Employee-Powered Excellence

With a Conservative View on Growth and Employees as Owners, J. Smith Lanier & Co. Has Risen to the Top Even in the Toughest Market Imaginable

Insurance Journal Top 100 Agency Profile
Agency Name: J. Smith Lanier & Co.
Headquarters: West Point, Ga.
Year Founded: 1868
Additional Locations: Alabama – Huntsville, Birmingham, Opelika; Florida – Tallahassee; Kentucky – Lexington; Tennessee – Chattanooga, Knoxville, Murfreesboro; Georgia – Albany, Atlanta, Augusta, Carrollton, Columbus, Loganville, Manchester, Newnan, Thomasville, Waycross, West Point.
2007 Premium Volume Property/Casualty: $655.1 million
Other than Property/Casualty: $433.3 million (benefits)
% Commercial: 65%
% Personal: 10%
% Benefits: 25%
Principals: D. Gaines Lanier, CEO; Gary Ivey, COO; Frank Plan, chief financial officer.
Mergers/Acquisitions: Insuramerica Aviation (Loganville, Ga.) Associated General Agency (Chattanooga, Tenn.)
Number of Employees: 576

For J. Smith Lanier & Co., 1981 was a big year. That’s when the West Point, Ga.-headquartered insurance firm decided to switch from what was a long history of being family-owned and operated to an employee-owned business model.

Not that the old model wasn’t working. In fact, the company had been operating as a family-owned enterprise since its inception in 1868. That’s right — 1868. Started just after the Civil War by Ward Crocket and Lafayette Lanier, the company was first part of a dual operation — a bank and an insurance company — that the founding brothers established in order to help their community rebuild after the war. Today it’s one of the top ranked independent brokerage firms in the country, yet it still maintains its regional location; the company’s main headquarters is in West Point, Ga., with 19 offices throughout Georgia, Tennessee, Alabama, Kentucky and Florida.

Presently at the helm is D. Gaines Lanier, CEO and a descendant of the founders. In fact, the Lanier family has headed the company since its inception, passing ownership from one Lanier to another four times in the 140 years the company has existed. Gaines Lanier, who came on board in 1976 and was appointed CEO in 1999, has been with the company through some of its key transitions, the most important being the establishment of the employee ownership model.

Sharing the Wealth

The company’s third CEO, J. Smith Lanier II (and Gaines’ grandfather), is the mastermind of employee ownership in the company. As Gaines puts it, the elder Lanier was a leader who understood the importance of securing the buy-in of the employees. “One of the traits that Smith Lanier brought was his business savvy to spread the wealth. He brought people into the business and let them have an equity play in it; participate in the financial gain of the business. His shares grew at the same rate.”

Therein lies the beauty. If employees share the wealth, in J. Smith’s estimation, they have a vested interest in the health and management of the company. In turn, everyone wins. In 1993, the ESOP was born.

Today’s J. Smith Lanier & Co. employee is winning big time. Since 1993, the company has quadrupled in value and has managed to outpace even its own expectations in terms of success. Each employee receives equity — Gaines estimates that a staffer making $40,000 can bring in an additional $160,000 to $180,000 in equity. While it’s true employees are not the majority shareholders — they comprise 20 percent of the shareholder interest with an additional 70 shareholders making up the remaining interest — they are very much invested in the well being of the company.

Gaines says there are no regrets going employee-owned. At the outset, the changes were difficult to see, but within just a few short years, employees were seeing a positive change on their year-end statements. “They could see the value that’s been created. It has an impact on longevity, the work ethic and loyalty to the company.”

Not to mention an impact on employee involvement and awareness of business as usual. “Employees are conscious of cost-cutting and expenses and client retention. They have engaged as being owners. They have seen over these 15 years what that value means to them financially.” And that, he says, makes for a stronger business foundation.

Treating employees right by allowing them to participate in the growth and success of the company, as well as giving them control over decisions that affect their operating success, has created a welcome cost-saver — employee retention. Employees have a strong presence on steering committees, usually 20 producers and a smattering of management teaming to determine necessary resources and business methods that help increase their success rates. Gaines believes this additional layer of involvement has created not only the company’s exponential profit growth, but also has allowed them to hang on to key talent. “We lose very few producers. When they get here and after 10 or 15 years they have a half million to a million or better in value, they’re not looking to leave if we treat everyone right.”

The company also has a highly-tuned resource distinction — a stable of claims staff, loss control professionals, alternative risk personnel, errors and omissions, and directors and officers liability specialists, large casualty specialists, and large property specialists. Each J. Smith Lanier & Co. producer has plenty of resources to bring in to the client as needed. “We’ve had a great deal of success over the last few years in forming captives and alternative risk mechanisms for clients. Our claims advocacy group is, in our minds, where the client really sees us create value when he has a very difficult claim. We assist instead of standing back and handing it over to the insurer.”

Choosing Wisely

One thing J. Smith Lanier & Co. does well is evaluate opportunities and let the opportunities find them, not the other way around. “Opportunities arise, but not on our schedule. We stay in a position to capitalize on the opportunities.”

As for a perfect fit, Gaines says it’s not what one would think. “We are much more engaged in the culture of the organization than the financials. Our first meetings are always about the people — we never talk about the money. We look for people who are culturally like us — conservative, honest, of high integrity, similar value system and sales oriented. If they’re willing to grow the business and be part of a business. There is a difference between someone who wants to own the business and someone who wants to share ownership. I have every desire to be on top of the mountain; I just have no desire to be there alone.”

His goal is to maintain the cooperative attitude that is pervasive in the organization. “If a producer in Atlanta writes a nice account, a producer in Albany celebrates with him — we as an organization are successful. We have a competitive nature with our competition, but we don’t have to compete with ourselves. It’s part of our structure that we’re stronger together than we are by ourselves.”

Conservative Business Equals Growth

Another factor Gaines attributes to the company’s success is its conservatism in both business and personal endeavors. “We’re a conservative people. We’ve never leveraged the company hard. We make good business decisions. We put money back into the company every year. It started in 1980 when we really started running the business like a business and not like a family company.”

That’s not to say the family ideals have been abandoned. To the contrary, in explaining his belief that each employee from management to mail room has the same responsibility to the health of the collective, Gaines speaks of the family atmosphere. “In our world there’s a responsibility of the family member to the family. You ask the family to help when he can, but every member needs to understand he has to bring his value back to the family or he doesn’t stay part of the family. Most people say the family takes care of you, but in our world it works both ways.”

Decisions, Decisions

Not every decision made in the company has been a good one. Gaines laughs about some of the not-so-successful decisions, of which he says there were more than enough out there. Of the successes, he says, “We’re very fortunate. We’ve made some mistakes — no question about it, and some I would obviously not do again. Fortunately, none have been that big in magnitude that it created a real problem for us. Our real success has been finding those people who culturally fit us.” He cites the recent acquisitions in Lexington and Tallahassee. “These people believed in our culture more than anything else. That’s why they’re here. It’s not necessarily the economics of every transaction — they enjoy working in this environment.”

One not-so-successful decision involved a merger attempt with two groups in 1980, one which Gaines is reluctant to talk about. “We realized shortly after that it was a bad merger and we split it back out in 1981.”

But even the bad decisions can be catalysts for positive change. When the company decided to leave behind the merger, Gaines became an owner, as did William Parr Jr., who is the company’s current vice-chairman emeritus. They also brought on board the company’s current Chief Operating Officer Gary Ivey, who is also a major shareholder.

Maintaining in a Tough Market

At present, Gaines says the company is looking at a flat growth year for 2008 as well as 2009. Thank the current recession and volatile market conditions, which are testing (and in some cases sinking) competitors and many large financial institutions. Still, Gaines maintains a positive outlook. Business as usual must go on. “It’s not necessarily that we aren’t writing new clients, we’re not growing or we’re not competing to bring on new talent. We are. It’s just that you cannot go through the economic downturn and the rate reductions of the competitive market we’ve been in and it not have an effect on growth, but we’re not going negative.”

He attributes that back to the company’s conservative approach. The company, he says, makes a good return, but doesn’t over-leverage and try to outdo the competition in deal making. “We’re conscious of who we are. We’re not going to overpay for a deal just to make a deal. We’ve probably lost some opportunities from maybe even better than a double-digit growth. We have not done that because we’re not going to go out and overpay for transactions.”

Recession and Opportunities

Gaines’ outlook in a recessionary era could well be fueled by a long history of conservative, smart decision making. How does the current economic situation affect the industry and how J. Smith Lanier & Co. will be conducting business? “I think they are going to be very parallel to each other for this reason — we have seen over the last several years rate decreases coming from carriers where rates have actually gone down. Couple that with exposure increases that we’re going to see because of the economic downturn. Payrolls are going to be lower, sales are going to be lower, and you’re not going to see the expansion in businesses. All that’s going to come through in premium. That’s going to affect all of us. The carrier is going to be faced with the same problem — so are we as brokers. We’re going to see return premium audits, in my estimation, much heavier in ’09 and ’10.

“I think the next two years are going to be the toughest years that this industry’s faced in the last 10 (years). In the market we’re in now, rates are going down, exposure base is going down, competition’s still there, so obviously everyone’s going to earn less. In the last several months the real business climate is changing. We’ve seen the demise of businesses, bankruptcies, and everything else increase. We think that’s going to continue. That’s going to have a major impact on our world and on the industry.”

But as for how it will affect operations, Gaines is positive. “I don’t think it’s going to change us. We’re not going to change this company a great deal by that. We’re going to be conservative in our expansion. Fortunately, we have a very strong capital base. We’ve been diligent in building retained earnings. We may all tighten our belts, and I really think we are. But we’re not going to go out of business.”

What about coverage availability? In Gaines’ estimation, it will be there and the market will be competing heavily for business. “Carriers do have capital, and they’re going to want to continue to grow the business.” It takes no crystal ball, in his opinion. “We all should’ve known this was coming. Nothing stays great forever.” His only concern — maintaining caution and not overstaffing until revenue comes back. That’s going to be tough, as he points out, because of the influx of talent that he expects is already flooding the market.

Family Attitude, Employee Involvement

For now the company plans to continue its current way of doing things, which is to work together and to reach into the surrounding communities in order to make a difference. J. Smith Lanier & Co. employees are very much part of the communities in which they work, donating not only time but money to various organizations and community projects.

The company itself is very involved in the Fuller Center for Housing, and Lanier employees have built six Habitat for Humanity houses. The company also sponsors the Brain Tumor Foundation for Children charity event, which raised an estimated $225,000 in 2007. Additionally, each office gets $5,000 to donate to local charities at Christmas, worth about $50,000 to the company annually.

Gaines believes it’s the focus on the whole that distinguishes his company from its competitors. “We’re real people who happen to be in the insurance business. We’re grounded.”