Chapter 142 - The Gallagher Way: A Corporate History of Arthur J. Gallagher & Co.
Today’s Chapter is based on the book “THE GALLAGHER WAY: A Corporate History of Arthur J. Gallagher & Co.” by Alison Kittrell.
Arthur J. Gallagher was a Chicago-based insurance agent who founded Arthur J. Gallagher & Co. in 1927. He built the company into one of the largest global insurance brokerage and risk management firms by innovating in insurance products and expanding services, with leadership passing to his sons in the mid-20th century. The company went public in 1984 and has since grown through acquisitions and international expansion, becoming a major player in insurance and benefits consulting worldwide.
Here’s what I learned:
People First Approach
“Four Seasons is the sum of its people—many, many good people.”
— Isadore Sharp
Since the inception of the Arthur J. Gallagher & co., the company operated on a radical principle for its time: that the value of a company is carried by its employees. This wasn’t a hollow slogan but a deeply ingrained belief that shaped every decision, from hiring and training to compensation and leadership. In fact, the company’s founder, Arthur Gallagher, learned early on that talent and drive could be found anywhere, but they must be nurtured and rewarded fairly. His own experience of being underpaid as a top employee at a previous agency instilled this fierce determination to build a company of his own.
Arthur Gallagher and his three sons understood that to unlock potential, they had to invest in their people. By investing in employee training, promoting from within, and creating an environment where everyone feels valued, Gallagher has built a resilient workforce that contributes directly to its competitive edge. This approach challenges the traditional view of employees as mere cogs in a machine, instead treating them as partners in the company’s journey. As Kittrell explains, “The story of Arthur J. Gallagher & Co. is, in a very real sense, the story of its people. The people are the engine that drives this company, and each of them is an important part of this story.”
By consequence, long before going public, the Gallagher brothers began distributing shares to key employees, creating a powerful sense of shared destiny. This was driven by a philosophical commitment, as Bob Gallagher explained, wanting to create a mechanism that would allow employees to share in the success they were creating. As Rich McKenna, an executive vice-president of Gallagher Bassett once said, “With the stock program, your job stops being a paycheck, and starts being the equity you are building into your family’s future.”
The result was a level of loyalty that became a competitive advantage, with remarkably low turnover among managers, many of whom spent their entire careers with the company. In fact, Kittrell mentions that “Loyalty to employees is a hallmark of AJGCo., and it is returned many times. There is remarkably little turnover among the company’s managers.”
“This company is about more than the Gallaghers, and I want everyone who contributed to the company to benefit as well.”
— Bob Gallagher
Not only that, the Gallaghers designed a program that transitioned recruits from salaried positions to commission-based roles in order to ensure that new hires could learn without financial pressure while being incentivized to build the business. Kittrell writes that “The payment plan for the trainees was designed to ease them into a compensation formula the Gallaghers developed based on production. The Gallaghers believed that, although the production-based formula offered the best opportunity to make a lot of money in insurance, it could be tough for young producers to have to rely on it immediately. So Gallagher recruits were paid a base salary and given some business to work with.”
Furthermore, considering the importance of the employees in building the success of the Arthur J. Gallagher & Co., it was primordial to hire the right people to represent the company. As Art Gallagher once said, “Our most important assets go up and down the elevators every day.” To do so, the Gallaghers believed that it was important to recruit and train salespeople to embody the dual expertise of technical knowledge and sales acumen.
In terms of recruiting and hiring, Kittrell mentions that “The first step was determining what kind of salesman would be best for the company. The Gallaghers decided that the way they had developed as producers—learning both the technical and the sales sides of the business—was an important factor in their success as a company. The fact that they had achieved this dual expertise was an accident of circumstance, but they seized the opportunity to make circumstance work for them.”
“We clearly identified what we wanted our salesmen to do. We wanted them to become exactly what we were.”
— Jim Gallagher
This reminds me of what we have learned from Paul Orfalea at Kinko’s. Similarly to the Gallaghers, Orfalea also had a great incentive structure in place at Kinko’s which lead to the success of his company. In fact, Orfalea realized that the workers behind the counter at Kinko’s were the true heroes of the company. As a matter of fact, being in the retail copy centers business, Orfalea had plenty of competitors considering it is an industry with no barriers to entry.
As such, if he wanted to beat his competitors, he would have to make Kinko’s a great place to work; he would have to create an incredible corporate culture and make it a competitive advantage. This starts by setting the right incentives in place. In fact, Orfalea mentions that it is a lot easier to manage the work environment than the people in a store. He once said that “when people are properly motivated, they will essentially manage themselves.”
First, he started calling his employees as coworkers to remind himself that he didn’t want to “use” people, but to work with “empowered entrepreneurs”. To instill this sense of entrepreneurship among Kinko’s workers, the company gave a share of the profits of the store to everyone — partners, managers, and even workers behind the counter.
Orfalea mentions that initially, Kinko’s “gave each manager 25 percent of his or her store’s profits. Later, we expanded the system of profit sharing when we started giving each manager 15 percent of the store’s profits and earmarking the remaining 10 percent to be split among that store’s coworkers.”
“At Kinko’s, we were building a family together at the same time we were building a business.”
— Paul Orfalea
Second, Orfalea mentions that “people want to know they are contributing to society.” As such, other than monetary incentives, Kinko’s had to give a sense of mission to keep their workers both happy and motivated.
To do so, Orfalea set a flat organization at Kinko’s. Without having any hierarchy, every single member of the company were treated equally in the company and were part of the decision process. In fact, Orfalea mentions that the head office’s main purpose is to serve the stores. He implemented the “80/20” policy where managers were encouraged to spend 80 percent of their time on the floor of the stores with coworkers and only 20 percent of their time in their offices.
As such, Kinko’s empowered coworkers behind the counter to become autonomous thinkers. They would not be required to ask for permission for implementing new ideas for taking care of customers. As Paul Orfalea once said, “our original store was a hothouse of experimentation.”
“As we grew, we designed a structure for our company that would be as democratic as the services we were providing. For me, this was the true brilliance of the Kinko’s we created.”
— Paul Orfalea
Customer Centric Innovation
“We’re not competitor-obsessed; we’re customer-obsessed. We start with what the customer needs and we work backwards”
— Jeff Bezos
Arthur J. Gallagher & Co. never settled for being a mere intermediary in the insurance market. Instead, it consistently looked for ways to provide greater value and control to its clients, even when it meant they had to innovate and to challenge the entire industry. This was due to Arthur Gallagher’s believe that “there were lots of insurance agents, and businesses could buy coverage anywhere. They even could buy comparable coverage at a comparable price. So he determined that he would provide the kind of service that would keep his customers happy, and keep them coming back.”
An example of this was its pioneering embrace of self-insurance. At a time when the traditional insurance industry was hostile to the concept, the Gallaghers saw it as a huge opportunity. As a matter of fact, the company realized that traditional insurance models often failed to incentivize loss prevention. By helping clients to create self-insured plans, the Gallagher empowered them to take control of their risk. This was a revolutionary shift. Under self-insurance, clients retained their money until claims were settled, creating a direct financial incentive to invest in safety and loss control. Gallagher didn’t just sell a policy; it built a comprehensive risk management partnership. As Kittrell explains, “Self-insurance gave a client much greater control over its money. Under traditional insurance, the client paid its premiums before there were claims. But with self‑insurance, no money was paid until a claim was settled.”
Self-insurance is just one example of Arthur Gallagher’s original dedication for the company to work with clients in order to reduce their risks. Over the years, the company developed various new concepts focusing on solving clients’ problems by saving them money, time, productivity and even lives. Another example of this is the idea of including replacement costs in self-insured policies, addressing risks that traditional insurers avoided. Kittrell explains that “The Gallaghers also designed the type of coverage to be provided—in essence, creating an insurance policy. In the process, they made some very important decisions. For example, they designed coverage that included replacement costs. Up until that time, few insurers were willing to cover property replacement costs, because they felt replacement coverage presented too great a temptation for arson and fraud. However, self-insured clients had no such temptation, because they, rather than the insurance company, had to pay the retained losses.”
This client-centric problem-solving was a core concept in the success of the Arthur J. Gallagher & Co. and later on, the Gallaghers saw Bassett company. As Durkin, a high executive of Arthur J. Gallagher & Co. once said, “We try to figure out what clients need to solve their problems.”
“Arthur J. Gallagher & Co. always has been a leader rather than a follower, believing in the rule that, ‘It is better to shift than to be shifted.’ With the establishment of Gallagher Bassett, AuGCo. shifted in a big way, and took the industry with it.”
— Alison Kittrell
Furthermore, it is important to note that the success of this approach was rooted in deep client relationships. As a matter of fact, the Gallaghers insisted on personal contact, often sending executives to client locations to build trust and to tailor solutions. This hands-on service became a hallmark of the Gallagher brand, ensuring that innovation was always tied to the clients’ benefits. As Kittrell once said, “Continuing Art Gallagher’s tradition of being close to the client, Gallagher Bassett came to rely heavily on personal contact.”
This reminds me of what we have learned from Kemmons Wilson who created Holiday Inn based on customers’ needs. In fact, Wilson’s approach at Holiday Inn was also catered around his unwavering commitment to customer satisfaction. He understood that happy customers were key to sustainable business success and that listening to their needs was primordial in order to innovate.
In the early 1950s, there were plenty of motels across the United States, but they were often dirty, cramped, and overpriced. Wilson saw an opportunity to build something better—a chain of motels that offered clean, reliable, family-friendly accommodations at a reasonable price. His vision wasn’t just about building one motel; it was about creating a national network that would be consistent in quality and service. This was groundbreaking at the time.
This “snap judgment” was the birth of what would become one of the most iconic hotel chains in the world, the Holiday Inn. But Wilson didn’t stop there. He understood that families wouldn’t just want a clean room—they wanted amenities that made travel easier and more enjoyable. He made sure every Holiday Inn had a swimming pool, family restaurant, and vending machines. Importantly, he also ensured that children could stay for free, a policy that remains a standard in the industry to this day. This was his most proudest policy change as he once said, “If I never did anything else in the world, I changed everybody on that.”
As such, Wilson’s success wasn’t just about being a risk-taker; it was all about his ability to innovate by seeing opportunities where others did not. Not only did he identify a customers’ need, he was able to come up with a solution that changed the entire industry. Wilson didn’t just build motels; he built an experience.
Sales Culture
“I have never worked a day in my life without selling. If I believe in something, I sell it, and I sell it hard.”
— Estee Lauder
Finally, Arthur Gallagher teaches us the enduring power of a robust sales culture, where persistence, customer knowledge and ethical selling drive revenue and customer loyalty. Since Arthur Gallagher’s cold-calling days, the company has maintained a “peddler” mindset that prioritizes value over transactions. This culture not only fuels organic growth but also differentiates Arthur J. Gallagher & Co. in a competitive market, proving that sales excellence comes from genuine service and relentless effort.
Kittrell explained that “Most of the business of Arthur J. Gallagher & Co. resulted from Art’s persistent knocking on doors.” and that he “Art was a tremendous cold caller. One of his friends said years later that, “He had a thick pair of soles and a ball-bearing tongue.” “He was an exceptionally persuasive salesman once he got his foot in the door, and he was extremely persistent.”
This tradition on focusing on sales continued through generations with the company viewing itself as salespeople first.
“From the very beginning, AJGCo. had a strong sales orientation. Art Gallagher had been a consummate salesman—a friend once said that, “He had a thick pair of soles and a ball-bearing tongue.” As his sons Jim, Bob and John entered the business, they continued to refer proudly to themselves as “peddlers.””
— Alison Kittrell
Furthermore, throughout the years, Bob Gallagher wrote a document to outline the defining principles of Arthur J. Gallagher & co. It explains what makes the company unique and the qualities from which the company draw its strength. By writing it, Bob Gallagher hopes it will guide the company decades from now. It is simply called The Gallagher Way:
We are a Sales & Marketing Company dedicated to providing excellence in Risk Management Services to our clients.
We support one another. We believe in one another. We acknowledge and respect the ability of one another.
We push for professional excellence.
We can all improve and learn from one another.
There are no second-class citizenseveryone is important and everyone’s job is important.
We’re an open society.
Empathy for the other guy is not a weakness.
Suspicion breeds more suspicion. To trust and be trusted is vital.
Leaders need followers. How leaders treat followers has a direct impact on the effectiveness of the leader.
Interpersonal business relationships should be built.
We all need one another. We are all cogs in a wheel.
No department or person is an island.
Professional courtesy is expected.
Never ask someone to do something you wouldn’t do yourself.
I consider myself support for our Sales &Marketing. We can’t make things happen without each other. We are a team.
Loyalty and respect are earned—not dictated.
Fear is a turnoff.
People skills are very important at AJGCo.
We’re a very competitive and aggressive Company.
We run to problems—not away from them.
We adhere to the highest standards of moral and ethical behavior.
People work harder and are more effective when they’re turned on—not turned off.
We are a warm, close Company. This is a strength—not a weakness
We must continue building a professional Company—together—as a team.
Shared values can be altered with circumstances—but carefully and with tact and consideration for one another’s needs.
Beyond the Book
Read "The Power of Incentives: The Hidden Forces That Shape Behavior" by Farnam Street
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