Morningstar's Mansueto is quiet, driving force
In USA TODAY's Innovators and Icons series, Morningstar CEO Joe Mansueto talks about why his desk is identical to all of his staff and why he still likes to pinch pennies.
Morningstar founder Joe Mansueto, pictured in June 2011, says entrepreneurs today face more competition - and it's global.(Photo: Tim Boyle, Bloomberg)
Joe Mansueto is not the kind of billionaire you'll find shouting on CNBC's Squawk Box — or shouting at all, for that matter. The quiet, thoughtful CEO has steered Morningstar from a kitchen-table publishing company to household name for investors, offering easy-to-understand analytics on mutual funds, stocks and bonds as well as no-nonsense financial planning advice. USA TODAY's John Waggoner spoke with Mansueto about building an Internet presence, investing and the mutual fund industry.
Q. You started Morningstar on your kitchen table. How have things changed for entrepreneurs today? Is it easier or harder to start a company now?
A. I think it's easier. You need less capital. You can do everything in the cloud. Books can be done at low to no cost. But because it's easier, there's more competition. Entrepreneurship is cool and popular now. When I went to business school, there were one or two classes on entrepreneurship that were not well-attended. Now there's a whole program on entrepreneurship.
I should also add that with more competition, it's also global. You're competing with people from India and China. It's an exciting time.
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Q. Morningstar is famous for the benefits it gives employees, including paid sabbatical. Clearly, this costs the company money. What does it gain the company?
A. At the broadest level, it's a highly competitive market for top talent. I want a desirable place to work to attract and keep them here. So you try to create an environment for people to do their best work and be generous on the benefit side.
With non-traditional benefits like a sabbatical, in theory if you're going to build a longer career here, then you're going to need a longer-than-normal vacation to recharge your batteries and learn new skills. You'd be amazed what people do – take around-the-world trips, work in Africa for a non-profit, take more time with family and newborn children. But I don't want the company to be defined by the sabbatical policy.
Q. Have you taken one?
A. No. Every August I go away for four weeks to a place in Michigan. I work in the mornings, spend the month in shorts and flip-flops. It gives me time to think like an investor and come back in September for some heavy planning.
Q. Morningstar buys other companies from time to time, one example being Ibbotson Associates, a respected Chicago research firm. What are the three most important things to keep in mind when purchasing another company?
A. I don't think you'll get a good company at Graham and Dodd prices. To get a good company at a fair price, it has to fit strategically, and it has to be a quality company. We're all about great products. We have to have real admiration for the company we're acquiring. It has to do something we're not doing, and operate on the same values we do. If they don't, it's not going to work out. It has to have an investor orientation, has to work with high ethics and integrity, and work well in a collaborative environment.
Q. The Internet has radically changed the publishing industry. What advice would you give to others in the industry?
A. Publishing had been successful where there had been natural geographic monopolies. Newspapers and television were used to these protected competitive environments, and their business model was upended. Even though we were print-driven at first, everything was database. We went from print to packaged software, then to the Internet, mobile and the cloud. The key thing at the foundation is that it's hard to replicate financial databases especially with its analytical overlay. We built up a brand that people trust to an unusual degree. It's very hard for competitors to replicate our brand and reputation.
Q. Have investors become less interested in mutual funds than they were when you began?
A. Funds are not growing as rapidly as they were, but at $13 trillion, they are still a very large industry. They're still growing. What we have seen is a disengagement on the part of the individual investor with investing in general. After the 2008-09 downturn in the stock market, there was a downturn across the board in terms of traffic to investment sites. Investors shunned risk, migrated to cash and fixed income, and avoided equity markets. It's not a shunning of mutual funds as an investment vehicle.
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Q. How has the fund industry changed since you started?
A. It's changed dramatically. When I started, it was $300 billion, now it's $13 trillion. Hard to find that many industries that have gone from niche to cottage to mainstream. As it has gotten bigger, it has gotten more specialized and more complex, which has a downside. It can be harder to understand and find the right fund for you. I'm not a fan of the alphabet soup of fund classes.
When I entered in 1984, there were just a couple fund companies. Now the larger ones have 100-200 funds. It was easier for talented managers like Ab Nicholas (of the Nicholas Funds) and Michael Price (of the Mutual Series Funds) to put out a shingle and set up shop. The industry was dominated by personalities when I entered, and now it's dominated by large complexes, and is less personality-driven. The changes have been dramatic, but overall investors are well-served. You get access to great managers, broad exposure to many types of securities, and it's easier to access your funds. Before you had to write away and fill out applications.
Q. You're an avid investor as well as a CEO, and a big fan of Warren Buffett. Are there other investors you admire?
A. Sure, there are many. Here in Chicago, Bill Nygren and Clyde McGregor at Oakmark, John Rogers at Ariel, Chuck McQuaid at Columbia Acorn. I'm also a fan of folks like Don Yachtman (at the Yachtman Funds), David Poppe and Bob Goldfarb at Sequoia, and Charlie Dreifus at the Royce Funds. Wasatch does a nice job with smaller companies, and the folks at Artisan are good at identifying compelling international companies. I enjoy reading the Longleaf Partners annual meeting transcript. They always bear watching.
Q. You've pledged to give the majority of your wealth to philanthropy. What kinds of charities do you think are the most effective?
A. I spent the bulk of my career on building my company, and Morningstar is where the passion is. I'm a total newbie on giving. Teach for America has done a great job of where, in inner cities, one teacher can have a big impact on many lives. But I'm just finding it a totally different world, so I'm trying to understand non-profits. I do it very part time, and I'm a total rookie.