The Exchange

Building a Culture that Resonates

Gallagher CEO J. Patrick Gallagher, Jr. answers the big questions about the company’s rapid expansion, the future of the insurance business and “The Gallagher Way.”

Based in Rolling Meadows, Illinois, Arthur J. Gallagher & Co. (NYSE: AJG) is one of the largest insurance brokers in the world, specializing in risk management and consulting services. The NYSE sat down with Gallagher CEO Pat Gallagher to discuss the company’s development, its place in a transforming business environment, and its future.

J. Patrick Gallagher

CEO, Arthur J. Gallagher & Co.

NYSE: For people who aren’t familiar, can you describe Gallagher’s consulting and insurance brokerage businesses, and how they work together?

Pat Gallagher: When most people think of Gallagher and they assume “oh they’re a big insurance company” but we do not take risk. Our job is to help clients figure out what insurance they should buy or to help them find other ways to deal with the risks they can’t buy insurance for.

NYSE: “The Gallagher Way” is a cornerstone of your company – where did that come from?

PG: In 1984, we were preparing to take the company public, and internally that was causing cultural concerns. We had been a very free-swinging, entrepreneurial company, and we had been very successful. Since 1986, we have probably done more than 500 acquisitions and we now have 27,000 people doing business in over 100 countries. “The Gallagher Way” is that document that articulates 25 values and is meant to resonate with people around the globe. I can go into any of our offices around the world and it is displayed in every location. That’s not by mandate, either. It’s because it’s universal and really does resonate with people.

Part of that is its ethical component. I get invited to lecture college students at various MBA programs, and I always get the question “How can you be the CEO of a New York Stock Exchange-traded company while acting ethically.” And I say the two need to be married - you can’t separate them. If you don’t act ethically, you won’t have the same returns.

The Ethisphere Institute has empirical data that shows that companies who are recognized for ethical behavior outperform the norm, because ethical behavior is good commercial behavior. Compliance is what you need to do, but ethics is about what you should do and that defines the heart of culture. That is the soul of the company.

We can’t always be the biggest player or the fastest person to the gate but if we are consistent, and if everyone understands what our culture is, that means something to people everywhere around the world.

"We aren’t doing acquisitions to synergize our costs - that’s not our game. When we do an acquisition, what we’re really buying are the people and their brains. This is a brains business - we don’t own anything besides computers and desks."

NYSE: In recent months, the company has announced a number of acquisitions. How do you assess those opportunities? What are the factors you consider?

PG: When we come across really good people in our business, we do whatever we can to convince them to join us. And we don’t want them to leave. We aren’t doing acquisitions to synergize our costs - that’s not our game. When we do an acquisition, what we’re really buying are the people and their brains. This is a brains business - we don’t own anything besides computers and desks.

Every single day what we compete on is where we can do the best for our clients based on our intellectual capital. Every time we do an acquisition, we’re bringing in people who are excited about our resources. A successful acquisition is one where the entrepreneurs who built the business stay with us. What we’re really good at is picking people who want to join us, bringing them aboard, and helping them be even more successful.

NYSE: You became CEO in 1995, and it seems like every aspect of global business has transformed between then and now– what’s your take on so much innovation in such a short amount of time?

PG: One of the things I’m really proud of as a company is that we are very good at changing in step with our clients. For example, cyber insurance is a big topic right now. And we believe that cyber insurance should be purchased by everyone, right down to the gas station, because anyone who is taking credit cards should buy the coverage.

Now, a single gas station would be a very small account with small premiums, but we can do it online with four questions, no human touch and you’ll get a real quote and we’ll issue it. That was an electronic innovation that came from a widespread client need.

There are people all across the company thinking of new ways to be creative for our clients in terms of changing the product, working with artificial intelligence, robots, data analytics or thinking through problems the old fashioned way. Part of the innovation is having a federated approach, so that if you’ve got an idea, we can help enable it.

NYSE: What’s next for the company? What are you most excited about for the coming year?

PG: What I tell people that come into our internship program, which brings in more than 400 students a summer, is that we’re introducing them to the greatest business on the planet. If you think about it, no commerce happens without insurance - it’s incredibly important. You’re not going to ship a container, you’re not going to drill a well, if you don’t have insurance. It’s just that simple.

It’s also a big enough business that you don’t need to narrowly care too much about market share. If you put Gallagher and our four largest competitors together, we’d have virtually no market share. We’ve done 500 acquisitions because this is such an unbelievably creative business. If you do a good job in insurance and you are good at it, it’s very lucrative. It’s an important, huge, creative, lucrative business.

Here’s the crux of the matter - at the end of the insurance product, when you think about the storms this past year and the earthquake in Mexico, what we really do is we put people’s lives back together. When your house burns down and you’re standing in the street and you’re wondering what you’re going to do, that’s when insurance steps in.

I’ve heard emotional story after emotional story over the last 40 years of my career, where people will write and say “Thank you. My family firm would not exist had I not bought insurance.” At the end of the day, that’s a noble profession. One that I am proud to be a part of.