McGraw: Master stroke

New York, June 27: When Harold Whittlesey McGraw III joined McGraw-Hill in 1980, there were plenty of sceptics ? despite the fact that his name was on the building.

Even after a decade at McGraw-Hill, the company his great-grandfather founded and started to build into an empire, many thought McGraw, who is known as Terry, was yet another heir who had lucked into a job he could not handle. Some went so far as to call him “our Dan Quayle”.

Not exactly.

In the 12 years since McGraw took over as president and chief operating officer of the McGraw-Hill Cos, the parent of Standard & Poor’s, BusinessWeek magazine, trade publications and a leading educational publishing business, the firm’s stock has risen from $8.20 a share on August 2, 1993, to $44 a share at Friday’s close ? a 437 per cent increase.

That return beats both the Dow Jones and S&P indices, other educational publishers like Pearson and Reed Elsevier, as well as most newspaper publishers and an array of broader media conglomerates, including Time Warner, the Walt Disney Co, Viacom and the News Corp. In that broad group, there are a number of CEOs who have generated a lot more headlines than McGraw has. Only Moody’s, a competitor of Standard & Poor’s in the debt-rating market, has outperformed McGraw-Hill, with shares rising 266 per cent since it went public in June 1998. In that period, McGraw-Hill shares rose 114 per cent.

So how much of McGraw-Hill’s good fortune is due to its prime assets and how much to McGraw’s leadership?

McGraw-Hill, which posted 2004 net profit of $755.8 million on revenue of $5.3 billion, has scored big on its ownership of S&P, the debt-rating company that has cashed in on the explosion in corporate debt offerings and the structured-finance markets. Today S&P accounts for 65 per cent of the firm’s operating profits.

But even former sceptics give McGraw, who has been the company’s CEO since 1998 and its chairman since 2000, credit for streamlining McGraw-Hill from an agglomeration of 15 business units into three core businesses that have capitalised on major trends in the US and abroad. S&P has benefited from the growth of capital markets here and abroad, and the educational publishing unit has profited from state governments’ focus on education.