work from the United States to overseas call centers and factories making computer components.”

In other words, Romney’s venture capital firm wasn’t just investing in companies that shipped jobs overseas, Bain owned companies that were trailblazing the practice of outsourcing American jobs.

You might think that after Hamburger’s article appeared on Friday, Kessler would have junked his idea for a “fact-checking” column denying that Romney was a job-outsourcer. Instead, Kessler just mentioned Hamburger’s article in passing, downplaying it as “an interesting area for inquiry,” but supposedly irrelevant to the question of whether Romney was involved in outsourcing American jobs.

Kessler, the “fact-checker,” is equally disingenuous regarding the characterization of Romney as a “corporate raider.” He insists on a very narrow definition of the term, saying it should be applied only to someone who engineers a hostile takeover of a company and then breaks it apart for short-term profits.

But “corporate raider” can also apply to a private equity firm that swoops in on a vulnerable company, secures a controlling stake and then bleeds it of resources, what led Texas Gov. Rick Perry to famously describe Romney as a “vulture capitalist.”

Curiously, Kessler’s interpretation of “corporate raider” doesn’t even fit with the definition he cites from a Web site called Investopedia, which defines the term as:

“An investor who buys a large number of shares in a corporation whose assets appear to be undervalued. The large share purchase would give the corporate raider significant voting rights, which could then be used to push changes in the company’s leadership and management. This would increase share value and thus generate a massive return for the raider.”

Everything in that definition would apply to what Romney’s Bain Capital did with the companies it took over. It assessed the potential value of the beleaguered companies, bought substantial amounts of their stock, forced management changes designed to raise share value, and achieved big rewards for Bain.

Missing the Plunder

In his Sunday column, Kessler also appeared ignorant of a front-page New York Times article from Saturday that examined Bain’s record of plundering vulnerable companies after Romney engineered their takeovers.

The Times reported that Bain, under Romney, took majority stakes in more than 40 U.S.-based companies from 1984 to 1999 and “at least seven eventually filed for bankruptcy while Bain remained involved, or shortly afterward. In some instances, hundreds of employees lost their jobs. In most of those cases, however, records and interviews suggest that Bain and its executives still found a way to make money.”

Romney’s private equity firm extracted hefty fees and other payments from the companies even amid layoffs and bankruptcies, the Times reported.

Kessler ignores these findings and is even more dishonest in his defense of Bain on its record for shipping American jobs overseas. Kessler essentially buys the spin that the Romney campaign has put on this issue, that Bain did very little in the way of outsourcing to foreign countries when Romney was in control from 1984 to 1999.

Yet, Kessler’s decision to carry water for Romney was jaw-dropping for anyone who had read the Washington Post just two days earlier when it published Hamburger’s detailed account of how some Bain companies developed, promoted and facilitated outsourcing of American jobs. Bain wasn’t just doing the outsourcing; it was involved in helping other U.S. corporations ship U.S. jobs overseas.

Since Kessler dismissed Hamburger’s article as simply as “an interesting area for inquiry” suggesting that it was some half-baked story it’s worth excerpting some of its high points.

Hamburger reported that “Mitt Romney’s financial company, Bain Capital, invested in a series of firms that specialized in relocating jobs done by American workers to new facilities in low-wage countries like China and India.

“During the nearly 15 years that Romney was actively involved in running Bain, a private equity firm that he founded, it owned companies that were pioneers in the practice of shipping work from the United States to overseas call centers and factories making computer components, according to filings with the Securities and Exchange Commission.

“A Washington Post examination of securities filings shows the extent of Bain’s investment in firms that specialized in helping other companies move or expand operations overseas. While Bain was not the largest player in the outsourcing field, the private equity firm was involved early on, at a time when the departure of jobs from the United States was beginning to accelerate and new companies were emerging as handmaidens to this outflow of employment.

“Bain played several roles in helping these outsourcing companies, such as investing venture capital so they could grow and providing management and strategic business advice as they navigated this rapidly developing field.

“Bain’s foray into outsourcing began in 1993 when the private equity firm took a stake in Corporate Software Inc., or CSI, after helping to finance a $93 million buyout of the firm. CSI, which catered to technology companies like Microsoft, provided a range of services including outsourcing of customer support. Initially, CSI employed U.S. workers to provide these services but by the mid-1990s was setting up call centers outside the country.

“Two years after Bain invested in the firm, CSI merged with another enterprise to form a new company called Stream International Inc. Stream immediately became active in the growing field of overseas calls centers. Bain was initially a minority shareholder in Stream and was active in running the company, providing ‘general executive and management services,’ according to SEC filings.

“By 1997, Stream was running three tech-support call centers in Europe and was part of a call center joint venture in Japan, an SEC filing shows. ‘The Company believes that the trend toward outsourcing technical support occurring in the U.S. is also occurring in international markets,’ the SEC filing said.

“The corporate merger that created Stream also gave birth to another, related business known as Modus Media Inc., which specialized in helping companies outsource their manufacturing. Modus Media grew rapidly. In December 1997, it announced it had contracted with Microsoft to produce software and training products at a center in Australia. Modus Media said it was already serving Microsoft from Asian locations in Singapore, South Korea, Japan and Taiwan and in Europe and the United States.

“Two years later, Modus Media told the SEC it was performing outsource packaging and hardware assembly for IBM, Sun Microsystems, Hewlett-Packard Co. and Dell Computer Corp. The filing disclosed that Modus had operations on four continents, including Asian facilities in Singapore, Taiwan, China and South Korea, and European facilities in Ireland and France, and a center in Australia.

“‘Technology companies, in particular, have increasingly sought to outsource the business processes involved in their supply chains,’ the filing said. ‘. . . We offer a range of services that provide our clients with a one-stop shop for their outsource requirements.’

“According to a news release issued by Modus Media in 1997, its expansion of outsourcing services took place in close consultation with Bain. Terry Leahy, Modus’s chairman and chief executive, was quoted in the release as saying he would be ‘working closely with Bain on strategic expansion.’ At the time, three Bain directors sat on the corporate board of Modus.

“The global expansion that began while Romney was at Bain continued after he left [as CEO in 1999, though remaining a major investor]. In 2000, the firm announced it was opening a new facility in Guadalajara, Mexico, and expanding in China, Malaysia, Taiwan and South Korea.

“In addition to taking an interest in companies that specialized in outsourcing services, Bain also invested in firms that moved or expanded their own operations outside of the United States. One of those was a California bicycle manufacturer called GT Bicycle Inc. that Bain bought in 1993.

“The growing company relied on Asian labor, according to SEC filings. Two years later, with the company continuing to expand, Bain helped take it public. In 1998, when Bain owned 22 percent of GT’s stock and had three members on the board, the bicycle maker was sold to Schwinn, which had also moved much of its manufacturing offshore as part of a wider trend in the bicycle industry of turning to Chinese labor.

“Another Bain investment was electronics manufacturer SMTC Corp. In June 1998, during Romney’s last year at Bain, his private equity firm acquired a Colorado manufacturer that specialized in the assembly of printed circuit boards. Within a year of Bain taking over, SMTC told the SEC it was expanding production in Ireland and Mexico.

“Just as Romney was ending his tenure at Bain, it reached the culmination of negotiations with Hyundai Electronics Industry of South Korea for the $550 million purchase of its U.S. subsidiary, Chippac, which manufactured, tested and packaged computer chips in Asia.

“The deal was announced a month after Romney left Bain. Reports filed with the SEC in late 1999 showed that Chippac had plants in South Korea and China and was responsible for marketing and supplying the company’s Asian-made computer chips. An overwhelming majority of Chippac’s customers were U.S. firms, including Intel, IBM and Lucent Technologies.

“A filing with the SEC revealed the promise that Chippac offered investors. ‘Historically, semiconductor companies primarily manufactured semiconductors in their own facilities,’ the filing said. ‘Today, most major semiconductor manufacturers use independent packaging and test service providers for at least a portion of their . . . needs. We expect this outsourcing trend to continue.’”

Teaching How to Outsource

So, you get the picture? Bain not only invested in companies that outsourced American jobs, it controlled companies that taught other U.S. corporations how to do it. Romney’s Bain was a “pioneer” in this practice that has destroyed much of the American industrial base and has put millions of Americans out of work.

You might think that this detailed account on the Washington Post’s front page on Friday would have stopped Kessler from giving Obama’s campaign “four Pinocchios” on Sunday for making much the same point, but it didn’t.

Instead, Kessler pressed ahead by applying a dubious definition of “corporate raider” and brushing aside Hamburger’s article as “an interesting area for inquiry” but not relevant to understanding Romney’s role in outsourcing jobs.

Kessler then awarded the Obama campaign “four Pinocchios” for telling a “whopper.” He wrote, “The Obama campaign fails to make its case. On just about every level, this ad is misleading, unfair and untrue, from the use of ‘corporate raider’ to its examples of alleged outsourcing. Simply repeating the same debunked claims won’t make them any more correct.”

Yet, an honest assessment of what the Obama campaign claimed about Romney would be that the criticism is accurate and possibly understated. Indeed, you could have said, Romney was “a corporate raider who made lots of money even when the companies failed and jobs were lost. And he made even more money by pioneering the idea of outsourcing American jobs to low-wage countries.”

Kessler may believe that he is safeguarding his “objectivity” when he goes out of his way to ding President Barack Obama for supposed inaccuracies. Certainly, Kessler has done this before.

For instance, last April, Kessler gave Obama two “Pinocchios” for saying in a campaign speech that “the majority of millionaires support” the Buffett Rule, a change in the tax code that would require people earning $1 million or more to pay a rate at least equal to middle-income Americans.

To support Obama’s comment, the White House cited an article in the Wall Street Journal, which, in turn, cited a survey of millionaires undertaken by the Spectrem Group, which does market research on the affluent. Spectrem’s survey found that 68 percent of responding millionaires backed the idea of the Buffett Rule.

Yet, in attacking Obama’s comment, Kessler noted that the Spectrem group surveyed people with $1 million or more in investments. Kessler made a big deal out of the fact that the Buffett Rule would apply to people making more than $1 million a year, not people holding $1 million or more in net worth.

“So Obama, and the Wall Street Journal, are mixing up two different types of millionaires,” Kessler wrote.

But Obama and the Wall Street Journal were not “mixing up” the millionaires. They were simply reporting that a survey of wealthy people, worth more than $1 million, favored the Buffett Rule, which is named after investor Warren Buffett who does make many millions of dollars a year and says it’s unfair to charge him a lower tax rate than his secretary.

In the “two-Pinocchio” criticism of Obama, Kessler went on to make some technical arguments against Spectrem’s methodology and faulted Obama for not including caveats about the survey in his brief reference to it in a speech.

But is this fair “fact-checking,” when a politician accurately cites a survey by a credible research organization? Or is it just another example of mainstream journalists trying to show phony “balance”?

Beyond the question of fairness, the trouble with this style of “journalism” is that it indirectly benefits the politician who tells the most egregious lies. After all if you’re going to get nailed for saying something that’s actually true or just slightly off the mark, you might as well lie through your teeth, another valuable lesson like profits to be made from outsourcing jobs that the ever-observant Romney appears to have discovered. [See Consortiumnews.com’s “Mitt Romney: Professional Liar.”]

As for Kessler, he has discredited the concept of “fact-checking” by playing games with the facts. Whatever his motives for doing so, he deserves at least “four Pinocchios.”

To read more of Robert Parry’s writings, you can now order his last two books, Secrecy & Privilege and Neck Deep, at the discount price of only $16 for both. For details on the special offer, click here.]  

Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & ‘Project Truth’ are also available there.