Led by the ‘Bruce Lee’ of Title Companies, Fidelity Is Booming : Insurance: William Foley’s hard-edged style of management and acquisition has led to phenomenal growth for the Irvine-based firm.
For a hard-charging entrepreneur like William P. Foley II, the title insurance industry was so stodgy and dull in the early 1980s that it was ripe for conquest.
So Foley built a title company to fit his aggressive, no-nonsense style; one that now earns him the sobriquet, the “Bruce Lee of title insurers.” He introduced marketing and management ideas that inspired employees and caught competitors off guard.
In the process, he led Fidelity National Financial Inc. from a tiny Arizona storefront operation 10 years ago to become the nation’s fifth-largest title insurance company with 4,700 employees in 48 states and its headquarters in Irvine. It is No. 2 in the state behind First American Financial Corp. in Santa Ana, the nation’s second-largest title company.
Foley, 48, the president and chief executive officer, and his top aides also have made Fidelity the envy of the industry by achieving what no other major title insurer has been able to do in the past five years--generate annual profits solely from operations. And it will do it again this year.
“There’s no room for comparison in my book. These guys are the best,” gushed John O’Neil, an industry analyst with the Oppenheimer & Co. Inc. brokerage in New York.
Fidelity’s revenue solely from title operations has grown at a rate of 30% a year for the last five years. It expects one more blockbuster year--topping $500 million in revenue, a 31% hike over last year--before it eases into a slower-growth cycle and concentrates on adding ventures related to its title business.
Both the rapid growth, which came largely from major acquisitions in the past two years, and the complexities of managing a much larger, nationwide company have forced Foley to add a bit of fat to his bare-bones approach to management.
He has, for instance, broken one of his longtime corporate vows--to avoid bureaucracy--by hiring a regional manager to handle the company’s East Coast operations. “He’s not allowed to have a regional staff; just him and a secretary,” said the red-tape-hating Foley. His tenet now is “minimize bureaucracy.”
He also said he is trying to soften his domineering ways over his own staff.
“I used to have hair before I worked for him,” Steve McCartney quipped about his stressful days as Fidelity’s chief financial officer for five years in the mid-1980s.
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The stress has paid off on the bottom line, though. The company’s net income has grown from $2.5 million in 1988 to $15.1 million last year.
The company’s phenomenal growth is almost as much a surprise to Foley as it is to Fidelity investors and competitors.
“I hate to say this,” he confessed, “but there really wasn’t much of a plan,” he said. “I mean, there was a plan in that we wanted to expand, but I never dreamed back in the mid-’80s that our company would become as big as it is today.”
As a business, title insurance is one of the least risky because it insures against past events, not future ones. It protects buyers against mistakes in ownership, liens or encumbrances such as taxes, mortgages or other ownership claims on property being insured. If companies research the public record accurately, they would never have a loss. But mistakes are made, and the companies fall victim to fraud, especially by independent agents.
Fidelity owes its success mainly to an approach unusual in the industry:
* Its title policies are sold mostly by employees, not through agents. This not only saves money--agents keep 80% of premiums, while using employees cost only about 50%--it also gives Fidelity a better way to guard against losses. Fidelity paid out about 5% of its revenue on losses last year, compared to an industry average of 8%.
* It focuses on the residential resales, which are safer and more consistent than the commercial and new-home markets. While concentrating on home resales, Fidelity has benefited from the refinancing boom over the last few years--lenders require a new title policy for any new home loan.
* It has made astute acquisitions--two major ones in the last two years and 11 since 1986--and turned around undervalued, lagging operations. The expansion has given it a national presence and something it never had before: a sizable investment portfolio. “One of the reasons we’ve been so successful in operations is that we had to be,” Foley said. “We had no cushion like other title companies that could rely on earnings from their investment portfolios when title operations were down. Now, we’ve got a cushion, but that doesn’t mean we’re going to change.”
* It maintains a flexible, entrepreneurial spirit, especially in its abhorrence of the industry’s usual bloated bureaucracy. It set up a separate subsidiary, American Title, in Northern California to compete against Fidelity as well as other insurers, part of Foley’s scheme to create competing companies the way Procter & Gamble set up competing soap brands. He hopes to bring the concept to Southern California soon. Being light on management, Fidelity also can move quickly to dismiss part-time and temporary employees, as well as full-timers if needed, when business slows. Foley’s readiness to pare staff and cut costs caused one analyst to dub him the “Bruce Lee of title insurers.”
* It created an incentive package for most employees and employee stock ownership. Foley is the largest single shareholder with 21.1% of the stock, dwarfing the next largest, Frank P. Willey, the company’s general counsel, who owns 2.8%. But nearly 1,200 employees own an additional 22% through contributions and matching grants from the company. “There’s nothing like a highly motivated employee, and there’s no better motivation than owning a part of the ship,” said industry analyst Jamie Inglis at the Philo Smith & Co. insurance research firm in Stamford, Conn.
* It is a hands-on operation. Foley and his top lieutenants travel weekly to branch offices, exhorting field employees to practice the corporation’s precepts, including customer service and respect for employees, and keeping local managers in tune with what headquarters is doing.
Wall Street, which Foley has been courting ever since taking Fidelity public six years ago, is finally sold on his operation. The company’s stock price has soared from $3.875 a share only 30 months ago, adjusted for two stock splits since, to more than $32 a share in recent months.
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Analysts have little doubt that Foley, Willey and other top managers can continue to spur Fidelity’s growth and profitability.
“Their record speaks for itself,” Inglis said. “The company still has significant growth potential.”
The three companies also manage Fidelity’s $220-million investment portfolio. Farming out the asset management to experts, as well as getting out of some bad real estate deals, Inglis said, lets the company’s managers focus on what they know best: title insurance.
The proceeds from the offerings, $10.7 million last year and $18.3 million this past spring, helped Fidelity make major acquisitions that doubled its size. The offerings also gave the company enough shares outstanding, 9.8 million, to get Wall Street more interested in trading the company’s stock.
Opinions about Foley’s administrative style are mixed. Thomas Van Sickle, a former associate, considers Foley a brash and abrasive young director.
“With Bill Foley, there’s only one way that people work for him: Do exactly what he requests,” said Van Sickle, now a hotel owner in Sedona, Ariz. “He was somewhat dictatorial, to say the least.”
Others who have worked with Foley are kinder in their assessments.
“He’s a very, very smart guy, and because he’s very fast-paced, you learn a tremendous amount from him,” said Steve McCartney, Fidelity’s former CFO, who now works for another company. “But he’s hard to work for because he doesn’t have the best people skills. You pay for it with some stress.”
With the title industry booming from refinancings--it grew 25% last year to $5 billion--weaker companies revived and Fidelity sees fewer opportunities to acquire firms at bargain prices. Foley also acknowledges that Fidelity is “getting to about all the market share we can garner in some of these counties.”
So as it prepares to settle into a period of slower growth next year, the company is considering more traditional ways to expand, from engaging in credit life insurance on mortgages to buying into title-related operations, such as services that inform lenders if borrowers are paying property taxes.
“If we’re going to keep the growth going, we’re going to have to get involved in some other lines of insurance business or in businesses that are related to the title insurance industry,” Foley said.
