Best Firms, McCarthy: 'It's Not about Iron, It's about People'
In the late 1980s, Michael M. McCarthy, the fourth-generation owner of privately held McCarthy Building Companies, came to the somewhat melancholy conclusion that there would not be a fifth-generation McCarthy running the firm. The easy option: sell out to foreign interests, which would have paid handsomely for a business that today generates $1.98 billion in annual revenues.
But McCarthy didn't think that was fair to the firm's 2,500 full-time employees and trades people. Besides, that just wasn't the way the McCarthys treated their extended family.
Instead, he started selling minor stock offerings to the firm's top managers. Then, in 1996, he sold 35% of the company to an employee stock ownership plan; six years later, he transferred all his stock to the ESOP.
Today, about 60 executives hold 30% of the company, with the other 70% held by its more than 1,000 full-time salaried employees through the ESOP. No employee owns more than 5% of the firm.
For nearly a century and a half, McCarthy has made its mark in the U.S. construction industry, particularly with complex projects like mega-hospitals and BSL-4 labs for the Centers for Disease Control and Prevention. It's a company tradition to ring a bell when it wins a new project. That's happened 512 times in the last five years—for such projects as the St. Alphonsus Regional Medical Center, Boise, Idaho; a biosciences laboratory at the University of California, Berkeley; and The Platinum condo hotel in Las Vegas. Last year, the firm was ranked 16th among contractors in Building Design & Construction's Giants 300 listing.
In the last few years, McCarthy has experienced a huge injection of energy from the sale of the company to its own employees. It is notable that it took less than three years for the ESOP to pay off all the debt incurred with the buyout of McCarthy's stock.
"The notion that 100% of the stock was owned by employees, and 100% of employees are owners, didn't catch on overnight," says Mike Bolen, who started with McCarthy as a carpenter in 1978 and was named CEO in 2000. "We worked very hard to sell the concept to our own people that you're not just an employee, you're a principal of the firm."
That philosophy has engendered a fresh "intrapreneurial" spirit at McCarthy. Individual employees and teams are creating whole new lines of business that are bringing in hundreds of millions of dollars in new revenue:
Ten years ago, McCarthy did barely $2 million a year in industrial buildings. Thanks to the efforts of a team led by Derek Glanvill (soon to be named McCarthy's COO), that business has grown to $250 million a year. A new company, MC Industrial, has been set up to serve the automotive, aerospace, and other manufacturing industries.
Another team has launched the firm into the parking structures sector in California, turning it into a $100 million-a-year business.
McCarthy's Southern California division brought the McCarthy way of doing things to the state's K-12 education market. Result: In the last three years, the firm has put $1 billion under construction in new school work in California.
The Midwest division, based in St. Louis, earned "preferred contractor" status with Premier Inc., a group purchasing alliance of 1,600 hospitals. This makes McCarthy a preapproved provider of construction services for member hospitals. McCarthy's current portfolio of work with Premier member hospitals totals $500 million.
McCarthy management is also tapping into that intrapreneurial gold mine through its "Hedgehogs" initiative, which gives junior and middle-management employees two solid days away from the office to noodle big ideas with the CEO.
One concern that the Hedgehogs brought out to Bolen was a sense of isolation in the junior and middle ranks. They told Bolen they felt frozen in their regional and division offices, that best practices were not being shared, and that people were not being given enough freedom to move within the company based on their personal and career needs.
From that discussion emerged the "One Company Initiative." Current COO Mike Hurst set up an operations group from among the second-ranking managers in each business unit. It is their job to integrate best practices, share lessons learned (both positive and negative), establish company-wide procedures, and smooth the transfer of people from one division or region to another.
"We learned that we needed to act like one company, to be able to move people around based on their needs, to use our resources better and give our people more opportunity," says Bolen. That might not have come about without the Hedgehogs.
McCarthy also reaches out to the many communities it serves. It's a major sponsor of the Associated General Contractors' "Build-Up" program, which fosters interest in construction as a career among school children. Many McCarthyites teach math and science to the students in this program.
The firm is the primary sponsor of ACCESS, a year-long school program at Washington University in St. Louis that exposes minority youth to the possibilities of careers in construction. McCarthy also helped build the nation's first charter school devoted to construction careers in the St. Louis area.
For more than two decades, through its Diversity Initiative, McCarthy has been a leader in implementing compliance programs for small businesses and enterprises headed by minorities, women, and disabled veterans.
Looking ahead, Bolen says McCarthy is nowhere close to tapping its full potential. "We want to leverage prudent growth, not get stupid," he says. "It's not just about revenue, but the bottom line. We think we've figured out how to do that." The formula involves having specialty teams that can tackle large-scale projects like hospitals anywhere in the country, but with two-thirds of the company's work centered in "community-based businesses" throughout the country.
Bolen says he wants McCarthy to be seen as "the local builder" in each of its communities, while maintaining that big-project capability. "I would expect to keep that mix as long as I'm around," he says. "There's not going to be that many $100 million hospitals in Grand Junction or Boise. We need to expand into other community-based companies, without losing the ability to do the bigger, tougher, more complicated jobs that we're known for."
Throughout its 142-year history, says Bolen, McCarthy has had a reputation for getting its priorities right. "Our business is pretty simple," he says. "It's never been about iron, it's about people."
Today, McCarthy's people are invigorated with a new vitality derived from having a stake in ownership. As Bolen put it, "Our employees are saying, 'I don't just work here, I own the place, and it's my responsibility to make it work."