When it’s time to go – Walter Smiley resigns as head of Systematics
Michael Barrier
When It’s Time To Go
Walter Smiley spent 20 years building Systematics into a $200-million company. Then he walked away from it.
The sign says “Smiley Investment Company,” but only a secretary is behind the door. Walter V. Smiley is across the hall, in a small office that is bare except for a desk, a conference table, a few chairs, and some family photos. The office, on the 16th floor of a bank building in Little Rock, Ark., commands a northern view toward the Arkansas River, but it’s not where you would expect to find a man who has been guiding the fortunes of a $200-million company with 3,000 employees.
A little over a year ago, though, Walter Smiley was doing just that. He still would be, except for one man’s decision: his own.
Smiley founded and for 20 years headed Systematics Inc., a company that has won glamorous success in an unglamorous field–computer services for financial institutions.
In recent years, more and more banks and thrifts have turned to outsiders for help in running their data-processing departments. Competition among banks has grown so stiff, and computer technology so complex, that many banks no longer trust themselves to keep up if they rely on in-house expertise. For example, Manufacturers Hanover, the nation’s seventh-largest bank, conducted a 12-month contest to find the software supplier that could best help it manage its $65 billion in assets. Earlier this year, the bank announced the winner: Systematics.
Systematics’ pretax income in fiscal 1989 was more than $30 million, on operating revenues of almost $207 million. Its revenues are growing at a clip that will make it a $500-million company by the mid-1990s, but it has just begun to tap its market. Systematics still serves only about 200 of the 18,000 financial institutions in the U.S.–and now it is selling overseas, too, to large banks in Singapore and other places. Many competitors have disappeared, eaten up by problems Systematics mastered years ago. By every measure that can be applied to its industry, Systematics either leads or is very close to the top.
Walter Smiley was the architect of that success, and John E. Steuri, the former IBM executive who now heads Systematics, envisions no major changes from the way Smiley ran the company:
“We may do some tuning–we may be more aggressive in marketing, we may get more customer-driven. But I’m not about to change any of the basics that have made this company strong.”
Many companies have suffered because their founders hung around too long, proving that they could not make the transition from entrepreneur to manager, but Systematics was never one of them. Smiley found his job more comfortable the bigger his company got. Says Cato D. Carpenter, an analyst with Alex. Brown & Sons, a Baltimore investment-banking firm: “He was not only smart enough to recognize the opportunity, he did a great job executing.”
Smiley remains on Systematics’ board, he still owns several million dollars’ worth of stock, and he has an 8-year contract as a consultant to the company that will pay him $300,000 a year (the same as Steuri’s base salary). But since last year, he has relentlessly pruned his day-to-day ties with Systematics.
Steuri joined the company as president and chief executive officer in October 1988. “When I first arrived,” Steuri says, “Walter was here some, and he was gone some, but he was really trying to get people to come to me and let me be the CEO.” Last May, Steuri continues, “the board concluded–and I think it was really Walter’s conclusion–that we were ready to take the next step.” Smiley surrendered the chairman’s title, too, and for the first time in 21 years was no longer an officer of Systematics. Now he visits Systematics’ campuslike headquarters in western Little Rock perhaps once a month. To visit more often, he says, “would be bad for John, bad for me.”
Smiley was a stellar performer who chose to leave the stage when his audience was still calling for encores. Why did he do it?
Sitting in that bare office, he is quick with his answer: “Part of it was just getting bored.” No matter how large and successful the company, he says, “there’s a basic set of things” that a CEO always has to do, and “I felt I was getting bored and maybe stale as a result of that.”
But he also points to a reason that goes beyond his own personal satisfaction, to concern about the future of Systematics. “As you build a company,” he says, “one of the things you have to do is continually resist philosophies that you believe are wrong.” He recalls “very vividly” having to decide, early in Systematics’ life, whether to put $90,000 into marketing or into software development. “The classical wisdom of everybody in the industry was to pour that money into marketing, go get market share, then develop software. I can remember our management team sitting down and agonizing over that, and two of us felt strongly that the money should go into development.”
The money went into development–which was, as it turned out, unquestionably the right decision. Systematics survived, and then prospered, because it directed its energies toward meeting its customers’ needs, not toward rounding up customers that it might or might not be able to serve. However obviously correct such decisions may appear in hindsight, it took courage and foresight to make them in Systematics’ early days. Jon E.M. Jacoby, a member of Systematics’ board of directors since 1968, recalls that one competitor took the opposite tack–and its revenues rose to $40 million while Systematics’ were rising to only $9 million. “But then it went to $9 million while we were going to $40 million. So I think our result was better.”
Smiley deserves the credit for that result, Jacoby says: “Walter realized that you’d better build this thing one brick at a time, and it had better be solid.”
But Smiley himself saw a crack in the solid foundation he laid. “As you make those philosophical kinds of decisions year after year,” he says, “you probably get to the point that you don’t really look clearly at alternatives. You almost get defensive; you almost get to the point where you say, `Wait a minute, we’ve done it this way forever and it’s worked, don’t talk to me about changing it.'” The only cure he sees is for the CEO to leave.
“This is something I’ve always believed,” Smiley continues. “It’s not something that reached me in a blinding flash six months ago. I always said that about age 50, after 15 or 20 years, I want to go do something else. I think everybody who runs a company knows that’s the right thing to do. The problem is just doing it.”
Smiley was born 51 years ago in Hope, a small town in southwestern Arkansas, and graduated from the University of Arkansas with an MBA. Then he went to work for IBM. “I think that’s where I got the first glimmer there might be an opportunity,” he says, “because so many of my customers didn’t know what to do with the hardware that we were selling them.”
He wanted to live in Arkansas, so he took a job with a bank in Fayetteville. “There,” he continues, “it became clear how difficult it was going to be for one bank, standing alone, to do data processing properly,” because of the necessary investment in software. Big banks could afford that investment; small banks already farmed out their data processing to bigger banks. But many medium-sized banks, those with a few hundred million to a few billion dollars in assets, were caught in a squeeze.
Smiley and some other bank executives tried to talk their bosses into joint development of software, but the banks were too suspicious of one another. “After struggling with that for a year or so,” he says, “I decided to see if I could get some money and start a company.”
For backing, Smiley turned to Stephens Inc., the Little Rock firm that is the largest investment-banking house off Wall Street. Stephens put $400,000 into Systematics, in return for 80 percent of the new company’s equity. Stephens’ role in Systematics differed sharply, however, from the norm for such investors.
“In this business,” Smiley says, “it’s real easy to get yourself in a position where you’ve got to sell tomorrow for the sake of today. The Stephens people were just the opposite. They always encouraged us to prepare for the long term, to do it right.”
Systematics did go public, but not until it had been in business for a dozen years, and Stephens has never cashed out of Systematics. Jackson T. Stephens, chairman of Stephens Inc., sits on Systematics’ board and still controls about half the company’s stock. Says Jacoby, the Systematics director, who is executive vice president of Stephens Inc.: “We’re basically long-term investors. The best investments are the ones you never have to sell.”
Smiley himself never owned more than 10 percent of the company. He was, he says, more like “a hired manager” than an owner, but “I never thought about that. I never, ever thought about making a lot of money.” Rather than “money” or “success” or any comparable word, it is “fun” that turns up frequently when he talks about his business career–“It’s really fun to watch organizations work, to watch them come together”–and for him, the fun came from building a strong, smoothly operating company that met a real need.
With that kind of attitude–and with Stephens’ support–Smiley could resist temptations of the kind that have undermined other promising companies. For one thing, Systematics has always defined its business very narrowly, concentrating on services to financial institutions, and has never expanded into related fields such as insurance and health care.
Initially, Systematics offered only facilities management–that is, it would, under contract, run a bank’s data-processing department for it, typically on the bank’s premises. Only after carefully exploring the implications did it begin licensing its software to banks like Manufacturers Hanover, which for one reason or another were not potential customers for what is still Systematics’ principal service.
Smiley adopted the same kind of keep-your-eye-on-the-ball approach to Systematics’ software. Says Carpenter, the analyst: “Systematics is really not in the business of pioneering technology; they are in the business of applying technology in the most efficient and economical way, to the customer’s cost benefit.”
In particular, Systematics has limited its use of relational databases, relying for the most part on a system that requires much less computing power but still provides the only “real-time” information a bank normally needs: whether a customer has a balance large enough to cover a check.
Smiley wanted Systematics’ employees to be as clear about their own roles as they were about the company’s. “I think management is so simple,” he says. “You be honest, you figure what you’re going to do, you tell everybody what you’re going to do, and you all go do it.”
To keep things simple, Smiley tried to wipe out as many distinctions as possible among employees. Every office in Systematics’ headquarters is the same size–10 feet by 12 feet–and the only reserved parking places are those for visitors and the handicapped. “I think it’s unfair for me to be able to park close to the building when it’s raining, when somebody else has to walk a quarter of a mile,” Smiley says. “I think the people who get there early ought to get close to the building.”
Ideally, he says, there should be no distinctions among employees, “other than in compensation. That’s simple–it’s easy to explain. It’s when you start doing all these other things that people begin to become confused about fairness issues.”
Management, Smiley says, “is almost a subservient job, and if you don’t view it that way, I think you wind up making big mistakes.” But, he adds, when a manager understands his proper role, “leaving a company is not a problem at all. To say `I’ve done my share’ is different from saying `I’m giving up something.'”
Now that Smiley has done his share at Systematics, he has invested in some promising start-ups, but otherwise he is going to go slow for a while, until his two children are out of high school. Then he may start another company of his own, perhaps with the financial backing of Stephens Inc., which is ready, Jacoby says, to back Smiley in “anything he wants, absolutely.”
Smiley looks forward to getting back into the day-to-day management of a company:
“I think that’s really what I’m good at. I like building organizations; I think it’s really fun.”
PHOTO : His new office in Little Rock may not be plush, but Walter Smiley thinks it’s the right
PHOTO : place for him to be.
PHOTO : Smiley once ran Systematics from this campuslike headquarters complex in western Little
PHOTO : Rock.
COPYRIGHT 1989 U.S. Chamber of Commerce
COPYRIGHT 2004 Gale Group
