Evan Bayh's board seats made him millions after Senate

During his final months in the U.S. Senate, Evan Bayh broke ranks with most of his fellow Democrats several times to oppose or reduce the impact of legislative proposals that threatened the bottom lines of private equity firms, banks and oil companies.

But that wouldn’t be Bayh’s last interaction with those industries.

Within weeks of leaving public office, Bayh became a senior adviser to Apollo Global Management, one of the world’s largest private equity firms. Several months later, he landed lucrative corporate board appointments at Fifth Third Bank and Marathon Petroleum.

Now, Bayh is mounting a return bid for the Senate seat he left more than five years ago. His surprise decision to enter the race last month could determine which party controls the Senate next year. It also has brought new scrutiny to his actions in Congress, especially on issues of importance to what would become his employers.

His Republican opponent, U.S. Rep. Todd Young, is already using Bayh’s private sector work as campaign fodder. He and his allies, including a group affiliated with conservative megadonors David and Charles Koch, are highlighting Bayh's votes that benefited companies that began paying him after he left office. One television ad focuses on Bayh's support for the $700 billion bank bailout in 2008, which provided $3.4 billion for Fifth Third. The bank has since paid back the money, plus more than $500 million in dividends and warrant proceeds.

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Bayh declined to be interviewed for this story, but his campaign insists there is no relationship between his legislative votes and his private sector work. Any offers of employment or board directorships came only after he left office, campaign officials said.

“Evan Bayh’s career has been about standing up for Hoosiers, including taking on Wall Street Banks and Big Oil to end too big to fail and close special tax loopholes,” his campaign spokesman, Ben Ray, said in a statement.

Bayh is far from the first lawmaker to transition from politics to private sector work in industries that have interests before Congress. Experts say board appointments, in particular, are common for former high-ranking politicians, allowing them to cash in on their public service. Board directorships are often preferable to lobbying gigs because they pay well — about $250,000 a year on average — and do not require a two-year cooling-off period.

Bayh, for example, has earned at least $3.7 million in cash, stock awards and other compensation from his corporate board work since 2011, according to filings with the U.S. Securities and Exchange Commission.

Bayh also was expected to file a required financial disclosure this week but received an extension to Oct. 9. The disclosure form is expected to shed more light on his private sector work, which also has included three other board directorships and a partnership at Washington, D.C., law firm McGuireWoods.

Serving on boards is "another way they can get benefit from political connections and experience,” said Maxwell Palmer, a political scientist at Boston University who has studied the link between public service and board appointments.

A 2015 study he co-authored found that 47 percent of former senators joined corporate boards — most of them within a year of leaving office.

Still, government watchdogs say Bayh’s lucrative positions with companies that had an interest in legislation during his time in the Senate raise questions about the revolving door on Capitol Hill and make it difficult to determine whether he was working in the best interest of his constituents or potential employers.

Of particular interest are Bayh’s actions on several issues during his final months in office, said Julia Vaughn, policy director for Common Cause Indiana.

“We can’t get inside Senator Bayh’s mind and see what’s motivating him,” she said. “All we can do now is look back at the facts — and it sure does look suspicious.”

Further complicating such an assessment is the fact that legislative work is often just that — complicated. There are layers of amendments and procedural votes, and it's not rare for a legislator to take seemingly different positions as the process unfolds.

Here's a more detailed look at three instances in which some political experts and Bayh political opponents question his actions:

Eliminating oil subsidies

After he announced in February 2010 that he would not seek re-election, the Senate entertained several pieces of legislation that could have had a major impact on his future employers.

One was an amendment proposed by Sen. Bernie Sanders of Vermont that would have eliminated $35 billion in tax deductions and exemptions for oil and gas companies. Marathon and others in the industry lobbied against the measure.

In the past, Bayh had supported measures to reduce the nation’s reliance on fossil fuels. In 2006, for example, he joined other Democrats in signing a letter to President George W. Bush calling on the United States to reduce dependence on petroleum and ensure “major oil companies pay their fair share in taxes and royalties owed to the American public.” He also voted for the 2008 Wall Street bailout, which included a 6 percent cap on the oil and gas tax deduction.

But when the Sanders amendment came up for a vote in June 2010, Bayh and a minority of 20 other Democrats broke ranks and joined Republicans to defeat the measure on a 61-35 vote.

Those who have followed Bayh's three-decade career say it's not unusual for him to defect from the party. In fact, he broke from the party line more than all but one other Democrat in 2009. It's part of a political brand Bayh has carefully cultivated — a fiscally conservative Democrat from a red state who can work across party lines.

"He’s a moderate, a blue dog Democrat," said Andy Downs, a political scientist at Indiana University-Purdue University Fort Wayne. "He doesn’t do the party-line vote every time."

But such flexibility can appear opportunistic, Downs said, when set alongside Bayh's private employment.

"The real issue is what appears to be the change in position that appears to be tied to financial advantage later on," Downs said. "I think that as far as voters here are concerned, the damning evidence is the change in his position on the issue. It just looks like it was motivated by personal circumstances, not new data about the issue."

Bayh's campaign did not provide an explanation of Bayh's opposition to the Sanders amendment but said he has consistently stood up to large oil companies.

Three months after that vote, for example, Bayh cast a procedural vote to advance another, narrower measure that would have eliminated subsidies for the nation's five largest integrated oil companies. It never received an up or down vote because of Republican opposition, but if it had, the interests of smaller oil companies such as Marathon would have been protected.

Less than a year later, in July 2011, Bayh joined Marathon Petroleum’s board of directors.

“Having served many years in elected office, including as the chief executive of a large Midwestern state, Senator Bayh brings a well-rounded perspective to our Board on matters of government regulation, corporate governance, risk management and finance,” the company said in regulatory filings.

A spokeswoman for the company declined to comment on Bayh’s appointment beyond what is in its public disclosures.

Those filings show Bayh has received at least $1.35 million in cash and stock awards since joining the board.

On its website, Marathon continues to oppose the elimination of tax breaks for oil companies, known as Section 199 deductions. “Tax increases could reduce profitability, which in turn could reduce the amount MPC can share with its investors and with the communities where we operate, limiting our ability to grow and maintain jobs,” the website says.

Closing a tax loophole

During Bayh's final year, the Senate also considered a tax hike on the income of private equity executives and other fund managers.

The measure would have partially closed what Democratic leaders considered a loophole on “carried interest,” the portion of an investment manager’s pay earned on the gains in a client’s portfolio. Traditionally, that income has been taxed at the capital gains rate of 15 percent. The new proposal would have treated it more like ordinary income, which has a maximum tax rate of 35 percent.

The change would have resulted in roughly $15 billion in new taxes over 10 years.

Private equity firms fought hard against the measure. Bayh’s future employer, Apollo, was no exception. It spent $1.3 million on lobbying in 2010 through subsidiary Apollo Management L.P.

Bayh had supported a similar unsuccessful effort to close the loophole as part of a larger bill in 2007, but his support for the 2010 legislation was less clear.

After receiving visits from private equity industry lobbyists, Bayh began to express concerns about the impact of the tax increase on the sales of a fund manager’s stake in a company, according to several media reports. His office also arranged for private equity lobbyists to meet with congressional tax analysts and Senate aides to complain about a tax increase on partnership sales, according to the Washington Post.

On June 16, 2010, a procedural vote turned into a referendum on the bill, which also included an extension of unemployment benefits and other jobs-related issues. Bayh and 10 other Democrats bucked party leaders and voted to prevent the measure from moving to a full vote.

A spokesman for Bayh told The Wall Street Journal that he supported the carried interest tax but had concerns about its impact on the sale of investment-management partnerships. Bayh also was upset about the overall cost of the bill and the removal of a low-income housing tax break for Midwest disaster areas, including Indiana, his spokesman told the National Journal.

Bayh later voted to give a similar version of the bill a full vote, but only after additional changes to the carried interest tax. Ultimately, the provision was dropped for lack of support.

Bayh joined Apollo as a senior adviser on Jan. 21, 2011, just weeks after leaving the Senate.

Bayh's compensation at the firm has not been disclosed, but his connection to the company helped him land two board appointments.

In 2011, he joined the board of directors for Evansville-based Berry Plastics. Apollo was one of the company's largest shareholders. Bayh has received $646,152 in cash and stock option awards, according to SEC filings.

In 2013, he joined the board at McGraw-Hill Education two months after Apollo bought the company for $2.4 billion. Bayh left the board last year after the company became profitable, his campaign said. His pay for that work came through Apollo and has not been disclosed.

Eric Kuo, a spokesman for Apollo, declined to comment beyond the company’s 5-year-old news release announcing that Bayh was joining the firm “with specific responsibilities for policy issues.” But he did emphasize that Bayh “is not and never has been a lobbyist for Apollo.”

The Volcker rule

One of the most significant pieces of legislation during Bayh’s lame-duck period was the Dodd-Frank Wall Street Reform Act.

Bayh voted in favor of the consumer protection act, despite objections from financial institutions.

But he also sought exceptions to the so-called Volcker rule — a central provision of the act intended to restrict large banks from making risky investments from their own accounts through proprietary trading.

After expressing some qualms about the rule, Bayh filed an amendment in May 2010 that would have carved out some banking-related activities involving private equity funds. His amendment didn’t go anywhere, but similar language was later incorporated into the final legislation.

Bayh, a member of the Senate banking committee, was among a handful of senators who wanted additional exceptions to the rule, according to former Treasury Secretary Tim Geithner.

In his book, "Stress Test," Geithner described an email from Assistant Treasury Secretary Michael Barr that said the bill's sponsor, Sen. Chris Dodd, “wanted to accommodate Scott Brown, fellow Republican Judd Gregg, and Democrats Mark Warner, Evan Bayh, and John Kerry ‘by carving out trusts, sweep accounts, a broader set of insurance companies & affiliates, feeder funds, hedge funds with seed capital, and most firms in Massachusetts.'"

"The amendment ended up looking like Swiss cheese," Geithner wrote.

Bayh’s campaign said he was a consistent supporter of Dodd-Frank and voted for the overhaul of the financial regulatory system, including the Volcker rule, despite opposition from big banks.

Even after Dodd-Frank passed, financial institutions continued to advocate with regulators for a loose interpretation of the Volcker rule. In fact, a pair of financial service trade groups whose members include Fifth Third cited Bayh’s exchange with Dodd on the Senate floor during the final vote in July 2010 as evidence of legislative intent in a November 2011 letter to financial regulators advocating for a more lenient interpretation of the rule.

By that time, Bayh was on Fifth Third’s board of directors. The bank had reached out to him about joining the board in January 2011, the same month he left the Senate. The appointment became official in June 2011. Bayh has since received $944,937 in cash, stock awards and other compensation.

Larry Magnesen, a spokesman for the bank, said there was no connection between Bayh’s legislative positions and the company’s decision to offer him a spot on its board.

“When we select board members, we are looking for diversity of perspective and background, and we are looking for good geographic representation,” he said. “If you really look at the strength of the background, first as Indiana governor and then as U.S. senator, Mr. Bayh has dealt with a variety of financial issues.”

Campaign fodder

Bayh’s corporate work has already come under attack from his election opponent. The Young campaign has set up a website called BayhIsBought.com and sent out a new release last week highlighting Bayh's connections to McGraw-Hill after the Indiana Department of Education announced it would seek $4 million in damages for delays in the company's administration of the state's trouble-plagued ISTEP student assessment test.

"We've been saying that Washington changed Evan Bayh,” said Trevor Foughty, Young’s campaign manager, “but these unseemly bargains show that maybe this is who he has been all along: a self-serving politician willing to sell his vote to the highest bidder and always on the lookout for his next opportunity.”

Bayh’s campaign spokesman suggested such accusations were baseless and hypocritical.

"Congressman Young has been corrupted by Washington, voting for giveaways to Wall Street and Big Oil and taking campaign cash from out-sourcers like Carrier, even after they laid off 1,400 Hoosier workers,” Ray said. “Only a creature of Washington like Congressman Young could have the nerve to try and cover up his own record by desperately lying about Evan Bayh's."

Bayh has weathered criticism over his private sector work in the past. After leaving the governor's office but before going to Congress, he also joined a handful of corporate boards. They included Indianapolis-based pharmaceutical company Eli Lilly and Co., which received $5.2 million in state economic development incentives under the Bayh administration.

IndyStar Washington Bureau reporter Maureen Groppe contributed to this story.

Call IndyStar reporter Tony Cook at (317) 444-6081. Follow him on Twitter: @indystartony.

Outside spending on the rise in Senate race

 Evan Bayh's board directorships

Marathon Petroleum

Headquarters:  Findlay, Ohio.

Description:  One of the nation’s largest petroleum product refiners, marketers and transporters.

When he joined the board: July 5, 2011.

Compensation since joining: $1.35 million.

Fifth Third Bancorp

Headquarters:  Cincinnati.

Description:  Regional bank with more than 1,200 branches in 11 states, including Indiana.

When he joined the board:  June 21, 2011.

Compensation since joining: $944,937.

RLJ Lodging Trust

Headquarters: Bethesda, Md.

Description: Real estate investment trust that owns 125 hotels in 21 states, including the Residence Inn and Courtyard by Marriott hotels in Downtown Indianapolis.

When he joined the board:  May 2011.

Compensation since joining:  $827,203.

Berry Plastics Group

Headquarters: Evansville.

Description: Manufactures and sells consumer plastic packaging and materials.

When he joined the board:  2011.

Compensation since joining:  $646,152.

McGraw-Hill Education

Headquarters: New York.

Description: Provider and publisher of educational content and software.

When he joined the board:  May 2013; left in October 2015.

Compensation since joining:  Not disclosed.

Sources: Company proxy statements and websites.