Business February 2019 Magazine People

Hall of Famer: Warren Stephens

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By Caleb Talley | Photography by Jamison Mosley

If you didn’t know any better, you might think Warren Stephens was born to lead Stephens Inc.

After all, the highly regarded, Little Rock-based investment bank and private-equity firm was founded by his uncle, Witt, and run by his father, Jackson.

“I think, to a lot of people, it looks like this was kind of the path I was on,” Stephens says. “But it really wasn’t. It was never a foregone conclusion that I would come here. Or that they would even want me.”

It wasn’t until he finished his M.B.A. at Wake Forest University in 1981 that Stephens considered the possibility of coming home to work for the family business. At the time, he was weighing opportunities at Trust Co. of Georgia (now SunTrust) and Mobil Oil. A business school professor-turned-friend and mentor pointed him in another direction.

“I had a business school professor, Tom Goho, who is still a very good friend and mentor,” says Stephens. “I was talking to him about [my options], and he said, ‘Where do you see yourself in five years?’

“I said, ‘Well, I think I’d like to go back and work at Stephens.’ He said, ‘Well, if that’s where you see yourself in five years, just go back there now. You don’t know how long you’re going to have your dad and your uncle, and you’ll learn a lot more from them than you will in a training program,’” Stephens recalls. “So, I took his advice and came back.”

Stephens joined the team in the corporate-finance department and was reportedly given a desk in a hallway. By 1983, he was named head of corporate finance. Three short years later, on February 18, 1986, he and fellow Stephens Inc., executives were summoned to the Coachman’s Inn for a surprise announcement. It was there that Stephens was named CEO of Stephens Inc. It was his 29th birthday.

“That was way too young,” Stephens says with a laugh. “But, really, I was very humbled. I looked around the room when Dad made the announcement, and there were people in that room much older and much more experienced than I was. They’d helped get the company to where it was at that point. I basically asked them to continue their support of the organization, and I never really felt pressure.

“I think Dad was very focused on succession and very aware that most family businesses fail because of the lack of succession,” he adds. “Of course, he and my uncle were still alive. So, if I messed up, they were around to fix things. They were great.”

But for the most part, Stephens says, his father and uncle let him run things as he saw fit. “Dad made me CEO on February 18th, and he left town for a good while,” he says. “He went to Florida. This is before the Internet, you know, we just didn’t have communications like you do today.”

For Stephens, it would be business as usual. And at Stephens Inc., that meant building a bank that was centered on the value of personal relationships, a concept his dad had pioneered.

“It was the first M&A craze of my career, and Drexel Burnham Lambert (an American investment bank that was forced into bankruptcy in February 1990 due to its involvement in illegal activities) was selling junk bonds,” says Stephens. “One day they may be on one side of the table with the customer, and then the next day, they’d be on the other side of the table. Dad said, ‘They may make a lot of money, but that’s not really a good long-term business model.’ He wanted to build an investment bank that was centered around relationships.”

And that’s precisely what they did. Stephens continues to operate the family business with the same philosophy. But now, he does so with over 30 years of experience as CEO. In a corporate environment in which the average tenure of a CEO is less than seven years, Stephens’s staying power is a luxury. And it affords him a different perspective than his peers.

“It’s a great luxury, not just for us, but I think for all private companies,” says Stephens. “You can take the very long-term approach, and we have done that. We have continually invested in this company.

“If you were a CEO of five or seven years, these things are expensive,” he adds. “It costs money. You’re not going to get a return on it right away… Because we’re private and because I’m not worried about losing my job, you can take that long-term horizon.”

It’s that approach, he says, that has led to strategic advantages that have helped Stephens Inc., weather financial storms. It’s also allowed him to use turmoil to the company’s advantage, like bringing in quality people while other firms were cutting back.

“I don’t think we’d be where we are today if we were a public company,” Stephens says. “In fact, I’d almost guarantee you we wouldn’t. What I think would have happened is just like what has happened to so many other firms that like ours. We’d probably have been sold. From that standpoint, in terms of carrying out on the mission of establishing an investment bank based on relationships, it’s been great because so many of our competitors are now gone.”

As for the latest financial crisis, now a decade ago, Stephens Inc. came through unscathed. Stephens says he never went to bed at night worrying whether they would make it, and it was because he followed his father’s advice and refused to leverage the company to any great extent.

“When firms were going under, I didn’t realize that their leverage ratios were as high as they were – 30 percent, really 30 percent plus. I just couldn’t imagine running a firm like that. I’ve seen it over my career; everything can go down three percent for no reason at all or something else completely out of your control.

“We’ve made plenty of mistakes, but we’ve avoided the fatal ones,” he adds. “And the fatal wounds are almost always centered around too much leverage or some tremendous interruption in liquidity and the ability to finance your business. Again, that goes back to the leverage. We have not done that. We wouldn’t do that.”

Stephens recalls a time when he was still early in his career when his father put their brakes on an idea he had. “I made some kind of young, flippant remark and said, ‘Well, what are we going to do with all the capital?’ Dad sat there for a second, looked at me and said, ‘Keep it.’”

And just as Stephens followed in his father’s footsteps, he believes his own children – Miles, John and Laura – will one day take up the reins of the family business, though they’ve never been prompted to do so.

“We certainly never pushed them to come into this business, at all,” Stephens says of his three adult children. “In fact, John and Miles were both history majors, and Laura was an art major. Maybe just being around it, and they were around their grandfather a little bit, maybe somewhere deep down they felt like it’s something they wanted to do.

“I certainly see my children having a role here in the future,” he adds. “I don’t know exactly in what capacity, but they’re all bright. They’re all hard-working, and they’re all interested… I’m so proud of all three of them. They work hard. Their mom and I have worked together on that.”

Stephens is quick to credit to the country’s economic and political structure for the successes of his family business. Capitalism, he says, made it all possible. It was how his uncle, who never finished the 8th grade, went from selling Bibles and belt buckles during the Great Depression to selling highway bonds and laying the foundation for one of the country’s most successful investment banks.

Stephens has made it his mission to share the virtues of capitalism with the world. That’s why, in 2017, he launched a video series celebrating capitalism through the stories of hardworking Americans whose independent spirits and hard work exemplify the economic system.

What prompted the series? “Bernie Sanders,” says Stephens. “He carried 22 states in the Democratic primaries as an avowed socialist, appealing mainly to young people. They just don’t understand.”

Stephens cites the stark differences he saw between East and West Berlin during a visit in the 1980s. “People were risking their lives and getting killed to try to get out of East Berlin into West Berlin,” he says. “Just the difference between West Berlin and East Berlin was just startling. You couldn’t really make an argument as to which one was better for the citizens; it’s not even close.”

Philanthropy, too, he says, wouldn’t exist if it weren’t for successful capitalists.

“Every great philanthropist in this country either was themselves or an heir to a great capitalist. Every one,” says Stephens. “I think people lose sight of that. In order to help your community, you’ve got to have a successful business.

“Look at what the Waltons are doing. The Rockefellers, in Arkansas,” he adds. “It’s a great system. It certainly is not perfect, and there are certainly some things that people think aren’t fair – great word today. People think things aren’t fair. Well, life’s not fair. But you do have a great shot at achieving your goals and objectives in this system, and nobody’s telling you that you can’t even try.”

On Feb. 8, Stephens and three fellow capitalists will be added to the rolls of the Arkansas Business Hall of Fame. He joins his father, who was among the first class of inductees in 1999.

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