Early in his career, J. Patrick Gallagher Jr. felt guilty after winning a brand new car from his employer. Why? His employer was his family's insurance brokerage firm.
The shiny new Oldsmobile was a prize brokerage insurance firm Arthur J. Gallagher gave top salespeople decades ago. But rather than enjoying the car, Gallagher, who joined the company 50 years ago, was self conscious, he told Investor's Business Daily.
Wasn't he too young to get so lavish a gift for a new employee, he wondered? His grandfather, the company's founder and namesake, noticed Pat's discomfort. When Patrick explained, grandpa gave him advice that's guided him since: "Don't be embarrassed by success."
Don't Be Embarrassed By Success
Gallagher, now 70, took his elder's wisdom to heart. He enjoyed an almost unbroken record of achievement since then — enriching investors along the way. Celebrating success also helped him silence grumblings of nepotism that plagued him early in his career.
Shares of Arthur J. Gallagher are up nearly 2,400% since Gallagher took over as CEO in 1995. That blows away the S&P 500's 775% rise in that time. Part of Gallagher's success, he says, is that insurance is in his blood. He started going into the office summers while still an eighth grader. "I liked going down with my dad. I thought that was cool," he said.
He had two uncles in the business. "My grandpa was still involved slightly, and had a big office there. The people were nice to me, and I liked the work," he said. The elder Gallagher founded the Rolling Meadows, Ill.-based insurance broker in 1927. Most of Gallagher's jobs at first were mundane. "I got a chance to run around the (Chicago) Loop and deliver policies and pick up policy forms. It was really a positive experience," he said.
Gallagher treated the job seriously, though. "I put on a suit and tie in the morning, and went on the train with my dad. I liked going on the train with my dad. My uncles were glad to see me. And I got paid a little money. I never made money before. That was awesome," he said.
Stand Up To Doubts
In 1972, Gallagher interned at the company. And following his graduation from Cornell two years later, he joined the firm full time. He quickly encountered some sharp elbows from peers.
"Some of the people who were more senior than I (wondered), 'did you really get that account on your own? Or did daddy feed it to you?' It was difficult coming in as a young buck," he said.
Gallagher worked through the mistrust. "No, it wasn't easy. It was a lot of hard work. I took it very seriously, I wanted desperately to succeed," he said. "I was open to coaching. You know, the nice thing about sales is that you either put the numbers up or you don't. And I turned out to be pretty good at it."
The company's top managers soon recognized Gallagher's leadership potential. "They gave me a couple of people to help me run a sales unit, and that sales unit became one of the better sales units," he said.
Use Opportunities To Show Your Worth
The company then gave Gallagher a branch to run. It was his shot to prove himself. "A branch that became one of our better branches. And it became easier and easier to be a Gallagher," he said. "But at the start it clearly was not necessarily the easiest thing in the world. I knew that and frankly I just outworked everybody."
Gallagher rose rapidly through the ranks. First he was vice president of operations in 1986. Then president and COO in 1990. And finally CEO in 1995, replacing his uncle Bob.
The company was reasonably well established when he took over. Arthur J. Gallagher was a leader among insurance brokerage firms at the time. The firm's ace was encouraging corporate clients to reduce premiums by skipping then standard no-deductible coverage.
"It was one of the things that differentiated us," Gallagher said. "It was a new approach in the late '60s and early '70s. My dad and uncles did that and I benefited from them being groundbreakers."
Take Your Shot Further
Gallagher could have just maintained the status quo. It was working. But he thought he could grow the business further.
Under his leadership, the company continues to expand, both domestically and internationally. Sales for the year ending 2021 jumped almost 18% from $6.78 billion a year earlier to more than $8 billion. Analysts estimate that when the books close on 2022, total revenue will reach $8.5 billion.
Gallagher "led one of the most successful expansions ever of an insurance brokerage, helping as a producer and later as an executive grow a company from a largely Midwestern middle-market broker into a multinational risk management professional services organization," Business Insurance magazine noted when it honored him with its Lifetime Achievement award.
Navigate Slow Periods
Gallagher pulled the company through a tough patch starting in the late 1980s and early 1990s. Up until 2001, the investment community turned its back on the insurance brokerage industry. "We went public in 1984. With the cost of insurance becoming cheaper and cheaper (shortly thereafter), it became difficult to grow the value of the company," he said.
Many of the top companies in the industry threw in the towel. But Gallagher saw "opportunities that the industry presented. Building the platform we have today, he says, "is clearly my greatest achievement."
Dino E. Robusto, chairman and CEO of CNA Financial, agrees. Gallagher "loves this industry," Robusto told IBD. "He believes it's a noble profession. He understands what it does for the global economy, what it does for customers, and he looks at the industry, at the profession, as much more than just the way to make money." Gallagher's deep knowledge of the industry helped him move forward as others backed out, Robusto said.
"We were committed to growing our own," Gallagher said. The company always earmarks money for its internship program — the one Gallagher joined in his college days — "and we continued to feed the enterprise with good young people."
"He's a transformational leader," Robusto said. "If you think about going from where they were, a good local, regional brokerage, then going national, and then a huge global broker, you get the gist of his accomplishments."
The secret? "He recognized that you have to keep evolving. He kept evolving his management team, and he kept evolving his business model, and that is something that is quite unique," Robusto said.
Keep Your Bench Full With Talent
Gallagher also bought smaller insurance brokerages firms to keep growing while the industry retrenched. "It's very simple ... It's not that we had to go out and hunt for good people in the business. Our business is loaded with great people. We try to convince them to join us," he said.
His criteria for merger candidates is simple. First is profitability. "If you run a nice brokerage in a local community and you make money, that's great, If you don't make money for your family you won't make money for our shareholders," he said.
Next is integrity. Lastly is culture. "If you have those three things, we can build something faster than either one of us could alone," he said.
"I'll never forget that my father once said to me, 'Your integrity isn't about what you're doing while people are watching. It's what you're doing when nobody's watching,' " Gallagher said.
Gallagher's Keys
- CEO of insurance broker Arthur J. Gallagher since 1995, taking the company's revenue from roughly $200 million to about $9 billion today.
- Overcame: Industry wide doubts and retrenchment in the 1990s.
- "My grandfather told me, 'Plan your work and work your plan.' If you don't know what you're trying to do, you have no idea if you're getting there."
