Keeping the headquarters in Ireland reinforces the corporate culture says Liam O'Mahony
FOR the headquarters of what is arguably Ireland's most successful company, with nearly $20bn in sales and 100,000 employees worldwide, its Belgard Castle headquarters near Tallaght is fittingly understated for the cement and building materials giant.
The three storey 18th century building is itself an extension, attached to a medieval tower.
At 9am in its reception area a grandfather clock tolls. Post is sorted into stacks by a polite secretary, but the persian-rug covered hardwood floors are otherwise devoid of footfall.
The walls in Belgard Castle are a metre thick, explains Liam O'Mahony as we sit in the CRH boardroom. A happy accident, he explains, that keeps the company's headquarters staff limited to around 50 employees.
"It's great restraint on empire-growing by anyone here, " he smiles. "We haven't the space to put them." There are other benefits. "There's a certain sense of style to it." Roughly half of CRH's business in terms of revenue and employees is based in America . . . and as the man who ran the first materials business CRH acquired in the US back in the 1980s he understands there is romance for Americans telling their friends that their corporate headquarters is a castle in Ireland.
But how big can acquisitions Leviathan CRH, doubling in size every five to seven years, actually get and still be effectively managed from Ireland? Because of the company's radically decentralised structure there is no structural impediment to growth in the near term, O'Mahony says. We ask again about running it from Ireland. "I thought we'd skated over that, " O'Mahony chuckles, the only question he even remotely tries to evade.
He reveals, given that just 6% of the business is now in Ireland, down from 95% when he joined, O'Mahony had proposed moving the company's headquarters to the US or to Holland, but the troops wouldn't hear of it. He thinks keeping the headquarters in Ireland helps to reinforce the company's decentralised culture, which he associates with Irishness.
"Not in the sense of the shamrock and Paddy's Day, " he says, "but in the sense of ease of dealing with people and openness of culture and not taking ourselves too seriously. I think having a headquarters in Ireland perpetuates that."
The company under O'Mahony strives for transparency. The only award on the company mantlepiece in its boardroom is for clear financial reporting. "You're looking to the investing public to support you . . . so you have to be transparent. The concept has been here for a long time, " he says.
It's something that has kept CRH well clear of the corporate governance scandals of this decade. Like most chief executives of large corporates, he read the headlines about Enron, WorldCom and Tyco with horror. His reaction? "I'm not sure it's printable here. The first thing you ask yourself is, could anything like that be going on in our organisation? The answer is absolutely not . . . which we say not from any arrogance or complacency but after an internal audit. That's not to say we're perfect. By God, every organisation has wrinkles someplace, but nothing fundamental."
O'Mahony does say that the fallout from those scandals would give him reservations about listing a company in the US at present.
"We've been quoted in New York since the 80s. Were we not quoted in New York we would not seek a US quote because of SarbanesOxley." As painful as the requirements are, however, it would be too difficult to leave a New York listing.
The US remains the engine of the business and keeping close to customers and suppliers is essential. Recent volatility in the US housing market leaves him unfazed. Less than 10% of CRH profits arise from the US new housing market. The outlook for the US business over the next 12 months is good, he insists. And the US housing market isn't as bad as some think.
"There is a huge amount of speculation on both sides of the Atlantic about the housing cycle, " he explains. Since World War Two the US has been on a boom-bust cycle of housing construction driven by interest rate cycles.
But the boom that lasted from 1992 to 2006 was different, he says. "There is not nearly the degree of overbuild as in previous cycles. It's driven by demographics. There's still moderate unemployment in the US, just 4.5%, even with the hubbub in the markets last week."
A housing institute at Harvard University predicts that the US will still need two million dwelling units per year for the next decade. "In our view we're in a correction but it's not the end of the world." Infrastructure makes up the other 40% of the US business, he reports. Earlier this year the company made its first acquisition in East Asia, a cement plant in Northeastern China. China and India are, over the long term, part of the company's future growth plans. But the company will move cautiously and take a regional approach, he says.
"Up to five years ago we had enough on our plate without looking at emerging markets, " O'Mahony says. "We focused on growing footprint in US, going from $700m in 1994 to $14bn US in 2006."
But a move to China was in some ways inevitable. "Half the cement in the world is produced in China. But half of that is low quality cement produced in vertical shaft kilns . . .
each town has its own little cement plant polluting the atmosphere, making low-grade cement." Because of the flood of low-grade, cheap cement, until recently it was difficult to make a profit in China's cement business. But now government policy has moved the market in a direction that makes it easier.
He hadn't heard of the city of Harbin 18 months ago, but O'Mahony has laid the groundwork for further expansion in China's northeast.
"We came up with the idea to maybe acquire a number of businesses to develop a regional footprint but to do so on a gradual basis."
More acquisitions are on the horizon in Asia, but O'Mahony is cagey about revealing recent travel plans. "I've been out there. Whether I'd say recently I'm not so sure. You might read too much into it."
"We have teams looking at further things in China, India . . . long slow burns . . . this is not the start of spending billions of euros. We don't feel under any pressue to spend a billion euro overnight. We'll spread it out and we'll move when we're more comfortable."
Cement is an energy-intensive business, and with climate change a concern increasingly front and centre O'Mahony is up front about what he sees as an "evolving" European system for capping and trading carbon credits.
"Europe needs to be careful because it is not an island. A number of European cement companies have been making investments in Africa, which are not part of Kyoto." Europe needs to be careful as it needs to make sure it doesn't wind up importing cement produced in dirtier offshore environments and then imported - creating more CO2. "I'm not objecting to the system . . . it needs a thoughtful approach. We support it in a thoughtful way."
O'Mahony has announced his retirement will be some time in 2008, and says that his successor will be named "some months" prior to his departure, in a process led by board chairman designate Kieran McGowan. But he believes that he has created a culture that has as many potential CEOs as new acquisition targets, and names all of them to prevent any one being singled out as a potential favourite.
"Long-winded answer, " he shrugs. But it's the one thing he sees as his main remaining task before departing. "On my watch, making sure all these people who have come through are bedded down and up and running. So it's a seamless transition."
CV LIAM O'MAHONY
Age: 61
Education: De La Salle in Waterford; engineering and MBA from University College Cork, law degree from Trinity College Dublin.
Family: Married with two sons, who went to high school in New York State. One lives in the US.
Career: 2000-present, group chief executive Joined CRH in 1971, rising through senior management positions including US chief operating officer. Made a CRH board member in 1992, appointed Oldcastle CEO in 1994.
Member: Irish Management Institute Council, Harvard Business School European Advisory Board, Board of SmurfitKappa plc
Fun fact: Once threw a Blackberry out the window after confiscating it from a CRH executive using it during a meeting.
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