Harold Messmer, Robert Half International

The Contrarian

Back in the 1990s, consolidation was all the rage in the staffing industry. Except at Robert Half International. Investment banks were knocking at Messmer's door hawking dozens of potential acquisition targets. When the CEO, now 56, refused to bite, Wall Street analysts took him to task. "They said I didn't understand acquisitions," Messmer recalls. Never mind that before joining the company in 1987, Messmer had been a mergers-and-acquisitions attorney for 11 years.

Messmer resisted out of a firm belief in providing a strong return on invested capital. He was sure that building his business internally in a reasonable time frame would generate a much higher return than he could get by buying up other companies. And he was right. Robert Half has flourished over the past five years. Since 1997, revenue has grown 88.2%, to $2.45 billion in 2001, more than twice the rate of the industry overall. And in that time, earnings have jumped 29%, to $121.1 million. But the company hasn't been immune to the recent troubles in the labor market: Earnings over the past 12 months dropped 59% from the year before.

Messmer has steadily moved the company beyond its original specialty of finding jobs for accountants and financial managers. Today, Robert Half places everyone from secretaries to lawyers, all businesses that have been developed in-house. "I do think some firms make acquisitions to keep the revenues and earnings machine going. I've never approved of that," he says. "You have to be willing to resist."

Messmer doesn't find that too hard. Although Robert Half is based in Menlo Park, Calif., in the heart of jeans-and-T-shirt Silicon Valley, he arrives at work in a suit, tie, and starched shirt every day and often keeps his jacket on in the office. Tall and impeccably groomed, as analysts and directors note without prompting, Messmer grew accustomed to formality as a child growing up in the Deep South, where no one went to church dressed any other way. At Robert Half, employees and even directors are expected to match his decorum.

In an era of catering to Wall Street, Messmer rarely seems to have made decisions that were calculated to please analysts. In 1999, revenue growth slowed significantly because of the tight labor market. Rather than rein in costs, however, Messmer decided to boost his technology spending even if it temporarily hurt earnings. He figured that the more information that was available electronically to employees and clients, the more efficiently they could work over the long haul.

Wall Street promptly pummeled the company's stock, but revenue and earnings growth picked up again in 2000 largely because of those infrastructure improvements, analysts say. "Even when profits are under pressure, they still think long term," says Ronald Baron, CEO of Baron Capital Management, one of Robert Half's largest shareholders.

By Nanette Byrnes, with John A. Byrne in NewYork, Cliff Edwards and Louise Lee in San Mateo, Calif., Stanley Holmes in Seattle, and Joann Muller in Milwaukee

Before it's here, it's on the Bloomberg Terminal.