Markel Group Conversations "CEO Panel" from 2024 Reunion featuring Tom Gayner and Tim O'Shaughnessy

Hello friends, welcome to the 2024 Reunion. You might have noticed the name change. Last year after the event we sent out surveys getting your feedback on how we could make this event better. As the team went through them one by one, we kept noticing a word that appeared. 'This is like a 50th reunion,' one wrote. Another wrote, 'It's like a reunion with old friends.' As planning got underway for this year, we were searching for a word to encapsulate the idea that this isn't just your run-of-the-mill serving rubber chicken in a hotel conference room kind of shareholders meeting. This is two days of events, it's events around the event, it's you, the people here. And then we thought, why not let you, our customers, our associates, our shareholders, name it? And so with that, our new name was born. So what is the Reunion and why do we have it? The Reunion is above all a gathering of partners. It's a time to connect, to celebrate, to be there with one another and for one another. The reason we have it is first of all to say thanks and to get better as a team. At the center of every Reunion is a community, whether that be a class of alums at a school, an extended family, or this one. You are the community that binds together the Markel group. You come from far and wide. This year we got your addresses because we shipped your badges to you. We shipped badges to 720 different zip codes, 22 different countries, and 45 of the 50 US states plus the District of Columbia. If you know anyone in South Dakota, North Dakota, Vermont, Wyoming, or Alaska, please call them and say, 'Come on, man, get to Richmond.' We simply couldn't do this without you. When you walk into the arena later today, we hope you notice a journey on a big LED screen. You'll see this path. This is to celebrate the tenure of our shareholders, past, present, and future. If you're not a shareholder, we hope you become one. You can start in the lower left-hand corner, and 30 years from now in 2054, you'll be wearing the 30-plus-year button. Don't worry, it's not too late. I showed you the story of our community on the dimension of place and geography, but there's perhaps no more important dimension of our story and our community than time. We simply couldn't do what we do—help our associates grow, serve our customers, generate healthy and sustainable returns for our shareholders—if we don't have long-term partners. So thank you. With that gratitude, I offer this standing invitation: what makes this journey we're on together, this collective road trip, so much fun is who's in the van. If you know anyone who shares our values and aspirations and wants to be part of this road trip and who will make us better because of their involvement, please invite them along. For the right partner, there is room in the van. I want to end with a few thank-yous. There are a lot of people involved with this, external to Markel and internal, that make this all happen. But there are five I want to say a special thanks to. First is Mr. Matt Johnson, who's the cultural glue and the energy that makes this event come to life. If you are here for the first time and you don't know Matt, by the end of today you'll know exactly what I'm talking about. The next two people are who I call the magic makers: Cynthia Green and Gretchen Nerger. They have poured their heart and soul into making this a seamless, wonderful experience for everybody. They're from our Markel events team. I want to say thank you to them. And then finally, two members of the investor relations team. Among their many responsibilities, I call them the Navy SEALs: Cynthia Green and Christina Federman, because they get stuff done and often you don't even know that they're there. I would like to join in a round of applause for them. With that, welcome to the Reunion and enjoy our first panel.

Good morning to all of you. I'm Richard Cogman, I'm a professor here at the University of Richmond. This campus that some of you are visiting for the first time is a place that I've called home now for 26 years. It's a pleasure, an absolute pleasure, to have the Markel Reunion here. Thank you very much. Tom Gayner and Tim O'Shaughnessy have joined us. I was thinking on the drive in this morning, there are probably very few places in America right now where two Fortune 1000 CEOs are sitting side by side. They might be at a restaurant in DC sitting with one another, but I suspect none of them have the audience that we have. If you don't mind, we'll treat this as a bit of a classroom today. Sounds good, right? It's the biggest classroom that we might have here at the University. There's not a test, is there? No, nothing like that. I'm grateful that you're both here. I know that the two of you are in Omaha as well. I wonder if you might start with a reflection on what you took away from the shareholder meeting at Berkshire Hathaway. Tim, I'd ask for a reflection from you as well.

Well, thank you. I guess if I had to pick one word for the meeting in Omaha this year, I'd call it a benediction. It was a very different tone to the meeting. Obviously Charlie Munger had passed recently, so it was the first time he was not there. It's my 34th year of going. It's a liturgy, it's a ritual in my life. I've made friends and relationships there that have altered the course of my life. This month where we start with the Berkshire meeting, the Graham meeting, every annual meeting, and finish up with the Markel meeting, this is Super Bowl season. The Berkshire is always the exciting energy kickoff. Buffett was very reflective. He missed his partner Charlie, no ifs, ands, or buts about it. He was very clear about Greg Abel's role as the CEO of the company going forward. I think he closed with the fact that he hoped to see everybody there again next year and he hoped to be there himself. That was a very different tone than had been the case in the past. Changing of the guard and a view of more direct talk on mortality than had happened. A lot of examples of 'well, that will be Greg will figure that out in 10 years, 15 years from now,' those sorts of things, kind of direct commentary. From a business standpoint, Warren has obviously always been very comfortable holding a lot of cash. I think he mentioned that he thought they'd probably be above $200 billion at the end of Q2. Just a constant reaffirmation of his comfort in holding enormous amounts of cash. He said whether it was at 5% or 1% return on that, he would be okay. That piece of the culture and that conservatism continued to come through.

Each of you have spent some of your own cash on stock repurchases in the last year. I wonder if we might begin with that. Tom, I think a few in this audience have heard your perspective on why you do that. I want to give you a chance to talk about why now. But Tim, you also have been on a fairly good push to buy back some of your own stock at Graham Holdings. How come?

I was glad that Tim indeed mentioned that statistic because he's in the share repurchasing Hall of Fame. That comes both from the lineage of his predecessor and his predecessor's predecessor. Katharine Graham was the first one to start buying back stock. Don Graham did the same, and Tim has followed that path and that lineage, as sort of celebrated and penciled out by Buffett, who was on the board for many, many years. Tim's exactly right. Just like Graham, I think people with a rational view of looking at your business, it is one of the capital allocation choices you have. There's a meta point here too. We live in an era, and I suspect many of your students and a lot of people going through here talk about private equity a lot. Private equity, they speak of the advantages of private equity and they wish they could run a business and have the longer-term time horizons and not be subject to the scrutiny of the public company. I don't quite buy that so much. I actually think there is profound value in being a public company and maintaining the long-term time horizon. Point number one for that reason is, I've joked Markel is a publicly traded family office. We had three generations of the Markel family building a business in a family way where each generation wanted to be better off than the generation beforehand. When Markel went public in 1986, before I worked there, before I knew anything about it, I could just see the bones of what I thought would be a great thing. I became a shareholder on the IPO, so I joined the family so to speak even before I went to work there, and have managed to accumulate some stock over the years. One of the things is, if you have life needs, you need to sell a little bit of stock to pay for something, you can do that without completely leaving the family. It gives the CEOs of the business the opportunity to look at the market price of the shares compared to what the intrinsic value is. If the intrinsic value is way above what you think the shares are worth, you should actually use your shares as currency to make the business better. The opposite, if the intrinsic value is much higher than the share price, you should probably buy some in. Both Graham and Markel have, I guess, probably not issued any shares that I recall. That's the theory. One of the great things about being a teacher, I think history is a great thing to teach. If you want to pick one company to study and one CEO, look at Teledyne and Henry Singleton, who Buffett would say he learned about investing from Graham, but he learned about running a business from Henry Singleton. It's a great example of a company to study to be more knowledgeable.

Let's dive inside these businesses. I think Graham Holdings might be a bit more of a mystery to some in this audience. You're in education, you're in healthcare, you're in automotive, you're in the restaurant business. Charlie Munger said he had a pretty good gift for identifying people who are a little bit bonkers. I wonder about where you're going with this collection of businesses. You gave an interview with Thomas Heath at the Washington Post during your first year as CEO, going back eight or nine years, and he referred to the business as a conglomerate. You said, 'I don't think it's appropriate to call it a conglomerate at this point in time.' Meaning nine years ago. Is it appropriate today?

Let's talk about that in particular. I'm intrigued by what's going on internationally. Most in this audience know that the number of high school students going to college in the states is declining. Yours is a test prep business, a lot of things, but including that. The numbers of students going to school from the US in the US is declining, but you're picking up on something in Africa and in Asia and elsewhere. Can you describe to this audience a little bit about the opportunity you see abroad?

There are also the regulatory issues some time ago, but keeping up with accreditation and keeping up with the legal landscape when it comes to Kaplan.

Tom, you've been a board member at Graham now I think since 2007 or thereabouts. Talk about some of the values that the two companies share, and this long-term perspective is certainly one of those.

Well, long-term certainly is one of the things that you would find at the top of the list. I think rational, to again honor Charlie Munger and his influence on all of us. The warmth, the kindness, the spirit of trying to do things other people. Again, citing Charlie, he said, 'The best way to get what you want is to deserve what you want.' I think that ethos just invades both of our companies in a way that we wake up every day trying to take care of other people, our customers, our associates, doing something for somebody. What we find is that the universe is glad we did it. We have a good business that's a result of that. The Venn diagram of overlap of the values is pretty high between Graham and Markel, which is why Markel shareholders have been on the board for quite some time. It's a wonderful association.

Combined, the two of you would be responsible for about 40,000 associates if I have my math right. I recognize some of those are abroad, but roughly one in 5,000 American workers works for either you or you. This is stunning. How many people are here? I just wonder, when you think about the workforce of today in a wide variety of businesses that you're in, from restaurants to the insurance business, what do you see in the workforce today and what are you preparing for in terms of changes in the workforce going forward?

Well, it's one of those things where I think the theory would suggest a certain thing, but the reality actually turns out a little bit differently. The war for talent is a phrase you'll hear, and you just panic about roles and who's going to do this and how are we going to get this done. But the magic of both Graham Holdings and Markel is that, because of the values and the way we do things, somebody always seems to be there. Somebody answers the call. Somehow or another, we continue to have an inflow of people coming in, oftentimes through referrals from people who already work there. Somebody was asking me recently, 'What's the best way to attract talent?' I said, 'Well, treat the talent you already have well and celebrate the people you're already in business with.' Generally speaking, when a new hole opens up, either they can do it, they have a friend that can do it, they can refer somebody in. Your number one recruiting force, hands down, are the people who are already part of the organization. If they're smiling, they're happy, they feel like they're treated well, you will fill the seats.

How about for the operators, a few levels up from those who are entering the workforce? Those who are running the business that are part of you, how do you believe leadership challenges are going to change here in the next 8 to 10 years? As you think about those who are operating the business, what skills might they need to develop over the next several years?

I would agree with all of those sentiments. The merry-go-round that we all need to be on and hop on that's spinning faster and faster in order to compete and keep up with technological change, we will all do it or be left behind. There's no half measures on that sort of thing. The thing I would add is that while that is true, it is also true that human nature changes very slowly, if at all. What we as human beings want is to know and be known, to be in relationship. As a leader, as an operator, whether you're the CEO and you've got 20-some thousand people or whether you're a supervisor of three, the fact of connecting with the people that are on your team and building a relationship with them, that's unchanging. The tools and the methods you use are changing, but the deep value of just caring will be a forever eternal valuable thing to have.

You open the door to a conversation about artificial intelligence. I'd like to walk through that door if we could. The question that I'd pose to you is, among the businesses that are part of Graham Holdings, where do you see an opportunity and then biggest threat from artificial intelligence to what you're doing? I'll ask you the same question, Tom, in just a moment.

I agree with Tim's comments. To pick up on that, last weekend I was in Charlottesville. I was just walking around UVA, it was graduation, so there was some spilled red cups and detritus and all that sort of stuff that one would expect in the aftermath of graduation. But there were also some things that were put up for graduation, temporary banners. There was one banner that I saw that had a quote on it: 'Curiosity is more important to wisdom than certainty.' To your point about not being able to foresee the changing form factor of the flashlight, I think it would be a mistake to start to say things that will happen. It is way more important to be curious about what might happen, what could happen. It works from the pain points where you try to do away with the pain points, and then you have time and space to be curious and say, 'I wonder what, I wonder if, I wonder how, I wonder what we could do with this, what we could do with that.' That's really the path we're on, and AI is just the next step in that lifelong journey of human progress. There's a historian, Frederick Lewis Allen, who I'm reading some of his books right now. He has one book, I've not read this one yet, it's the third in the series of the change that happened between 1900 and 1950. I'll cite my wife's grandfather as an example of this. He was born right around 1900, maybe a little bit earlier, grew up in Holland. Horse and buggy would have been the means of transportation, that was the way people got around in Holland at the time of his birth. He was a technical sort of person, chemical engineer by training, moved to America to help establish a chemical business here, and was interested in technology and progress and had a scientific mind. Before he died, he flew on the Concorde just to experience it. Going from a horse and buggy in the course of your existence to a Concorde, I don't think as skilled and as connected as he was, he could have foreseen what was around tomorrow's corner, but about the 10-year corner. But he was curious and a lifelong learner. That's really your task, just to keep the sense of curiosity, keep the open-mindedness, keep the flexibility and the willingness to embrace new things as they come along and become feasible.

I ran the MBA program here at the University of Richmond for a dozen years. I remember second or third year, a prospective student came in and said, 'What separates the best students from the others?' I had to ponder it, but I called to mind a few students who'd really stood out. The characteristics that came to my mind were curiosity and humility. I want to spend just a moment on humility. What does humility mean to you, and how do you embed it in the business?

The older I get, the longer the list of mistakes I've made grows. I would say at age 62, I'm meaningfully more humble than I was at 22. I think that's a natural path. When you're young, you need to prove yourself, or you feel that you need to prove yourself, and that causes you to assert things which turn out to be wildly wrong on many occasions. Any kind of curious and learning person, I think, develops a sense of humility over time. I'll credit Morgan Housel, one of our directors. We got a lot of stories about Morgan, he's a great friend and a wonderful teacher and confidant. He talks about trying not to ever argue with people. If somebody is making a statement which you might not agree with, this phrase is 'You might be right about that.' I love what that embodies. Just not being willing to engage in facial combat, which in today's world there's the opportunity to do that everywhere you turn, but to just remain the grace and the attitude of when somebody asserts something, you might be right about that. Then the next question you should ask yourself is, 'I wonder if they are right about that.' That may not be what I thought, but that person probably is not insane, so why are they saying that? Why do they think that? What can I learn from somebody else's point of view that would come to a conclusion that I think is wildly wrong? You're not going to always change your mind about things, but sometimes you will. That is an example of fundamental humility, the willingness to just always be open to learning.

Tim, I read a piece on your perspective around decision making in which you suggested that being decisive is a pretty important characteristic for a leader. You think a lot of opportunities pass you up while you're deliberating about things like potential risks and ways to get things wrong. You've also had the experience of building a firm, LivingSocial, from nothing into something big. How do you approach decision making, especially complex decision making, taking into account some of what Tom was just sharing about you could be wrong?

I agree with Tim's comment about the 70% being a pretty good threshold for most decisions you face. There was someone who wrote a little snippet and he talked about when he confronts a decision or a problem, first thing he does is think, 'What kind of problem is this? Is it a muddy puddle problem or a leaky ceiling problem?' In a muddy puddle problem, the answer is leave it alone. Let the dirt and the mud settle, and the water will clear up and it'll be fine. Oftentimes part of what our roles as leaders are is, somebody's frantic about something, somebody's concerned about something, there are catastrophes around the corner, and our job is to say, 'It's going to be all right. I've seen this movie before, it'll develop, just leave it alone, we'll be fine.' Other times, if you're looking at a leaky ceiling and you think, 'Maybe I'll wait until tomorrow and it'll heal,' it's been my experience that no physical thing in my house ever heals without the intervention of money and someone else's expertise. What kind of problem are you looking at? I think helps sift and sort. The type one, type two problem that Bezos talked about, the Kahneman thinking fast, thinking slow, is this an instinctive decision or something you can ponder for a little bit? All of these things are so easy to say but so hard to do. I had this friend as an example who was going to take his family on a safari to Africa. This was a once-in-a-lifetime trip, the biggest thing ever. They were doing everything right, they had signed up for some official expeditions. In terms of the safety briefings before the trip, the guide said, 'Okay, there are five deadly predators that we might encounter on this particular trip.' He talked about each of the predators. For the first four, he said, 'Stand still.' In case we encounter this one, 'Run like hell.' My friend was pointing out that he was very worried that in the moment he wouldn't be able to remember, 'Well, this is one of the four to stand still or run like hell.' That's real life. Having and not making too complicated decisions. I have actually never been on a safari to Africa, and one of the reasons is I don't want to encounter deadly predators.

I think you actually just handed me a great segue to a question that I wanted to ask Tim. At your annual meeting, which was just two weeks ago, you described a chart that has six cells in it. I'm intrigued about the presentation the way that you did that. The two columns might be whether the business is profitable or unprofitable, and then the rows would be is it growing, is it stable, or is it shrinking? I'm thinking about the shrinking and unprofitable or even the stable and unprofitable, whether they might fall into the category of you better run from those. But I want to give you a chance to talk to this audience, who may not have participated in that annual meeting, a little bit about how you think about that portfolio of companies.

It's a collection of businesses because you're in automotive dealerships, you still own TV stations. There are some businesses that certainly are going to raise questions about why are you in that business. Do you mind saying a word or two about the restaurant group and why you made that acquisition and what you're feeling on it today?

I might jump in on something. There's also a strategic advantage for Graham to own Clyde's because think about it this way, and it's hard to quantify this or pencil it out, but Washington DC is an eternally valuable economic engine. I invest sometimes in things that are sort of Washington area, and I say this is in hopes of getting some of my money back. We all just send buckets of money to Washington all the time. Let's just posit that that region is an eternally powerful economic engine. By owning an institution in that market as Graham does with Clyde's and other things that they do, and being part of that community, that will lead to other deals. There'll be a conversation that takes place where the name Graham comes up because you're eating at the Old Ebbitt Grill or you're eating at Clyde's, or you're just aware that you have a business that has some analogy and some connection to DC. If you're thinking about things DC, I think Graham is at or near the top of the list of the people you're going to talk to when trying to figure out how to keep the ball rolling in that very productive place. It was one of the more fun board memos that I ever wrote, though, of like, 'Okay, just hear me out here, we're looking at restaurants.' The amount of puns you can put into a memo about restaurants as well.

In 2011, we launched a series I sit on stage with CEOs. Tom Gayner knows this because he was a guest in the series of conversations that we do in the Robins School of Business. One of my earlier guests was Stant Mome. He runs one of the divisions for McKesson, the one that's based here in Richmond, McKesson MedSurg. Stanton's an MBA from Kellogg. He told me he's never met a business that wasn't somehow interesting to him. It strikes me that the two of you share that characteristic. I wonder what's particularly interesting in 2024 when you look at other Fortune 1000 businesses or you look at a midsize business that's showing some growth. What are you intrigued by?

Well, I agree with that because really what he's saying, and I think it's businesses or people. I don't know if you've, the immediate memory that comes flooding back to me was a trip I took with Susan. We were sitting on the square in Florence, and we were just having a couple of beers in the afternoon and watching people go by. We had done something culturally important earlier in the day, but by the time 3 or 4:00 rolled around, it was time just to sit down and have a couple of beers and watch people go by. Endlessly fascinating. I love people. I love to see people, I love to be with people, I love to hear their stories, to learn what they're working on, what they're doing. Businesses are really just organized clusters of people doing stuff that's fascinating. A particular business or industry or sector? I just think the world is fascinating. What better way of being able to go and engage with it if you have an ability to understand what can make businesses work? That's probably why a lot of you are here too. There are certain things that I just would say, 'All right, biotech is something I'm never going to go and spend the time to efficiently understand,' but I actually still think it's kind of interesting. Everybody gravitates towards certain areas, but for me, it's really just trying to understand, 'Why has this thing compounded at 15% a year for 10 years?' I kind of want to know the answer to that. That is just intellectually interesting. It doesn't matter which industry. I want to know what the problem set that they solved that allowed that to happen is, because that helps build the latticework for my own mental framework that I can use in the world, whether it's from a company standpoint or a life standpoint.

The last thing I want to talk about is the topic of accountability. That's the last thing I wanted to talk about too, as in the last thing you want to talk about. No, I'm thinking back to a conversation I had with Michael Dan when he was running Brink's on the stage in the Robins School. Michael, they were operating in 51 countries at the time that I interviewed him, and he said the worst thing that you can have in any business is a mediocre manager because they poison so many. He was talking about how they hold managers around the world accountable. I just wonder what accountability feels like today. In the classroom, it's getting more and more difficult, I think, to hold students accountable. Their reaction to us upholding standards is a little different than it was seven or eight years ago. A number of us are trying to prepare them to come to work for you. We are maintaining our standards, but the reaction from the other side to calls for accountability is a little different. What's your sense?

I think you've got a tough job on your hands in the educational system. I hear exactly what you're saying. Unfortunately, as much as I love the iPhone as anybody else, its ability to distract people is unbelievable. You can kind of get lost in that way. The great news is that fortunately, I'm not charged with the education of young children because I would be miserable at it. By the time they get in my world, they're adults, and a lot of sifting and sorting has taken place. I've been extraordinarily fortunate. As soon as I started working at PricewaterhouseCoopers, my first job as a staff accountant out of school, everybody there wanted to be there. I've had the joy of working with people who 90% self-manage. I have not had to face the challenge you're speaking of, but I believe it to be real. I don't think you could pay me enough to be a college president somewhere. There's a dog waste picker-upper and then college president, you know.

If I could jump in, I would retain a sense of optimism despite the challenges we all face. It's very important to remain optimistic. There are two tools I would use to retain your optimism. One, read history. The only thing new is the history you don't know. These cycles, many of these things we're concerned about have happened before, and somehow or another we got out of them. Unfortunately, often times what got us out of them is severe economic challenges or war, because then we stop playing around, we got a real problem on our hands, and we all have to join in and behave differently to surmount them. It's not as if these are unprecedented things. On a very lighter note than that, and Tim was a baseball player and fan, so I was watching Virginia play baseball this past weekend. Very successful series, a three-series sweep. I won't mention who they were playing, people could figure it out. Susan and I were sitting there just watching the game. If you go down the third base line at the stadium at Virginia, there's a grassy area where you'll see a bunch of kids. When a foul ball goes there, you see 40 or 50 kids just jumping for it. I used to be one of those kids, and a generation before me, my dad was one of those kids. Just go to something like that and see the behaviors of six, seven, eight-year-old kids, six, eight, tenth, eleventh, twelfth graders even trying to be cool at the high school football game. You recognize a lot of the same behaviors. Somehow or another, some turn, some pivot happens in each of those individual lives somewhere along the way such that the center holds. I would retain some optimism.

We've got a few more minutes, so let me just ask you for this audience: what should they be looking for, paying attention to over the next 12 months between now and next year's Reunion? What are some of the things that are on your mind, broadly speaking, about business in and around the world?

I think things remaining dynamic and changing. Often times I don't sleep as well as I would like. Somehow or another with my age and everything, 3:00 in the morning is a moment where I'm awake, and we'll see whether we're going to go back to sleep or not. Out of the 10 times that I'm not going to go back to sleep, three of them are because I'm worried about something and there's something that's gnawing at me, chewing on it or whatnot. But seven times out of 10 when I wake up, I have trouble getting back to sleep because I'm so excited about what's going to happen that day, including last night. This is an exciting day, this is a fun day, this is a good day. That sounds like fun to me. I wish I slept better, but I'm glad that the reason I don't is because I'm so excited about what the next day will bring. Let's get on it.

Thank you both very much for your time today. It's been wonderful.