Executive Q & A: Michael Garvey

| FROM THE PRINT EDITION |
 
 

YOUTH: My dad was born and raised in Washington state. He was a longshoreman and a staunch union supporter. In the famous 1934 dock strike, the bloodiest strike on the West Coast, he was on the tough-guy squad that threw scabs off the ships. He got beat up. My mother’s father was a coal miner. So both my parents were quite suspicious of businesspeople. Anybody who wore a coat and a tie, except for a doctor or teacher, was suspect. But I’ve wanted to run my own business since I was 10 and I started a lawn mowing business. I liked the idea of not being controlled.

EARLY DAYS: In 1956, I skipped my prom and high school graduation to work in Alaska for the U.S. Smelting, Refining and Mining Co. It was a great adventure. Out of [University of Washington] law school, I started a law firm [Garvey Schubert Barer]. When I couldn’t find clients, I decided to start another business with some friends, buying and selling companies. Our first investment was Ste. Michelle Winery. We had no money so it was a highly leveraged transaction. Our investment in K2 didn’t work out so well. That’s when I started Saltchuk with several others with the idea of investing for the long term. 

SALTCHUK: We employ about 7,000 people. Our [Lake Union] headquarters only has 14 or 15 people because we are really just a gatherer and allocator of capital. We make good decisions about where to invest money and we find really good people to run our businesses. We set high expectations for our managers—we expect them to perform in the top quartile of their industry—but then we let them operate independently.

VALUE ADDED: One way we add value as shareholders is by having a long-term commitment to the business. Everyone knows how disruptive it is when [investors] flip a business. If you ask employees to commit their careers to your company and you as an owner can’t reciprocate by being there in the good times and bad, that’s bad for morale. If we buy a good company, we will reinvest in it. It’s a virtuous cycle.

RETURN: We focus on niches [such as the maritime industry] that we are familiar with and that have steady growth over the long term. We might make less than other companies in good years, but we lose less in bad years. In the late 1990s, our returns were terrible compared to stocks. But [since 2000] we’ve looked like geniuses. People often forget the power of compounding.

 

TRUCKING: My two sons-in-law are now in the business. They’ve gone to school and learned new approaches. They want to put their imprimatur on the company. I had an original shareholder named Bob who used to be in trucking and hated it. When the boys told me they wanted to buy a trucking company [Saltchuk acquired Interstate Distributor Co. in May 2011 for $100 million], I told them: “Bob will be rolling in his grave.” But my sons-in-law are very committed to it. There is some transference of knowledge because we carry cargo on ships, barges, airplanes and now on trucks. We’re becoming more of a transportation company from one focused on the maritime business, a business that I love.

CORPORATE CULTURE: When you buy a company that has strong positive values that have evolved over time, usually because of the family that has run it, you want to preserve those values and honor them. If you like what they are doing, it’s crazy to change it. Sometimes these values can inhibit changes so there is a tension there, but by and large you want to maintain their sense of pride in their history and capabilities. At Foss [Maritime], we keep in touch with the family that originally owned the company and we still name new tugboats after members of the Foss family. 

ETHICS: When we buy a company we have just two rules: Run it profitably and run it ethically. If you are going to involve your family in the business, you’ve got to be able to live the values you were taught around the kitchen table. If you engage in bad behavior, it’s going to come out and you are going to pay a price for it. Most of the time, business sins are sins of omission, not of commission, [as in] we weren’t thinking of an issue and so we let something happen. One of our companies [Sea Star Line] was recently accused of an antitrust violation. It surprised the heck out of us because of everything we had done to preach ethics. Most humans make mistakes, but usually it’s because you don’t think of something. You don’t read the signs that your friend is feeling bad, so you don’t comfort him or her. Then you feel bad that you weren’t able to help. The sin of commission would be to intentionally hurt somebody.

ALASKA: Originally, 100 percent of our revenues were Alaska-related through companies like Totem. When I was a kid, most of the wealthy families in Seattle earned their wealth by having something to do with Alaska, whether it was fishing, canneries or mining. Alaska-related business is still responsible for something like 100,000 jobs in the Puget Sound region. Even if you are not directly involved, you indirectly benefit from it. But because we are so focused on fast-growing areas like technology, we forget that. Many people here see Alaska as a pristine place that shouldn’t be developed in any way. I’m not a scientist, but it’s hard for me to see where oil development in Alaska has had any long-term effect on that environment, and that’s with the 1960s or 1970s technology they used. Today’s technology would have a much smaller footprint.

LOCAL OWNERSHIP OF COMPANIES: It’s absolutely critical. Think of what happened when Boeing moved to Chicago. And many of our banks were lost in the 1970s. They had contributed so much to the community. It’s just not the same today. It’s important to develop companies headquartered here that have a sense of place.

NEXT STAGE: I’m focusing on my children and grandchildren and trying to help them complete the process of transitioning to the next generation. There are obligations and opportunities that go with being a shareholder and family member. It’s not an entitlement. I take my grandchildren around the company and talk about family values. The 16-year-old is supposed to write a paper about the family business and present it to the family.

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