Industries Insurance

A tradition of triumvirates

Three-president arrangement continues a power-sharing trend at Markel Corp.

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Print this page by Lee Graves and Robert Powell

Can a company run smoothly with three presidents?

Thomas S. Gayner points to history in explaining why the arrangement is a good fit for specialty insurance giant Markel Corp.  Like ancient Rome, he says, Markel has a tradition of triumvirates, a system in which leadership is shared by three people.

“As an investor, if I saw a company name three presidents, I’d say that will never work,” says Gayner, the company’s chief investment officer since 2001 and one of its presidents. “That being said, we’ve had a triumvirate-type structure at Markel for 40 years.”

The triumvirate system worked in Rome, he adds, because “there would be this melding of roles where you would evolve from one triumvirate to the next, and I think that’s a pretty good [analogy] for what’s been going on here,” with one group of leaders preparing for the succession of another.

Evolution seems to be a defining characteristic of recent moves at Richmond-based Markel — a company with more than $2 billion in operating revenue last year and more than 2,000 employees worldwide. And the changes are not limited to executive positions. Markel’s wholesale domestic insurance operation has undergone a sweeping reorganization, and its international business is growing, with new offices being eyed in Barcelona, Beijing and Southeast Asia.

Despite unfavorable market conditions and a rough beginning to the year — with underwriting losses from the Chilean earthquake and the Deepwater Horizon oil rig explosion — company officials note that its book value per share, a key industry benchmark,  has continued to increase. Plus they believe acquisition of a workers’ compensation insurance company promises access to new products and new customers.

“I think ‘evolution’ is exactly what’s going on at Markel,” says F. Michael Crowley. He’s the former head of Markel Specialty Insurance who, along with Richard R. “Richie” Whitt III, the former Markel CFO, was named president and co-chief operating officer in May.

Markel has helped to establish the Richmond area as a hub for insurers specializing in hard-to-place accounts. In addition to Markel, the area is home to Alterra U.S., Colony Insurance Co., James River Insurance Co., Kinsale Insurance Co.  and Verus Underwriting Managers LLC. (Kinsale is a portfolio company of Richmond-based Virginia Capital Partners, as is Virginia Business magazine.) A number of executives at the other companies worked at Markel for part of their careers.

While Markel has a history of multiple people sharing top positions, the company actually had just one president and chief operating officer until recently. Paul Springman, a veteran of 25 years with the company, took a leave of absence last October, then resigned in January.

Springman declined to comment on his departure, but he and Markel CEO Alan Kirshner say the split was amicable. “I have nothing but the most positive, wonderful things to say about Markel,” Springman says.

The new three-president structure continues a tradition begun decades ago by two sets of twin brothers — Lewis, Irvin, Stanley and Milton — the sons of company founder Sam Markel.  They succeeded him when he died in 1954 and helped build what was largely a domestic truck and bus insurance firm into an international business with specialized niches. 

The foursome became a triumvirate in the early 1960s with the death of Irvin Markel. That group was followed by a third generation of relatives who moved into executive roles in the late 1970s as Markel grew and eventually became a publicly traded company in 1986.  Kirshner, who joined the company 50 years ago and was once married to one of the Markel clan, is chairman and CEO, while cousins Steven Markel (Stanley’s son) and Anthony Markel (Milton’s son) are vice chairmen.

While all three occupy the company’s Office of the Chairman, they have carved out specific responsibilities over the years: Steven Markel managed investments and the balance sheet; Anthony Markel took over underwriting; and Kirshner became a “day-to-day marketer” and definer of the corporate culture.  He also has been “the highest paid umpire in the United States” arbitrating any disagreement between the Markel cousins, he says with a chuckle.

“In any particular issue that came up, there was somebody who had the final responsibility,” Gayner says. “And it was clear between the three of them who it was.”

Given their ages — Kirshner is 75, and the Markels are in their 60s —the three executives had their eyes on the future in naming the three presidents — all in their 40s or 50s. “We are the last of the family,” Kirshner says.
Markel’s new management structure apparently was no surprise to employees or analysts who follow the company. Still, co-president and co-CEO arrangements are rare occurrences, says Steven Markham, a management professor who holds the Digges Chair in Entrepreneurship at the Pamplin College of Business at Virginia Tech.

The effectiveness of any “dual-command” structure depends on the executives’ ability to work together and have clearly defined roles, he says. “Without doubt, there have been some horror stories, but there also have been success stories.” For example, the German software development and consulting company SAP AG appointed co-CEOs earlier this year “and the next thing you know they’re going gangbusters,” Markham says.

Markel officials emphasize that collaboration is part of the company culture. “It takes checking the E-G-O at the door,” says Kirshner. “It’s a mutual respect you have to have for each other, and you have to work at it.”
The presidents’ roles are defined not only on paper but also through long-term relationships.  Gayner and Whitt have worked at Markel since the early 1990s. Crowley was president of Richmond-based Hilb Rogal and Hamilton Co. (now Willis HRH North America) but was well known at Markel before officially joining the company in February 2009.

Under the three-president system, Gayner remains chief investment officer and is president of Markel Ventures Inc., which invests in privately owned companies.  Whitt oversees the international operation, administrative matters and finances, while Crowley heads the wholesale and specialty insurance operations, its product line group and human resources.  “We’re comfortable working with each other,” says Whitt of his relationship with co-chief operating officer Crowley. “If you ask one of us a question, you’ll get the same answer that you would if you asked the other.” 

Precisely who would move up if one of the three top executives retires “has yet to be determined,” Whitt says. That kind of uncertainty would cause “angst” at many companies, he acknowledges, but not at Markel. “We don’t spend time worrying about those things,” he says. Kirshner meanwhile says he plans to continue working several more years.

The leadership announcement came on the heels of the transition to One Markel, a system of five regions around the country. Specialty and niche products have been a company hallmark, but the insurance companies acquired by Markel over the past 20 years largely had operated independently, creating redundancy, overlap and inconsistent availability of products.

A $190 million high-tech system named Atlas is still being phased in, but One Markel has been functional for more than a year. Kirshner acknowledges that employee transfers and other changes made the transition disruptive. This year the annualized turnover rate stands at about 6 percent, he says; normally, it’s about 5 percent.

Some insurance agents also were initially skeptical, says John Latham, head of Markel’s wholesale division. But the current setup, where the regional offices are connected so that each offers the full portfolio of Markel’s wholesale products, has met with positive response from agents and clients alike, he says. “We’re getting really good feedback now. They like what we’ve done.”

Some company observers, however, are reserving judgment on the change. Matthew Rohrmann, vice president of equity research at Keefe Bruyette & Woods in New York, says while One Markel makes sense as a long-term move, “I’ve heard mixed reviews from a lot of people” on its effectiveness so far.

Markel faces fierce competition in pricing, particularly in the volatile excess and surplus lines market, which represent about $1 billion of its business. And the going has been bumpy elsewhere. The earthquake and oil rig disaster totaled $33 million in underwriting losses this year. But analysts note that the losses were well within Markel’s risk tolerance. The company reported second-quarter earnings of $2.12 per share, down from $3.34 per share in the same period last year. Six-month earnings per share were $6.46, up from $5 in 2009.  As a result of the earnings report, some analysts have lowered their earnings-per-share estimates for the rest of the year and 2011.

On the plus side of the equation is a recent acquisition that has Markel officials particularly excited. Aspen Holdings Inc. of Nebraska is a fast-paced, highly automated workers’ compensation insurer that operates in 31 states and sells about $300 million annually in premiums. The deal, which will cost more than $135 million, is scheduled to close in October. In addition to positioning Markel in the workers’ compensation field, officials expect Aspen to open doors for other company products.
Building Markel’s business and sustaining the corporate culture are common goals for Gayner, Crowley and Whitt, and they are confident they can make their triumvirate work despite their lack of family ties. But Markham says that history has a lesson for other companies trying this structure. Shared leadership in ancient Rome worked only as long as the leaders involved were responsive to the Roman Senate. In corporate terms, that would be a strong chairman or board of directors, he says. “You’ve got to have someone powerful enough that if the co-presidents or co-CEOs get into loggerheads, it doesn’t kill the system.” In other words, having a highly paid umpire isn’t a bad idea. 

Markel’s investment strategy looks long term


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