The Fall of a Great Company
The great fall began when the operators of McGraw-Hill
forgot who they were, how they got there, and the creed of people who
laid the foundation stones of the company. They placed a second
foundation atop a sound one and proceeded, like the rest of corporate
America, to overburden their structure with shoddy, unnecessary
extensions to the core publishing company and attracted not only
undesirable and greedy corporate managers but also authors without
proven potential, chosen solely for their style and physical
appearance. The corporate officers, since the retirement of the “old
man” Harold W. McGraw Jr., weighted their ship's bow too heavy
according to the recommendations of the slick advisors, unscrupulous
editors, and intermediate authors that thirty years ago would never
have made it into print. The company, with its newfound drive to be
number one, took on excessive baggage that was entirely unrelated to
publishing, let deteriorate branches that were relevant, and
corrupted and tainted the McGraw-Hill name with scandals and payoffs. |
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The King is Dead, Long Live the King
Harold
W. McGraw Jr., who as leader of McGraw-Hill,
his family’s publishing business, helped build his company into a
billion dollar enterprise in the 1970s and ’80s, died at his home in Darien, Conn. He was 92 . His son, Harold W. McGraw
III, who is now chief executive of the company, announced his
father’s death, attributing it to natural causes. Mr. McGraw’s
leadership at McGraw-Hill was far from a simple matter of inheriting
and minding the family store; he played a significant role in it's
growth and survival as an independent and diversified company in the
last half of the 20th century, withstanding a bitter takeover attempt
by American Express. His retirement as McGraw-Hill chairman in
1988, at age 70, the mandatory retirement age he had imposed, set the
stage for the company's demise. He had the title of Chairman
Emeritus, a post that came with an office at McGraw-Hill’s
headquarters that allowed him to stay abreast of company activities,
but the moral character and definite direction was left to others of
lesser character.
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McGraw-Hill
began chasing that rouge pirate ship,
Pearson, and partook in corporate games played by so many companies
not unlike itself in the roaring 90's and 2000's. The plunge is
coming, or better yet has already begun but with a temporary
reprieve, also known as a “dead cat bounce,” a tick upward during
a collapse that looks like a flash recovery before the fools realize
a dead cat, bouncing or not, is dead. A look at the ten year stock
price chart unveils the remarkable plunge from an all-time high of
just over $70 per share in May of 2007 to under $17 per share in
January of 2009. Such highs took McGraw-Hill decades to reach. The
reprieve from the collapse, like for some other companies, was the
massive cash infusion and “feel good” atmosphere pumped into the
economy by the Federal Government which is now, once again, coming to
a close. The inevitable final plunge is just beginning.
I remember reviewing the financial reports of of the
company beginning in 2006 and I realized they already knew the
company was en-route for turbulent seas. Lay-offs in the college
text division had already begun and would increase in the following
two years. BusinessWeek magazine was hemorrhaging money and
Standard & Poor's was caught selling out to the corporate
industry by submitting false evaluations. The following excerpt of
an article tells the story of just how scummy McGraw-Hill's company,
Standard & Poor's, has become: |
Facing Crackdown, Credit Raters Bring on Heavy Hitters
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3:02PM, 8 April 2010
By Ben Protess, Huffington Post
Investigative Fund
Now facing a crackdown for their role in the financial crisis, the
raters worry that Congress will leave them vulnerable to a barrage of
lawsuits that are harder to defend. In response, the raters are
stepping up their game on Capitol Hill. They are breaking their own
spending records as they deploy some of the heaviest hitters in
lobbying and lawyerly persuasion. Financial reform legislation now
making its way through Congress includes provisions that would make
it easier for investors to sue the companies when they award top
marks to bonds that turn out to be toxic. Investors rely on rating
companies to judge the quality and safety of bonds by assigning the
investments a letter grade. During the financial crisis, people lost
billions on highly rated subprime investments. Recent disclosure
reports filed by lobbyists and their clients show that in 2009, the
top rating companies —Standard and Poor’s, Moody’s and Fitch —
collectively spent almost $4 million on lobbying. That’s a record
for the rating industry, and about 56 percent more than in 2008. Of
the big three raters, S&P spent the most last year on lobbying —
about $2.2 million — though that amount includes some lobbying for
other business units of S&P parent company McGraw-Hill.
And S&P is not missing an opportunity to pitch their cause:
Representatives for S&P have had “direct meetings” with most
all 23 senators on the Senate banking committee or their staff
members, Ted Smyth, a McGraw-Hill vice president, told the Huffington
Post Investigative Fund. Smyth wouldn’t say which, if any, senators
have been receptive to S&P’s attempts to kill the increased
liability provision. “We’re hearing from Democrats and
Republicans who don’t want unnecessary lawsuits” for the ratings
companies, he said. S&P’s lobbyists also have taken their case
to the White House, Securities and Exchange Commission, FDIC, Federal
Reserve, the Treasury Department, and even the Government
Accountability Office, the investigative arm of Congress, records
show.
In July 2009, McGraw-Hill hired the Podesta Group and its owner, Tony
Podesta, one of Washington’s most influential lobbyists, to tackle
“liability provisions in credit rating agency reform,” the
group’s lobbying disclosure reports show. Tony’s brother, John
Podesta, was President Clinton’s chief-of-staff and co-chairman of
President Obama’s transition committee. S&P also has hired the
lobbying firm Nappi and Hoppe, which represents an array of financial
interests including the Chamber of Commerce. A principal in the firm,
Douglas Nappi, was chief counsel to the Senate banking committee from
2003 to 2005. For years, the big three credit raters
have faced lawsuits from state attorneys general and investors who
claim to have lost billions by relying on credit ratings. S&P
alone now faces roughly 50 lawsuits. The investors typically accuse
the raters of awarding inflated safety grades to dangerous
investments. But the raters, who argue that ratings are only an
opinion and that investors assume their own risk, remain undefeated
in court. | |
Net Income for McGraw-Hill dropped
from $1,013,559,000 in 2007 to $799,491,000 in 2008 to $730,502,000
in 2009. Company stock buy backs during this period were used to
buffer the fall in stock price and are presently being employed to
inflate that price, which is beneficial for the controlling
executives but detrimental to the corporation when simultaneously the
university text book division is shrinking. With only 16% of company
profit originating from the education publishing division, the
company has a steep fall approaching. The once great publisher is
now selling financial advice and information on the street corner
like the shoe shine boy just prior to the 1929 crash, fudging
analysis in its Standard & Poors financial rating division, then
covering it all up when caught in the act by buying Congress off.
McGraw-Hill never stopped imploding inward when it plummeted to its
<$17 per share price in January of 2009 from the all-time high of
over $70 per share in May of 2007. The plummet was cloaked, like
that of many corporations in the same period – just deceptive shell
games, the whole lot of them.
Reuters recently reported that:
“McGraw-Hill Cos Inc (MHP.N),
a textbook publisher and owner of the Standard & Poor's ratings
service, is dropping out of the auction for Interactive Data Corp
(IDC.N).
Interactive Data, which sells financial information and analytical
tools to banks and financial institutions, has been through one round
of bids. The deadline for the second round is set for April 28, and a
number of private equity bidders remain in the auction”.
The financial information
devision of McGraw-Hill cannot even remain competitive. Why? The
company is in decline and on the run from legal prosecution for
fraud, for fudging figures in their Standard & Poors company.
The largest, most profitable divisions are now imploding. The irony
of this is that the pirate in my former story, Pearson PLC (PSON.L),
which owns the Financial Times newspaper as well as the world's
largest educational publishing business and Penguin Books, has a 61%
stake in Interactive Data. The old buccaneer was right.
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Fall of a Great Company