At McGraw-Hill, an heir takes over and company flourishes

NEW YORK — When Harold Whittlesey McGraw III joined McGraw-Hill in 1980, there were plenty of skeptics — 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 executive officer of the McGraw-Hill Cos., the parent of Standard & Poor's, BusinessWeek magazine, trade publications and a leading educational publishing business, the company's stock has risen from $8.20 a share on Aug. 2, 1993, to $44 a share at Friday's close — a 437 percent increase.

That return beats both the Dow Jones and S&P indexes, 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 chief executives 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 percent since it went public in June 1998. In that period, McGraw-Hill shares have jumped 114 percent.

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 percent of the company's operating profits, compared with 45 percent a decade ago.

But even former skeptics give McGraw, who has been the company's chief executive since 1998 and its chairman since 1999, credit for streamlining McGraw-Hill from an agglomeration of 15 business units into three core businesses that have capitalized on major trends in the United States 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 and the "No Child Left Behind" education law of 2001; McGraw-Hill did some lobbying for that law.