Tuesday, March 25, 2014

Leadership Secrets: Real Leaders Run Toward Problems

Some people how their business experience taught them to help companies grow and also find solutions whenever trouble arises. Whenever a problem is observed always run towards it before the problem gets worse

The case of Damon Romney gives a useful illustration of this important leadership lesson:
Running a business also brings lessons in tackling challenges. I was on the board of a medical diagnostic-laboratory company, Damon, when a competitor announced that it had settled with the government over a charge of fraudulent Medicare billing. I and fellow Damon outside board members joined together and immediately hired an independent law firm to examine Damon’s own practices.
The investigation revealed a need to make some changes, which we did. The company, along with several other clinical-laboratory companies, ended up being fined for billing practices. And a Damon manager who was responsible for the fraud went to jail. The experience taught me that when you see a problem, run toward it or it will only get worse.
The case of Mr. Romney’s taxes
The clarity of the leadership lesson that Mr. Romney learned at Bain Capital makes it all the more baffling why he doesn’t apply it to a problem that he currently faces: his own tax returns. Unlike most prior presidential candidates, Mr. Romney has declined to reveal more than one year of his tax returns (2010), along with an estimate of 2011 and a promise to release the eventual 2011 return when completed.
The combination of Mr. Romney’s wealth, the unusually low rate of taxation paid on the income that he has revealed, the use of foreign bank accounts in Switzerland, Cayman Islands and the Bahamas, and other intriguing hints of esoteric tax practices have—unsurprisingly—launched a nationwide treasure hunt by the country’s tax experts to figure out what could be in those returns that Mr. Romney is reluctant to reveal.
Unsupported allegations that Mr. Romney paid no taxes at all are now being followed by more sophisticated inquiries based on information that is publicly available. Tax experts have for instance begun to examine the Bain Capital documents released Thursday by Gawker.
We can sympathize with Charlyn Lusk, a spokeswoman for Bain Capital, who said: “The unauthorized disclosure of a number of confidential fund financial statements is unfortunate.”  But what were Bain Capital and Mr. Romney expecting? The claim of secrecy only whets the appetite for disclosure.
The story so far

On the very day that Mr. Romney was telling us about the importance of running towards problems, Ryan Grim in the Huffington Post was explaining one of several significant issues that have already emerged:
Private equity managers already get the vast majority of their income from capital gains, which are taxed a lower rate, but also take a fee — typically 2 percent — off the top. That management fee is income. But some private equity managers have claimed to “waive” that fee in exchange for future capital gains.
“In exchange for a minimal amount of economic risk, the tax benefit is enormous: the compensation is transformed from ordinary income (taxed at 35%) into capital gain (taxed at 15%). Because the management fees for a large private equity fund can be ten or twenty million per year, the tax dodge can literally save millions in taxes every year,” writes Victor Fleischer, a tax expert and law professor at the University of Colorado. The problem is that it is not legal.

And Teresa Tritch in the New York Times writes: For Mitt Romney, probably the only thing worse than having to lay bare his financial life is for someone else to lay it all out. Which is, of course, exactly what Gawker did on Thursday, when the gossip Web site published confidential documents from Bain Capital, the private equity firm where Mr. Romney made his multi-millions and from which he still takes a share of the profits. 

And now we know much more about the nature of those profits. Mr. Romney and his partners may have abused the tax system by paying far less in taxes than they should have.

Run towards the problem, not away from it
Now that the hunt has begun, tax experts have begun to sniff blood.  The more adamant that Mr. Romney is that he will not release his returns, the more energetic the search for answers will become.

The political reality is that Mr. Romney’s taxes create a massive distraction for his candidacy and get in the way of serious discussion of the substantive questions facing the country. So why doesn’t Mr. Romney follow his own excellent leadership advice, that he learned so well at Bain Capital, and run towards the problem, not away from it?