Warren Stephens’ World View

Editor’s note:  This story appears in the latest magazine issue of Talk Business Arkansas, which you can read online at this link.

Warren Stephens knows a lot about golf.

He also knows a lot about finance. And banking. And energy. And family. And relationships. And networking. And government regulation. And media. And charity. And reputation. And tradition. And capitalizing on opportunity.

The most visible heir to the Stephens empire – son and nephew of Stephens Inc. co-founders Jackson T. Stephens and W.R. “Witt” Stephens respectively – he’s quite comfortable in his own skin as a businessman, father, and Arkansan.

So where do you begin the quintessential Warren Stephens interview?

When it takes place at the exclusive Alotian Golf Club, you start with golf. It is, after all, the anchor for the interview.

The Alotian clubhouse resembles a traditional southern-style plantation with high ceilings and a very elegant, sophisticated but certainly not opulent interior design. A manager greets you at the front door, the clubhouse wait staff offers you a refreshment, and when you walk in your eyes are immediately drawn to the glass windows and doors at the back of the structure.

Soaring Georgian-style columns frame up a back porch full of white rocking chairs that stretches across the back of the building offering a panoramic view of Lake Maumelle from the top of a mountain. It’s a visitor’s first glimpse of the course. It’s a golfer’s last as it sports the 18th green. Stephens makes certain to credit his wife, Harriet, who was instrumental in the first-class decorations that adorn the club’s interior.

The Alotian, situated atop a mountain in western Pulaski County, got its name from a Warren Stephens-assembled traveling posse of golfers. The “America’s Lights-Out Tour” criss-crossed the country to play different golf courses in hopes of putting together a wish-list of desires for the project Stephens had in mind. The group came to be known as the Alotians, thus the golf course’s name.

Designed by one of golf’s master architects, Tom Fazio, the Alotian was ranked as the No. 6 most beautiful course by Golf Digest in its 2013-14 rankings. The magazine also ranked the 7,480 yards, Par 72 Alotian at No. 15 in terms of greatest golf courses in America, behind such famous destinations like Augusta, Pebble Beach, and Winged Foot. Not bad for a golf course not even 10 years old.

During the last week in July, the Alotian will host the Western Golf Association’s Amateur, a golf tournament that features many of the top amateur golfers from all over the world. The event serves as a major fundraiser for prestigious college scholarships for golf caddies who meet extensive academic and character rigor.

The scholarships, known as the Chick Evans Caddie Scholarships, are named after a famous caddie who grew up in Chicago.

Charles E. “Chick” Evans was a leading amateur golfer of the 1910s and 1920s. He was the first amateur to win the U.S. Open and U.S. Amateur in one year, a feat he achieved in 1916.

Each year, more than 800 caddies earn the four-year scholarships from the Evans Scholars Foundation. Since 1930, when the first two Evans Scholars enrolled at Northwestern University, more than 10,000 men and women have earned the awards. As a matter of fact, women account for nearly one-quarter of the scholarship award winners.

Annually, nearly $11 million is doled out through the scholarships and Arkansas currently boasts three Evans Scholars, who ironically include a group of brothers whose last name is Evans. They are not related to Chick Evans, however.

ON GOLF
Stephens noted that the Alotian offers the only caddie program in the state of Arkansas. The program, which gives deserving youth gainful employment, is overseen by caddie manager Carl Jackson, who once worked at the Augusta Golf Club. Stephens said caddies make the experience more enjoyable for members.

“It’s always been a time-honored way to learn about the game of golf and other things too,” Stephens says.

There’s a code of honor in golf that Stephens says teaches valuable life lessons to those of any age.

“If you can live up to the code of honor, the rules of the game of golf, if you can do that in your life, it’s a pretty high standard,” he notes. “I’d like to think that I could be defined by the game of golf in some way. That would be pretty good company to be with. You keep your own score, you call a penalty on yourself, you’re courteous, you’re respectful.”

Stephens said the Western Amateur presents a real opportunity for the world to see Arkansas through a new lens. As scores of club members, staff and volunteers help prep the course and its grounds for visitors, he knows his golf course and the hospitality it provides will be a calling card for the state, not just for out-of-state travelers, but in-state residents who take part in the event.

“I want the patrons who come out here to see the golf course and enjoy it and appreciate the beauty that is right here in Arkansas,” he says. “We want all the Western Golf Association people, and the players and their families, to just have a great experience. I want them to go away saying, ‘That was the greatest amateur tournament I’ve ever been a part of.’”

Dan Snider, COO of The Alotian Club, is overseeing the massive coordination that is taking place for the tournament. There are 26 committee chairs and co-chairs planning everything from maintenance to logistics to concessions to travel. The daily operations for the club are consuming enough, but throw in a first-class, world-renowned golf tournament that could bring the next Jack Nicklaus, Tiger Woods, or Phil Mickelson to your backyard and you’ve got some pressure.

“There is no game of golf without amateurs,” Stephens said. “Really, 99.9% of the golfers are all amateurs. If you don’t have a healthy amateur game, you don’t have a healthy game of golf.”

FATHER & SON
Though he admittedly didn’t appreciate it as much as he should have at the time, Stephens now fondly recalls the time spent playing golf with his father, Jack. His dad was the long-time chairman of the prestigious Augusta National Golf Club, home of the legendary Masters.

Warren Stephens was privileged to spend significant time there and remains a member. He also remembers playing golf during his awkward teenage years at the Little Rock Country Club with his dad.

“We had something in common that we both liked to do and could do. Playing golf was something we could do together and have a really good time. Through golf and through his connections with the game, I got to meet some really fantastic people,” Stephens said. “I became very comfortable around adults, very respectful, but comfortable nonetheless. I wasn’t intimidated by them. I knew when to speak and when not to speak. As a young person, you learn how to navigate amongst your elders. I think golf teaches that.”

WORK & PLAY
Stephens once sported a golf handicap of 6, but it’s risen to around 12 now. He says he’s too busy at work to devote the time and concentration needed to lower his golf score.

But why does a successful billionaire businessman managing multi-billion dollar companies feel the urge to work even harder now than in his earlier years?

“The great thing about our business is I don’t think you hit your prime until you’re about 50, and I’m 56. We’ve got a lot of good things going on and we’ve got to make hay while the sun’s shining,” Stephens said. “We’ve got a lot of great opportunity and we’re trying to take advantage of it and we are taking advantage of it. That requires not just my attention, but all of our management team’s attention. We’re for the most part doing a heck of a job on that.”

Stephens Inc., the flagship brokerage and investment business of the family empire, weathered the 2008 recession with flying colors. In large part, Stephens’ conservative steering of the ship resulted in the company keeping a very low debt-to-equity profile – less than 2-to-1.

“Dad and Uncle Witt told me one of their corporate goals was to be in business the next day. We are under no illusion that anyone would ride to our rescue, so you cannot ever take a risk that could jeopardize the ability of the firm to survive,” Stephens is fond of saying.

Since 2009, Stephens has beefed up its investment banking group adding analysts and merger and acquisition specialists in industries that include energy, information technology, specialty finance, and trucking.

Earlier this year, the firm sold its equity stake in Greenwood, Miss.-based Viking Range Corp., the gold-standard manufacturer of premium cooking ranges and other appliances. Stephens’ insurance division has been gobbling up smaller insurance agencies and boutique firms adding to its portfolio of financial and risk management services.

In late 2011, his media holding company, Halifax, bought 16 newspapers and related businesses spanning from California to Florida from the New York Times Co. for $143 million.

“You look at the prices we were able to buy these properties at. They were dirt-cheap. Are newspapers an endangered species? Maybe in the sense of a physical print edition, but I think it’s a long way off before they’re really gone,” Stephens said. “The news gathering aspect of a local newspaper, if managed properly into a new digital age, in my view is never going to go away.”

“You’re never going to get local sports, you’re never going to get local business, local politics, you’re never, ever going to get that from any other source,” he added, offering the caveat that local TV may fill some of that void but not to the extent of newspaper coverage.

THE HEADWINDS
While bullish on his investments and seeing the financial markets performing well in the last year, Stephens said there are still troubling headwinds in the economy.

The Dodd-Frank financial reform law has still not kicked in with full force, although Stephens contends it has inflicted plenty of damage.

“When you talk to Arkansas bankers about just making mortgage loans and things like that, it’s not as simple as it used to be,” he says. “When you hear why, you say, ‘That doesn’t make any sense.’ But it’s all coming down to a lot of Dodd-Frank. New rules, the Consumer Finance Protection Bureau. That is the most misnamed thing of all time. It’s almost like we’re going to deny people credit instead of protect them. We’re going to protect them by not giving them any credit. I just think in the long run that’s going to have a pretty negative impact on the economy.”

He predicts the Affordable Care Act will also be eye-opening, especially after a 3.8% income tax surcharge kicks in next year.

“A lot of people don’t understand the 3.8% tax is coming like a freight train to be paid next April on all income. They do not have a clue that it’s coming,” Stephens warns.

He says that the economy would have recovered much more robustly if government regulations were not so strangling and if federal spending had tightened its belt like corporate America did during the post-recession years.

“Are we doing well? You have 2 to 2.5% GDP growth. Is that well? That’s not really doing well. We’re doing much better than we were three or four years ago, but is that where we should be?” Stephens asks rhetorically.

“I think the stock market is doing well because American companies have taken a look after 2008 and completely changed their cost structures and they’re as lean as they’ve ever been and they’re ready to compete internationally and do compete internationally. That’s helped the stock market for sure,” he said. “You compare American business reaction to 2008, where we got leaner and reduced debt and got our cost structures in line and really got focused on our businesses, and compare that to the U.S. government and what it’s done – it’s done the opposite. Our companies are extremely strong, our government is pretty bloated and inefficient.”

“There will be market discipline forced on the size and scope of our government. Now when that happens, I have no clue. I thought it frankly would have happened by now,” he said.

DESSERT
We wrap up our conversation in the dining room of the Alotian. Stephens knocks out a cheeseburger and brags about the club’s to-die-for chocolate milkshakes.

They live up to the hype.

Workers are bustling outside of a nearby window as they work on a scoreboard for the Western Amateur tournament.

In Stephens’ world, contingencies are generally accounted for and the upcoming tournament is likely to go off without a hitch. Too much preparation has gone into planning for it, and with preparation one usually sees strong execution and results that meet or exceed expectations.

That rule applies in business and this golf tournament is being run like any other Stephens enterprise – professionally, with proper investment, and an attention to detail.

The golf course and clubhouse reflect that same attitude. In the middle of the day, there is not a picture frame in the library out of position; there’s not an improperly set table in the dining room; there’s not a single dust bunny hiding behind a door.

Looking out over the golf course, not a blade of grass appears improperly cut or laying in the wrong direction.

The COO, Snider, joined us at the table before our photo shoot and recounted the time Stephens was asked why he built The Alotian Club in Little Rock, not some faraway oasis destination along an ocean or in a more remote corner of the planet.

Stephens recalls his answer: “It never occurred to me to do it anywhere else.”