The McCarthy Group

An Interview with Michael R. McCarthy, Chairman of The McCarthy Group
By Eric Schelker and Mike Strawhecker, Creighton University MBA students

Michael McCarthy co-founded McCarthy Group in 1986. He is responsible for the management of McCarthy Group and is chairman of the underwriting committee. Mr. McCarthy is a director on the corporate boards of Cabela’s, Election Systems & Software, Peter Kiewit Sons’ and Union Pacific Railroad.

During theinterview, Mr.McCarthycited thegrowth of hisbusiness ethics foundationduring his college years, when he was studying Medieval English and was long-haired and bearded; as he said this was a recipe to be self-employed, which he has been ever since. Mr. McCarthy started a construction company and realized that relying on his reputation as someone who came in on time and on budget were keys to success not only in construction, but in other businesses, too. He grew his business and entered into real estate, and subsequently investments as well, where his company excels today. Mr. McCarthy also mentioned his lack of business education (accounting, finance, marketing, or otherwise) might have been the biggest benefit of his schooling. Instead, he draws business lessons from his childhood on a cattle farm, and the experience of seeing the stock yards, where deals were made on handshakes and a culture of bluntness was normality.

Have you always done business in Omaha? If not, where else have you done business? What moral values typify the Omaha business community?

I’ve done all of my business in Omaha. The thing I like most about this is that I don’t have to do business with someone I don’t like. Omaha seems to be simpler and more straightforward when it comes to business and in life. You deal with good people and there is a Midwestern sensibility about things. I received a letter from a friend in Santa Fe, and he speaks about Midwestern values and makes a little joke about the fact that he re-used an envelope to send the letter, and how that should impress my Midwestern values. I do not believe that Omaha or the Midwest have a franchise on integrity. There are good and bad people everywhere.

Do you infuse ethics in your organization?

There really is no pressure to cut corners, and there is a lot of pressure to do the right thing and tell the truth. We don’t have a formal ethics policy, but I don’t hire unethical people. If someone does something wrong there will be consequences. I’m afraid of people who talk about how ethical they are, that scares me. I think truly ethical people do not see a need to promote how ethical they are, they just live ethically. I don’t believe you can train someone to be ethical.

Describe an ethical situation in business that was hard to handle?

One of my managers faced a challenge recently that involved a round of layoffs for one of our companies. They had completed one round already and told the employees that it was going to be the only round they would have to do. However, after a period of time it was decided that another round was needed. One of the individuals that was going to be laid off was in the hospital with a sick child, and the manager was not sure if he should call the employee at the hospital and let her know. I made the decision that the manager needed to call the hospital and let the employee know. It was the right thing to do because it was the truth, and giving someone a false sense of hope would have been wrong. Warren Buffet has a quote that when he’s looking to hire someone he looks for “integrity, ability, and energy. If they don’t have the first one let’s hope they are dumb and lazy.”

There was another time where the company was defrauded by an individual and there was a choice to prosecute the person at a greater expense than we could ever recover from the lawsuit or let it go. We decided to prosecute anyway and made that individual file for bankruptcy and move out of the state. Our rationale is that even though it costs more than we made back, he will not be able to hurt another business in Omaha.

What are your thoughts on current hot topics in the financial services industry, including executive pay limits, other potential regulations, and stockholder rights?

It’s a dangerous industry because it attracts people who are motivated by making an unlimited amount of money, making them almost incapable of being satisfied. These motivations lead to risky decisions that are not necessarily the right decisions. The problem is, they are risky decisions for the stockholder and not the person making the decision, who is not facing a big downside to this risk. This is the core of many of the issues that have led to the potential regulations you asked about. Self-regulation is best, but if not, the government is the next best regulator. I will say, however, that if the government tries to regulate compensation, they will fail.

I believe that wealth should be created through long-term ownership and not compensation. A personal drive for wealth is a good thing, but there is a hell of a difference between management and manipulation. If a good manager makes money that is what is good about capitalism and America, as long as the person is managing money on the right side of the line. Using people for corporate or personal goals is where the line gets crossed.

Leaving a legacy: What are the biggest ethical challenges that you think face the younger business professionals today? Any tips for dealing with them?

America’s youth will do fine. I’m not concerned with the next generation’s ethics. I’m confident that if we do things right, we will do well. If we do things wrong and we will fail, the system works. There are a lot of mailmen that will leave a better legacy than Bernie Madoff. What’s important is how many people do you love, how many love you. Secondary is how much capital did you create and what did you do with it.

I have great confidence in the world. I believe most people are trying to do the right thing.

It is important to ask good questions. People who add an ethical aspect to decision making will make better decisions.

About the McCarthy Group

For more than two decades, we have helped our partner companies meet and exceed their expectations. Success results from an investment philosophy that focuses on partnering with committed management teams that have proven their ability to understand and stay ahead of the competition.

Today, McCarthy Group manages nearly $500 million in assets. Our patient approach to investing enables us to capitalize opportunities that others ignore— in numerous business categories and areas of the country. For more information, please visit www.McCarthyCapital.com.