By Neil Munshi
©Peter Wynn Thompson
Long-term vision: Joe Mansueto offers staff at Morningstar six weeks of paid sabbatical every four years
A knot of young people, beers in hand, shift and smile in a corner of the atrium ofMorningstar’s Chicago headquarters as a colleague takes a picture. There is hardly a tie in sight, including on the man who is by far the oldest in the room. He pulls out his iPhone and quickly takes a photo of the group, beaming like a proud father.
Joe Mansueto has reason to be proud. The party in Morningstar’s cafeteria is to celebrate the launch of the iPad app for the investor research company he founded in a one-bedroom apartment four miles away in 1984, and which has since made him a billionaire.
“This is what we do every Monday,” he says, joking. Morningstar’s culture, and its offices, suggest start-up rather than financial group. The company does not count sick days or holidays, operating instead on an honour system. Every four years, employees are given a paid six-week sabbatical to do whatever they choose.
Every employee, including Mr Mansueto, sits at an identical workstation next to his or her colleagues in an open-plan arrangement. There are no enclosed offices ringing Morningstar, hogging the daylight for senior employees while juniors labour in a dark interior.
“I just don’t like that environment,” Mr Mansueto, 57, says. “It sets a hierarchy, the haves and the have-nots. It doesn’t suggest teamwork to me.”
Although the company analyses more than 400,000 investment products – using the Morningstar rating that has become its trademark – and advises on and manages $166bn in assets, Wall Street this is not.
“If your agenda is building up yourself, this probably isn’t the best place for you,” he says. “And the people who want to earn the most money in the shortest amount of time and burn bridges . . . maybe that’s an investment banking career.”
Mr Mansueto has himself made a fair amount of money – Forbes estimates his net worth at $2.1bn as of September – and maintains a 53 per cent stake in Morningstar, along with being both chairman and chief executive.
While Morningstar remains his core interest, Mr Mansueto has also pursued what he has called a “passion” for media, as the owner of Inc and Fast Company magazines and as an investor in newspapers including the Chicago Sun-Times.
His joint role at the company he founded has not come without controversy. Last year, for the first time since Morningstar went public eight years ago, a shareholder unsuccessfully proposed appointing an independent chair, arguing that the current arrangement called “into question our board’s ability to act as an effective counterbalance to management”.
In recommending a vote against the proposal – which had always been unlikely to pass given Mr Mansueto’s stake – the board was unapologetic about the fact that, all Midwestern modesty aside, Mr Mansueto remains the driving force behind Morningstar.
“As the founder of the company, Joe has an unparalleled knowledge of all aspects of the business and its history and is therefore uniquely situated to provide valuable insight,” the board said.
The CV
● Born: September 1956
in East Chicago, Indiana
● Education: Bachelor of Arts, Business, and MBA, University of Chicago
● Career: 1980-82
Co-founder of Strategic Media Research
● 1983 Golder, Thoma (venture capital firm)
● 1983-84 Analyst at Harris Associates
● 1984: Founded Morningstar
● Hobbies: running, the arts and soccer coaching
● Family: Married to Rika Yoshida, a former Morningstar analyst, with three children
That confidence in his abilities, mixed with a genial nature and the joint title, calls to mind another Midwestern billionaire, and that is no coincidence. As a young man about to graduate from the University of Chicago with a bachelor’s degree and MBA, Mr Mansueto first heard of Warren Buffett and the value style of investing. He was hooked, and after two years as an analyst at Harris Associates in Chicago putting the philosophy into practice, Mr Mansueto set out to build a company based on the long-term principles advocated by Mr Buffett and others. He decided to build a compendium of mutual funds to bring together data from fund managers he himself had already been seeking.
“The more I looked at the fund industry, the more I could see that these were great vehicles for individual investors to participate in the markets at low cost, [with] professional management,” he says. “But it was very hard to choose – it was very hard to get information then.”
Morningstar is named after the last line in Walden, Henry David Thoreau’s classic 19th-century account of woodland self-reliance: “The sun is but a morning star.”
The company began with Mr Mansueto, a handful of people entering data on PCs, and a dot-matrix printer. The first book covered 400 equity mutual funds. He kept costs low, teaching himself to program so he could do it himself. He bought an advertisement in Barron’s, the financial magazine, and the book sold 600 copies.
When Morningstar launched, the mutual fund industry had $300bn in assets. That has since grown to roughly $13tn. Morningstar has grown in similarly exponential fashion, from $100,000 in sales in 1984 to $658m last year as its audience has grown from individual investors to include financial advisers and institutional investors.
That is not to say that it has all been plain sailing in recent years. Morningstar is defending a lawsuit relating to the five-star rating it gave a mortgage hedge fund that was later found to have committed fraud.
As the company grew from a handful of employees to the nearly 3,500 Morningstar now has across 27 countries, Mr Mansueto says his management style had to evolve.
“I’ve watched a lot of companies grow, and have seen the typical pattern of the entrepreneur who starts a company being shown the door – the venture capitalists take over and I don’t like how that story ended,” he says. “So I knew that I had to change how I operated.”
Instead of being enmeshed in every part of getting the publication out of the door – from programming to writing to distribution – Mr Mansueto says he quickly shifted to hiring bright people, such as his first analyst, Don Phillips, who recently announced his resignation as global head of research to take on a more “big-picture” role. “The idea was to delegate everything I could and really focus on maybe what I do best,” Mr Mansueto says.
Mr Mansueto took a hiatus from his CEO duties from 1996 to 2000 in order to take a broader view of the industry and technology, although he remained chairman. He took the helm once more at the turn of the new millennium as the dotcom bubble burst and the company struggled to take advantage of the internet revolution.
As the company grew at home and abroad, through acquisition and partnerships, Mr Mansueto’s role evolved. A decentralised organisation was integrated in order to create a global culture for Morningstar, with single products, research and sales groups for the entire company.
Morningstar was hit much less severely by the financial crisis than some of its clients, losing about 7 per cent of its sales. But the company did not lay anyone off, Mr Mansueto says. Instead, it cut bonuses and suspended some 401k pension contributions in what he calls “shared sacrifice”.
“We went into the crisis with no debt, a lot of money in the bank and I think that gave us a lot of comfort through the crisis where we saw even firms like GE get into trouble rolling over commercial paper.”
The company’s robustness reflects the long-term philosophy of Mr Buffett and other value investors. “We want to win the marathon, we don’t want to win the next mile necessarily,” Mr Mansueto says. “The short-term game . . . that’s a very hard game to play; you don’t see many people who build wealth on that dimension.”
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