Hall of Fame - Robert Smiley


Along with founding and running The Benefit Capital Companies, a nationwide group of firms that specialize in banking and financial advice, Robert Smiley is also one of the founders and a past president of The ESOP Association. This trade association includes over two thousand ESOP companies of all sizes and has an active presence in our nation's capital. The group has been influential in promoting ESOPs and fostering cooperation on employee ownership between company owners, industry organizations and government alike. Robert Smiley is a nationally recognized speaker and writer on ESOP topics.

Interviewer: I’m here with Pete Wuebel and Ken Winslow talking about Bob Smiley’s contribution to the ESOP community and movement over the years. Let’s begin with some questions. The first one is, was he influenced by Louis Kelso?

Pete: Absolutely. Bob, if you read the bio, he was in the Navy, got out, went to Stanford, and got involved in ESOPs as a side category. Kind of the way that I would put Bob is, a patriot of the United States and looking for opportunities. And the concept of employee ownership caught his eye, and followed up and got very involved with Kelso, and got involved in the ESOP association, the NCEO, and all the side attributes to that. So, Kelso's economic thoughts are the things that Bob grabbed onto.

Interviewer: Okay. How early on in the whole ESOP movement was Bob in? Was he in from the very beginning?

Ken: Original gangster.

Interviewer: Okay, good. So that means that he was involved in ERISA in '74 and then the fight to preserve it in '77?

Pete: I believe so. I met Bob in 1978. I was in the process of starting a bank and we determined that we wanted to put an ESOP in as part of that benefit plan. Bob and Dick Acheson were involved in the company called Benefit Systems at the time, and they set up our ESOP at West Valley Bank in 1978. He was well-established at that time, primarily as an administration firm and also setting up ESOPs, but not leveraged ESOPs at that time.

Interviewer: Okay. You mentioned his time in the service, are there any stories he told about that time that would be interesting to people?

Pete: All I know, he was on a ship in the Navy. He was in the far east.

Interviewer: All right, how did specialization affect his career?

Pete: Well, he latched onto the concept of ESOPs and got involved in employee benefits, and I think throughout his career he's been involved in one form or another in the employee benefit world with ESOPs, leveraged ESOPs, defined benefit plans, and many other items. So yes, he's employee benefit motivated.

Interviewer: I read through a lot of his accomplishments and so on. What would he say is kind of his top two or three accomplishments, his favorite ones, or his proudest moments?

Ken: He took a lot of pride in the company.

Pete: He formed Benefit Capital, Inc., I believe in 1984, and as I said, prior to that time I was in contact with Bob where I was a user of his services, and shortly after forming Benefit Capital, Inc. and breaking away from Benefit Systems, his goal was to do leveraged ESOP transactions. I worked with Bob — and Ken, I think, was right around that same time — in developing a leveraged ESOP for a company called Multiquip Inc., which was a leveraged ESOP. My job was to help put together the credit request for the bank and help put the bank through, and we did that. Kind of an interesting sidelight — and this is, I think, where Ken and Bob got closer — was, we were operating out of a private residence in Brentwood, California, and our initial work on that first ESOP was then around the pool of his residence there. It was actually quite an interesting location. Right after that, we did Kirkhill Rubber Company. I think that's when Ken really got involved with our company, is with Benefit Capital, Inc. at that time. Is that correct, Ken, if you recall?

Ken: Yep. That's right. Kirkhill was my first ESOP transaction at Benefit Capital, not the last.

Pete: That's true.

Interviewer: So do either of you have any stories that kind of exemplify his skill as an advisor?

Pete: Well, if we went into a meeting to introduce ourselves and to try to develop any projects, Bob basically had two luggage carriers filled with huge briefcases that he rolled in with that had virtually all kinds of files and information, government reports, and ESOP books, and writings of Kelso and the like. So, that would be the way that Bob would roll in to a new prospect.

Interviewer: Wow. So, he came in prepared.

Pete: He came in prepared. He's a unique character, certainly, and, as I was talking to Ken earlier, kind of my memories around the Bonhill location, which was the private residence, Bob, at that time, had two large cargo containers on the property, enclosed in a fence. And in there he had libraries in the cargo containers, and he actually had an on-staff librarian who kept his libraries sacred. The other thing about Bob, kind of a thing that he would do is, for his supplies, Bob would take a Polaroid picture of what was in the supply cabinet, or anything that he wanted to keep track of, and keep that on the inside of the cabinet door, so everybody or anybody would know exactly where things should be.

Interviewer: Oh, wow. So, very organized gentleman then?

Pete: Of course.

Ken: Very.

Interviewer: All right. Have you ever had any conversations with him about what advice he would give to new advisors?

Pete: Be prepared.

Interviewer: What were his influences as far as the people that helped him along in his career?

Pete: I think one of the places I would direct you towards, in addition to his resume and addition to the Benefit Capital company's website, is if you take a look at the book. Bob was very instrumental, along with Ron Gilbert, in creating what I would call the one stop shop for how to implement an ESOP, create an ESOP, leverage an ESOP, and manage the taxes of an ESOP. The parties involved in that book, which was published, I think, in 1988 or after the later part of '86, '87. That particular book was kind of the one stop for knowing everything you needed to know about ESOP, and the people that were contributing to that would be in that book. You could take a look at it. Ron Gilbert was obviously a part, just like Ron Ludwig, Greg Brown, Jared Kaplan, those people were all contributing authors to that book. So, they all had an influence on it.

Interviewer: Okay, and that's the book called Employee Stock Ownership Plans?

Pete: Yes. I think it was Employee Stock Ownership Plans, ESOP Planning, Financing, Implementation, and Taxation.

Interviewer: All right. Let's switch gears for a moment and talk about his involvement in the ESOP association. What can you tell me about his time there?

Pete: Well, I think he was a founder and past president.

Interviewer: Yes. That's what I understand from his bio.

Pete: And very involved in getting people to become members.

Interviewer: Okay. So kind of networking and recruiting then?

Pete: For the association, yes.

Interviewer: Okay.

Pete: And Ken, you worked pretty closely with him alongside on that, right?

Ken: Yeah. Is he the only lifetime honorary member?

Pete: I'm not sure, but I think he is.

Interviewer: Right. Kind of in that same vein, what was his involvement with NCEO?

Ken: Advisory. Well, I'm sure you are aware of this, but the ESOP community is fairly small, and there is a lot of back and forth trading of ideas, and meetings, conference calls, and so forth. And I think Bob was a cheerleader for Corey Rosen, and the ESOP Association and the NCEO are similar, but not identical, and I think Bob was a booster in both efforts and tried to encourage.

Interviewer: Okay. Which brings me to another thought, and that is, the people that would say that they've been greatly helped by him or owe their careers to him, any thoughts or stories along those lines?

Ken: I'm first in that line. Certainly I wouldn't have been able to do what I am doing right now without Bob, so my association with him has been very productive.

Interviewer: All right.

Pete: He also had a leadership role, a number of other people, if you take a look at the participants, if you take a look at the Benefit Capital website, you'll see a number of people that were involved actively in the Benefit Capital Companies who went off to do their own thing and enter their own organizations.

Interviewer: All right. If we could for a moment, let's talk a little bit about the earliest ESOP transactions. In those early days you guys were still kind of figuring things out at that time, as far as how it was all going to come together, I guess my question is, how did that work as far as piecing things together, and what role did he have in that?

Pete: Other than Bob just doing straight ESOPs when I first met him, what I mean is just introducing it as an employee ownership plan, primarily on a non-leveraged basis. My involvement in the actual transaction process was when he formed, as I said, Benefit Capital, Inc., and he split off with Acheson just truly as an administrator and evaluation participant, was to develop leveraged ESOPs and to actually go out and put the fourth leg on the stool. Which, not only did we structure the transaction and develop the implementation, we also went out and arranged for the financing, so that the owners of the companies could be able to recognize the value of a leveraged ESOP, or basically allow them to spread their wealth from outside just their own company, to going out into other investments, allow them to take advantage of the tax benefits of ESOPs. He became very much involved in Benefit Capital, Inc., and that's where the capital came from. So, not only did we go out and do structuring, and arrange for the financing, and develop the employee communications on that, to some degree, we also involved ourselves with a bank, called the Imperial Bank of California, which became an investor in Benefit Capital, Inc., and also took equity roles in leveraged ESOP transactions. So bringing it all full circle.

Interviewer: Okay. I guess that maybe answers my next question here, and that is, any stories about unique or different ESOP transactions that he was involved in?

Ken: The thing about Prime source…

Pete: All unique. Yeah, tell him the Prime Source story, Ken.

Ken: Well, Primesource was a Wickes Lumber subsidiary. You probably don't recall, but Wickes Lumber was a — notorious is probably too strong — but certainly a well-known story, and it had a number of iterations. I think it was the object of a leveraged buyout that kind of came unstuck. I'm going to look it up right here, it's been a while. But what Bob was able to do was, as part of the restructuring of Wickes Lumber, spin out a subsidiary into an ESOP, which created some liquidity for Wickes Lumber and help it in the restructuring.

Interviewer: All right.

Pete: I think when you look at the Benefit Capital company's website, you'll see a whole plethora of representative transactions that Benefit Capital was involved in, and each one of those was a different story. I think that's really the bottom line. Each one is unique in its own right, relative to the personalities. Because the ESOPs that I worked on with him were very personal ESOPs with a lot of private companies. We did public as well, but a lot of private companies that were owned by some very strong personality people, and each one of those required a different approach relative to how we were going to structure the transaction and what our role was going to be. I'm going to share one, I'm not going to share the company, but there was a leveraged ESOP that I was involved with with Bob, and I think Ken was involved in this one as well, where the chairman of the board was probably, at that time, early eighties, late seventies. Very dynamic, strong person, and just very, very hard to influence. We ultimately, in order to get a lender to actually do the loan, (they were concerned about the leadership of the company and that one person seemed be making all the decisions). So, part of our role came in to actually work on him becoming the Chairman Emeritus of the board and moving on. So, in that case, our role was to get the financing and then to also work with the company in basically sending the chairman of the board out the door.

Interviewer: Oh, wow. Yeah, I imagine some of those were pretty tricky.

Pete: They were. Absolutely. And that's why I say each one is unique in its own right. Primarily because you're dealing with some entrepreneurs that are very, very hard to give up their control, and there's a lot of different ways to convince them that they need to do what they need to do in order to diversify their ownership in something. So believe me, that coaching part of it is as strong as anything else relative to getting a leveraged ESOP to take place.

Ken: Yeah. I know what you're talking about, and I think the message there was that management succession is almost implicit in ESOPs, but it's sometimes easier said than done.

Interviewer: So, what my next question then would be, what role has Bob played in how the ESOP world has changed over the years?

Ken: Certainly still a big supporter of ESOPs. I think, like a lot of us, he developed a leeriness for the Department of Labor's regulation, its style of regulation, and I think that kind of affected all of us in terms of the way we come at these transactions, make us more conservative, less aggressive. We don't want to wind up on the front page of The Wall Street Journal, so what you try to do is stay well within the guardrails, and that was the approach.

Interviewer: What were the breakthrough ESOP deals that Bob structured?

Pete: Ken mentioned Prime Source was one that he was involved in, and a lot of these have different stages to them. Multiquip was one, Kirkhill Rubber Company was another one. And part of that — and I think this is something to be added to this — in doing the leveraged ESOPs, a lot of it was introducing lenders to the concept of ESOPs and how leveraged ESOPs could be a benefit to them. Ken certainly would know that one as well as I do, because he was a lender.

Ken: And in fact, that's how I met Bob. He had come to New York to pitch his services in particular and the concept of ESOPs in general. It was a good enough pitch that I joined the firm.

Interviewer: Must have been a good pitch. I guess that leads to the next question. Because these banks really didn't know much about ESOPs, what was that approach like?

Pete: Well, Kelso definitely put all the pieces together. It was a matter of going and educating, sitting down. And I remember sitting down with a number of lenders, Barclay's Bank being one of them, some of the GE Capital people, and explaining to them the tax benefits of doing the leveraged ESOP and how it was protected. Because ESOPs are not easy, they're complex. They're simple, but they're complex. And as Ken mentioned, the Department of Labor, the DOL, you got to make sure you cross all the t’s and dot the i’s there to make sure that you are within the framework of the legislation. So I think it was sitting down with lenders and explaining to them how ESOPs work.

Ken: Which to me, as a lender, when I was a lender, was that on one level, there are tax benefits and a lot of incentives that are financial, but on another level — and we were able to utilize this approach pretty effectively — the age of the leverage buyout was just dawning and there were transactions in which we would go to the prospective seller, the owner, and say, "Mr. X, you could sell your company to one of these New York buyout firms, but when you come back six months from now, you won't recognize it." And so Bob was not only able to explain the ins and outs technically, but he also managed to communicate some of the non-dollar aspects of it like continuity and loyalty to your employees. These are the folks that got you where you are, and this is your way of repaying them for their loyalty in working with and for you.

Pete: And I think the added part to that is, and still be able to manage the company in the way that you would like to, to a large degree. You don't have to give up control to a leveraged buyout company, and you can still maintain your role in making sure that your baby is able to continue down the path you want it to.

Interviewer: Okay. That brings me to the end of my questions. I guess the last thing I would probably ask is, are there any kind of personal anecdotes you can share that kind of shed light on Bob's character and who he was?

Ken: Well, I've been waiting for this one, and Pete and I just talked about it a minute ago. Bob finally migrated away from the garage and the pool in Brentwood, California, and rented us an office, and the office was, I guess on the second or third floor, but outside the office there were patios. And I was from New York, I certainly wasn't accustomed to working banking business on an outdoor patio, but I have long believed that there are three elements to a good job: you have to enjoy what you're doing, you have to enjoy where you're doing it, and you have to enjoy who you're doing it with. And as I was smoking my cigar on that patio I was thinking, "Hey, I just checked all the boxes."

Pete: And I'll add to that one as well. Bob and I, Bonhill Road location, I'm sitting there writing a credit request out on a patio surrounding a pool under 80 degree weather. Bob's over in his shorts, we have some other people in the garage basically doing spreadsheets and the like, and I know when Bob was looking at doing another office, going outside of the house, one of the things that he needed, he wanted an office where he could go outside and work outside as well. So that was a prerequisite for him as well.

I have a couple things I want to add that you may not have found or may not be aware of, but just to give you an idea of the spread that Bob had, relative to what he was doing during the course of his life, and a lot of this was done at the same time. I'm sure you're aware of the Reason Foundation, or had some idea of the Reason Foundation. If not, they are a libertarian group that’s been around for many years. Bob had an active role in that. I don't know if he was on the board or not, but he was actively involved in the Reason Foundation and fundraising for them. Reason Magazine, which has many libertarian types of writing. He was also the founder and co-chair of Liberty National Bank in Huntington Beach. Now all these things were going concurrent. He was doing the ESOPs, he was doing the Reason Foundation, he was doing the bank, he was working on finalizing his law degree. So yeah, he was a 24/7 365 kind of guy. I shouldn't say was, but at that time he was.

Pete: So, just a little bit of an idea of the complexity of the man and the number of things that he was involved in. He eventually relocated from Southern California to Logandale, Nevada, and bought a piece of property there. I can remember, one of the things, Bob continued to keep his library going. I was still in Southern California, Bob was out there, I went out to Long Beach Harbor, and along with another buddy of mine we found eight 30-foot cargo containers, which we assisted in getting loaded onto box cars, or onto flatcars, and shipped to Logandale, Nevada, because his space there that he owned was right beside a railroad track. And those became storage facility. Bob, he liked to hang on to records and books.

Another thing, there right next to the property was a city-owned water tank. You know, the big ones on the side of the hill?

Pete: Bob bought that, and converted once again to storage and office space. So those are kind of the way his mind worked and the things that he was involved in. Not just ESOPs, but many other things concurrent.

Interviewer: Did he ever tell you how many volumes his library was?

Pete: No, but it was huge, and on the transactions we used to do, as I mentioned, he's walking around with these briefcases full of technical information. Well, multiply that times thousands and that's what he had out there. A unique individual to say the least.

One last thing…

If you go to the website for Benefit Capital Companies you will see a drop down for Fourth of July Reflections.  These were sent out to the Benefit Capital mailing list over a number of years.  Bob took great pride in putting together these overviews on our founding fathers.