When it's time to go - Walter Smiley resigns as head of Systematics

Nation's Business, Nov, 1989 by 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."