Better Experiences by Design Episode #28 — The Discipline Behind The Markel Style of Leadership

Thanks so much. Always fun to see you.

Well, you're looking at one of those luckiest people alive kind of folks. I grew up in a very rural area, 100-acre farm. My father was the first CPA our county ever had, and he had his office in our home. So, frankly, as a kid and had a great relationship with my father, I was able to sit in there. There were only two rooms in the house which were air conditioned. One was my parents' bedroom, the other was my dad's office. So, I spent a lot of time in my dad's office. And heard him talk to his clients, talk on the phone, people coming and going, and by osmosis, I really, I think, got a spectacular business education and a spectacular leadership education in a way that I really got to spend time with my dad that maybe a lot of kids don't get to do. And I can't begin to thank him enough for his time and patience and indulgence as well as all of his clients who might have wondered why some five, six, seven-year-old kid was hanging around and lurking around and listening and absorbing. But that really was the start of it and I think it really, that's the foundation. And all along the way had some very pleasant and wonderful formal education but informal education. Always a great mentor, always somebody to learn from. And I was always curious. I always liked the idea of figuring out how somebody had accomplished something and working backwards from that and trying to draft those lovely roads that were paved for me.

That is indeed how I started and I started out at Coopers and Lybrand which is a predecessor firm for PricewaterhouseCoopers. My father had started with a predecessor firm of Deloitte but after his two-year apprenticeship which is sort of the CPA standard to pass the test and then apprentice before you get your license, he immediately went out and started his own practice and became an entrepreneur. Well, I had sort of a similar plan in mind, but 18 months into my 24 months, somebody at Davenport, Mike Beil, who's been a great friend and mentor to me, and he was my broker, he said something to me about coming to work with him and doing the same sort of thing he did in terms of doing research for the firm as well as having individual clients. So, I said, 'Well, that sounds like fun, but I'm at 18 months, and you know, I got six more months to go before I get to my two-year mark.' And he said, 'Well, we were thinking now.' And I thought another nanosecond and I said, you know, now would be good. So, I joke I made the transition from accounting to investing by saying I was an accountant who was more interested in dollars than numbers. And there's a profound difference between the two.

Well, that's how I got from accounting to investing. And you know what accounting when it really works should do is tell a story. Tell a story. When you're looking at a financial statement, you're not just looking at numbers or journal entries or accounting things. You're looking at some reality. And just like if you were going to go to Spain or Australia or someplace you haven't been, I think it might be reasonable that you would look at a map first and you would look at different kinds of maps depending on what you were going to do. If you were going to visit some cities and get around, you want to know where the railroad station is and the subways and the hotels and all that kind of stuff. If you're hiking, you're going to look at a map of terrain and you're going to try to understand what kind of conditions you might face and what kind of hills and valleys and all that sort of stuff. So, accounting when it's done well is something that you should be able to look at and see the story of what's happening underneath of it. And I guess I'm the person who's more interested in the story and what's going underneath than the particular craftsmanship that goes into how you do that through a pen. I want to be part of the story, not the storytelling in that sense.

Well, among other things and there's just a thousand different things I could go to. My father used to say if you can do a favor for somebody, do it. Just do it. Because life is long and things come around. So my father was fundamentally a very kind man and he spent his life in service of others including to his family but also to his clients and some public service and military service. The whole package, he was as other-oriented a person as you would ever find. And he both role modeled that and would say things explicitly like if you could do a favor for somebody, we'll do it because it'll come back to you. And that sort of thing in financial terms, it compounds. When you do that and when you have the reputation for that, you build up goodwill with people and people assume the best about you because you've demonstrated that time and time and time again. And I joke, you know, there's roughly 8 billion people on planet Earth. And if I can get the other 7,999,999,999 to at least not hate me and maybe even like me a little bit, that seems like pretty powerful math because doing favors for people and just trying to help people, being other-oriented, there's only so much you can do. You're one person times 24 hours a day, that is the total maximum capacity you have. But if you have 8 billion people and they give you half a second a day, that swamps the 24 hours that you have. So in financial terms, frankly, it's leverage. It's leverage and it's compounding that works in your favor.

Well, it was and frankly as recently as yesterday, there was a conversation about the Markel style around the table and one of my colleagues, Simon Wilson, who runs our insurance business, talked about the Markel style, and he says he wants it lived, not laminated. So, a lot of companies have cultural statements or mission statements, but they can be printed up and they can be laminated to use his words or put in an annual report or in a poster or something like that. But if it's not really lived, it doesn't really matter. And I think one of the key things about Markel is that the Markel style, which is our credo statement of the values of the company, they really are lived and they're referred to on a regular basis over and over again. And the way that came about was Markel itself had been started in 1930. By the time you get to the third generation, and it's 1986, they're going to go public. It's the third generation of the family that's leading the company. Three of the 12 cousins of the third generation. And Alan Kersner, who was a cousin-in-law, who was the chairman and CEO along with Tony Markel and Steve Markel, he was the one who wrote down the words of the Markel style. And I think much of what he was trying to do is he knew the day would come where he, Tony, and Steve would not be the ones running the company. So he really wanted to leave a set of instructions so that those of us who followed would have some explicit instructions as to what really mattered and what the formula for how you run Markel. And one of the very interesting things about the Markel style and I'll give credit to Ken Nunnemacher who runs our AMF Bakery business. He was the one who pointed this out to me. He said, 'There's two words in the Markel style that I really love and that I really connect with. And one of them is insurance and the other is winning.' Now, the part about insurance, well, that's Sherlock Holmes and the dog that didn't bark. That word is not in there. That word is not in there. Now, for the entire history of the company, it had been an insurance-based organization, both as an agent and as an underwriter. But Alan somehow or another at least subconsciously could foresee the day when the company would be doing different things rather than just insurance because and we've got the annual report that'll be released today. I talk about the original foundation of the company where it was at the early days of automobiles and trucks and accidents being created and trucks and automobiles cause bigger accidents than horses. And Sam Markel who was the founder of the company was the one who came up with an insurance product to start insuring this risk. Well, you can frame it that way. But the other way you can really frame it is Sam Markel as an entrepreneur saw a problem and saw a challenge and an issue that people were having and he figured out a solution to that. Now that happened to be in the insurance business. But as a practical matter, for the last 20 plus years with the growth of the Markel Ventures segment, the non-insurance businesses we have, as Ken pointed out, we're not confined and limited to just the discipline of insurance. If people are hungry and they want to eat some bread, we're making the machines that bake that. And I'm looking over your shoulder there, you've got a lovely house plant. I hope that comes from Costa Farms.

Which is part of the Markel family and they're the largest grower of indoor house plants in the world and have been part of us for probably about 10 years now. We make the flooring underneath a lot of the trailers and tractor-trailer trucks if you don't want stuff to fall out onto the road when you're carrying it around. We're the leading company that makes the flooring that makes that happen. And we've got 20-some businesses that do different things. But what would tie them all together among other things is they solve someone else's problem. We see something that somebody needs and we figure out a way to solve that problem for them and take care of it and we do it well enough and cost-efficiently enough that they can afford it. It works for them. It solves their problem and they'll come back again because we solved their problem and we treated them well and we treated them fairly, which to me is the formula and definition for how you have a sustainable business that just keeps going and going and going.

I've been there 35 years now.

Well, every sentence is really power-packed. As a specific example, you know, we do have our annual meeting coming up which we call the reunion and we try to make that fun and something that people enjoy being there and attending and frankly I think sort of the way that started and apologies for the long story here, but Markel went public in 1986 and it was about $8 a share. The total IPO at the time was 500,000 shares at $8. That means the total size of the IPO was only $4 million. The total market cap of the company was in the 30-ish between 30 and $40 million. So in the grand scheme of things, that's tiny now. It was even tiny then. So it was sort of amazing that we were able to go public. But I was so enchanted with the ideas of what Markel was about and the Markel style and the values and the notion that you had this insurance business that created underwriting profits and they were willing to take those underwriting profits and invest those longer term. I mean frankly that was the formula by which Buffett built Berkshire Hathaway. So I saw that pattern immediately and bought some stock on the IPO and swinging that back to the annual meeting though. It had been a family business and was in its third generation of family business. Now a lot of annual meetings especially today are virtual. They're 10:00 on a Tuesday morning. They're in a lawyer's office or a bank building or something like that and there's nobody there. It's virtual. Markel even a long time ago was unusual in the sense that those meetings tended to be at four o'clock in the afternoon or 4:30 so after the market closed the formal matters of the business were talked about and a little presentation about how things were going and the business and the plans and whatnot and then it would conclude with eating and drinking, food and drink, shrimp out there and drinks to have. And I think part of that was just because of the heritage. Hey, we're a family. We made it through another year. Let's celebrate and enjoy that. So that was a habit and a pattern that was established early that got interrupted in COVID where we couldn't have the meeting in person. So we had it virtually and all kinds of things were not fun in COVID and that was one of the things that was not fun. But the very first year and I can't remember if it was '21 or '22. We were sitting around the office and there were a few of us sitting around a lunch table and I was just saying, you know, I really hope and this would have been January, February, I really hope we can do the annual meeting in person this year. And obviously everything's fluid. Nobody knew what the rules were, how things were going to proceed, but we're just spitballing around. And I remembered taking my kids to a Raffi concert out at the state fairgrounds and there's an arena out there that's covered in the ceiling but it has open air on the sides. So I thought well that'd be meeting people halfway. So it's not inside and you're not packed inside a theater. So there's breeze going back and forth. And by the way that breeze was about 60 miles an hour the day of the meeting itself. But we tried to get people together. Fortunately we called out there to see if the date was available and amazingly enough somebody was out there and answered the phone and we said we wanted to have a meeting out there. Could we rent it and they said yeah. We asked how much and they said $1,000 and I think it's a 6,000 seat arena. So we thought that we could handle that. And the woman who had called out there for us said what if we have to cancel? I said that'd be all right. We're going to put the $1,000 at risk. And then got it scheduled and we thought, well, let's make it fun. Let's get some beer trucks and some food trucks and hire a band. We had the formal business of the meeting itself. And the band we had booked, somebody had the idea, so I called the band and booked them and I said, 'Well, how long will you play?' And the guy says, 'How long do you want me to play?' They hadn't had a gig in two years. So, it was fun. So for a lot of people, this particular meeting was the first time they'd been out of the house in a long time. So people were arriving like almost moles from underground and masked and whatnot. And by the time the meeting happens and the beer starts flowing, the music starts playing, you see masks being ripped off and hugs and just a human connection was there and it was magic. So we've continued to do that and we did it a couple of years at the fairgrounds. Then we moved to the University of Richmond and doing it in the Robins Center. We've done that for the last couple of years and again last year I think we had something like 2,400 people. So the scale and tradition is growing. But circling back to your question of the Markel style, every year we have a theme and this year the theme is the spirit of teamwork and that is taken directly from the Markel style and I'll do my best to quote from memory here because I don't have the Markel style written in front of me, but we're willing to set aside individual concerns in the spirit of teamwork. So that'll be the theme that we're picking up this year and trying to give examples and presentations that are based on real world things where you see people have a team mentality as opposed to an individual mentality. And that's what makes Markel work. And I guess you know since 1990 when I joined and today when I walked in this is what I'm most proud of and this is what's most fun for me. When I walked in the door in 1990, we had 300, 350 people or so altogether. We're now over 22,000. So there are 22,000 people that have jobs, that take care of their families, that take care of their communities, that have a sense of mission and purpose that come from what we do on behalf of our customers. And that's just pure fun for me. And again, that's not an individual sport. That's a team sport. So that notion of the spirit of teamwork which is directly from the Markel style, that's what we'll be talking about at our annual meeting this year which again we call it reunion and that particular word itself that didn't come from us that came from somebody who attended a couple of years ago and what they said was this doesn't feel like an annual meeting this feels like a family reunion and we said you're right that's great so we quickly learned by copying somebody else's original thought and said, 'Yeah, that's great. Let's do that.' So, we call it the reunion.

I'll pick up on that just a little bit. We don't do that just because it's fun. I mean it is fun and we love that and we love the spirit and the energy that's there but I also think it's good business. Again, getting back to that notion of trying to do favors, trying to help people, trying to serve people, well, in turn, people want to help and serve you mostly. So, the meeting itself, the relationships that are formed and nurtured and developed by being together and doing the formal business, but then sharing a meal, sharing a drink, listening to some music together, having conversation. I mean, I've made some spectacular friends over the years, both at our annual meeting and the Berkshire annual meeting, which is one of the things we role modeled off of and learn from. And a lot of those people have been multi-decade great friends and they become business associates and partners. So, there is a genuine business advantage that comes from doing it in that way. So it's a bit odd. I'm surprised other companies don't really embrace the way of doing that, but it works for us. So, since it works for us, we're going to keep doing it.

Well, sure. Well, the mini Berkshire comparison is very flattering. So, it's very kind of people to say that and it's certainly an aspirational goal. And you know, when I was a kid growing up, that was from kindergarten through 8th grade, UCLA won the National Basketball Championship every single year from kindergarten through 8th grade. And they had a coach named John Wooden. And as a kid, I used to read Sports Illustrated magazine. And like kids, you root for winners. So, I got attracted to UCLA and I had this UCLA t-shirt that again this kid from South Jersey is wearing all the time. Well, why are you wearing a UCLA t-shirt when you have never been to California, let alone anything else? Well, it's because as a kid you're attracted to the winners. But you know, John Wooden retired at age 64 and he walked away from the game and he was out of public view for maybe 15 years. And then he started writing books and he talked about his role as a teacher and Kareem Abdul-Jabbar wrote a book about him. Bill Walton wrote a book about him. There's a spectacular HBO documentary. I think it was called The Wooden Way. And it would start off with this great film making technique. So Wooden coached through the 50s, 60s, and 70s. And the interviewer would ask a question. One of Wooden's players from the 50s would start answering the question. You could see it get spliced and stopped mid-answer. It would go to a player in the 60s that basically was completing the same sentence and it get stopped and then a player in the 70s. So, three different players would basically repeat the same sentence. So, John Wooden was a spectacular teacher. Now, I was never going to be a good athlete or have any chance of playing college ball. My basketball career ended in seventh grade church. But I've read everything John Wooden ever wrote because of his ways and his teaching and example which is applicable to so many things. And similarly, Buffett is just one of the greatest teachers that's ever walked the face of the earth. So, do we aspire to be like them? Well, yeah. If I was going to be a basketball coach, the first thing I would do, and even if I was starting today, I would say, 'Well, read everything John Wooden ever wrote to learn and absorb what you can from that. And you're never going to be the same as him.' And I don't want to say you're never going to be as good as him because you might do some things that become unprecedented, but odds are that's a pretty high mountain to climb. But you don't need to do exactly what they did, but you can learn from them. Learn from them. So just the opportunity to learn

From people like that. And one of the great gifts that Buffett has given is he's been very approachable. He's played with an open book. And I think part of his legacy and part of what he wants is for more people to do business the way he has. So he hasn't kept it a secret. He writes a spectacular annual letter. I mean, he's not doing that anymore, but for 50 years he did. And 50 years he had that annual meeting which I was lucky enough to go to 35 of them that he presided 35 years in a row was a central date on my calendar every year that I was not going to miss. Now that era is changing and the baton is being passed, but we can learn from that example and we can continue it here in Richmond at the Markel meeting and that's what we're doing.