Warren Stephens’ uncle Witt started Stephens in 1933 during the Great Depression in Little Rock, Arkansas, to trade highway bonds. It morphed into an investment bank and financial services firm, and Witt handed the company to Warren’s father, Jack, in 1956. He ran it for 30 years before realizing one day that he needed to establish a succession plan.
So, in 1986, at the very tender age of 29, Warren found himself sitting in the CEO’s chair. “Dad remained at the firm as chairman, and if I messed up, he could fire me or clean up the mistakes,” Stephens recalls. “Thankfully, he didn’t have to do that.”
Today, at age 59, Stephens is contemplating who among his three children will be involved in running the firm and in what capacity. They all have experience working at the firm, and, even more importantly, at other companies. The eldest son has worked for a money management firm on the West Coast for three years. The middle son worked for a Stephens-owned management group in Houston. His daughter worked at a public relations and marketing firm in New York before returning to Little Rock to her family’s firm.
“Exactly how it all takes place, I don’t know,” Stephens says. “But they will be the next generation to run the firm. Whenever you can think about things over a longer period of time, you almost invariably have a better outcome.”
One of the ways Stephens is planning the transition is by borrowing a page from what his father, uncle and he did in the 1980s. They made equity investments as individuals in a commercial bank because they were barred by law from buying the bank through their securities firm.
“It provided a flow of funds for all of us individually,” Stephens says. “We said, ‘That’s a pretty good idea.’” Now, the firm’s private equity group finds interesting investment opportunities and forms a company in the name of each child to hold and manage those investments. Each child can make other investments, but they have been guided into solid personal bets by the firm’s professionals. “That gives each individual a source of wealth and money outside the firm,” Stephens explains. “None of them should feel that even if they’re not involved in the business, they could put pressure to effect some sort of transaction so that they could have liquid assets. It’s not acceptable for them to say, ‘Hey, I’m not involved in the business, but I have all my assets tied up in the business.’ We wanted to create vehicles that relieve that pressure on the main business.”
To a very large extent, this individual investment strategy separates decisions about what is best for the firm from what is best for any of the three children personally. How precisely will Stephens manage the transition? “It won’t be a competition,” Stephens says. “I suspect all three will be involved in managing the firm. As time goes on, they will gravitate to the areas they enjoy the most. Those will be the areas they run. They’ll have to make joint decisions if there is anything big and strategic they want to do.”
And their own personal financial goals will not be part of the mix.
This article is a sidebar to: Do I Turn the Business Over to My Children or Sell Out? from the November/December 2016 issue of Chief Executive magazine, page 38.