A Nice Guy Stirs Fears at Security Pacific : New President Smith Isn’t a Popular Man as He Pushes Productivity

When Robert H. Smith spreads his paper work from the office across the kitchen table, the setting is less than business-like--his youngest child keeps calling for attention, the television blares away and the family dog barks up a storm.

The commotion does not bother Smith, the recently appointed president of Security Pacific National Bank, who managed to study for law school under the same noisy conditions 25 years ago.

“One thing I learned in law school,” Smith said in an interview in his office on the 54th floor of the bank’s Bunker Hill headquarters, “is I can work around turmoil.”

That is proving to be a valuable lesson. In the two months since taking the helm of California’s second-largest bank, headquartered in Los Angeles, Smith has stirred up turmoil of his own among the bank’s 10,000 employees by launching a campaign with blitzkrieg speed to cut costs and boost productivity, sales and profits. All this despite the fact that analysts consider the bank already to be one of the most profitable and admired in the nation.

Former and current Security Pacific executives are not surprised at the tempest spawned by Smith, 51, whose warm, congenial personality belies his reputation as a hard-driving, impatient, “win-at-any-cost” type of manager capable of firing a friend, then turning around and helping the same man write his resume.

“He’s a man who’s not afraid to make change,” said Joseph Colmery, former president of Diablo Bank of Danville, Calif., which was acquired by Security Pacific last year. “Old-line bankers are evolutionary, rather than revolutionary,” he said. “Some consider Bob more of a revolutionary.”

In the face of stiff and increasing competition among financial service firms, Smith’s ability to make tough and unpopular decisions quickly may be just what the bank needs. “They did not have a Bob Smith at Bank of America,” one former Security Pacific executive said of the troubled San Francisco-based competitor, “and look at what happened to them.”

Smith’s style contrasts sharply with that of his predecessor, George F. Moody, a more traditional banker, former associates say. “George is extremely polished, very concerned about his image,” a former executive said of Moody, who remains president of Security Pacific Corp., the bank’s holding company. By comparison, “Bob has a tendency of having his shirttail hanging out,” the former executive said. “Bob would have offended you and not meant to.”

Smith, who also serves as vice chairman of the bank holding company, is widely regarded as heir apparent to Chairman Richard J. Flamson III. “Smith is clearly in line,” Moody told reporters following Security’s annual shareholders meeting last April. Moody has said he has no ambition to succeed Flamson.

Before taking charge of the bank, Smith played a major role in navigating Security Pacific into non-banking waters. The 26-year bank veteran engineered the holding company’s entry into the securities business. He has also negotiated many of Security Pacific’s recent purchases of banks in neighboring states, culminating last February in the $1.1-billion acquisition of Seattle-based Rainier Bancorporation.

But for now, Smith has focused his attention on the 600-branch Security Pacific National Bank, the holding company’s largest subsidiary. “Today is most challenging,” he said of his role as bank president, because, “I’m affecting 10,000 people’s lives.”

That he is. Many employees are being shuffled into new jobs, offered early retirement or being laid off as part of Smith’s strategy to become the “Nordstrom” of banking--offering, like the department store chain, full service while remaining highly profitable.

Hiring has been frozen since March, and Smith says his new Security Pacific is not for all of the bank’s current workers. “There will be people that . . . in our minds don’t fit the new role,” Smith said of employees who will be offered early retirement or severance pay.

Layoff rumors have been swirling around Security’s headquarters and branches, and a Los Angeles branch supervisor said: “People are scared right now. They don’t know if the hatchet is going to come their way.”

One former senior executive said Smith told him at a meeting eight months ago that the bank was over-staffed by 2,000 to 3,000 employees. Smith has denied that he ever made that statement and says he does not know how many people will eventually lose their jobs or be reassigned.

“We don’t really have a number goal--that’s the honest-to-God truth,” he said.

Program Shut Down

Nevertheless, rumors intensified two weeks ago when the bank temporarily shut down its well-regarded officer training program, forcing 200 trainees to either take clerical jobs or leave the bank. Smith, who joined the bank as a management trainee himself, said the program will be revamped to reflect the bank’s increasing emphasis on marketing and customer service.

Smith stumped through the state in early May to explain his strategy to employees and allay their fears, and senior executives followed up with branch management meetings.

But for some employees, the meetings only increased anxiety. “You saw managers come back from the manager meetings in tears,” one employee said.

Executive search firms expect the resumes of Security Pacific employees to start rolling in soon. “We know there are people to be recruited there,” said the manager of one executive search firm, which has talked to about 50 Security Pacific middle managers about jobs elsewhere. “A lot of heads will start rolling,” he predicted.

Smith, who said he has been contacted by 13 companies asking him to send them the resumes of Security Pacific employees now being laid off, says he has tried to be fair to the employees. “I think I’m compassionate,” he said during the interview. “But I don’t think a poll (of employees) would show that today.”

The strategy that Smith is pursuing basically is two pronged--to automate and centralize much of the back-office operations at branches and offices to reduce costs, and to increase the emphasis on marketing and customer service to boost revenue.

Less Expensive System

It is not a revolutionary concept--other banks, notably Wells Fargo, have been moving in that direction for years--and most of the groundwork had already been done at Security to make such a move. But Smith has forced the bank to make the changes over three to five months instead of the three to four years that had been planned.

“He liked everything he saw we were doing,” said Nick Baker, executive vice president of the retail bank. “He just thought we could do it faster.” And cheaper, too.

In automating the consumer loan application process, for instance, bank executives had planned on spending up to $50 million to install microcomputers at all of the 600 branches beginning next year. By using the computers to help process the application forms, a loan request could be approved or rejected in as little as two hours, compared to the 48 hours it normally took to reach such a decision.

Under Smith, however, the bank will pursue an equally time-saving but less expensive route by installing telecopier machines instead of microcomputers in the branches to transmit copies of loan applications to four regional processing centers. The system, which should be in place in all branches by the end of this month, will cost about $8 million, a saving of $42 million compared to the microcomputer plan. And the cost of processing each consumer loan will be slashed by an average of 60%, bank officials said.

Instead of an expensive, state-of-the-art “Cadillac” system, Smith said, “We put in a Yugo (an inexpensive import) that allowed us to do it in three months instead of waiting two years.”

Automation--which has already reduced the number of full-time positions at each branch by an average of 1.5 to 2.5 during the past three years--will free even more employees to sell products and services, Smith said. For instance, Smith wants each branch to sell an average of five home loans a month, compared to the one a month that has been the average.

Smith also said the bank is forming a special staff of 100 sales people to sell auto and boat loans. Unlike branch personnel, the sales staff will visit customers’ homes to help close the loans.

Besides demanding higher sales quotas, Smith wants to raise the standards of customer service. All bank employees will soon greet customers with a standard salutation and sport blue-colored plastic name tags. Uniformity is important to Smith: “When you’re driving down the street and you want to have a hamburger, why do you go to McDonald’s?” he asked. “You go in there because you know what you are going to get.”

To ensure uniformity, a staff of 25 people will keep tabs on performance by telephoning and visiting branches throughout the state and surveying customers. As an additional incentive, the bank has set aside $2 million that will be awarded to members of branch staffs that receive high performance ratings. Everyone from tellers on up could receive up to $500 a year extra if the branch achieves top ratings.

Not only has Smith sought to cut costs within the bank, he is seeking 20% discounts from regular vendors or, as he was quoted in a company newsletter, “We’ll rebid the job.” So far, the bank is negotiating a 16% discount from Deluxe Checks, which prints the bank’s checkbooks, that would save the bank $4 million this year.

Faces Tough Task

Smith expects that his decision to step up the pace of change at Security Pacific will start bearing fruit as soon as next year. “I guarantee you that we will look back a year from now and say that was pretty brilliant,” he predicted.

His goal: to raise the bank’s profits to about $1 for each $100 of assets within two or three years from the current profit of about 60 cents. A higher return on assets, Smith says, will result in a higher stock price. A higher stock price, in turn, besides pleasing investors, will make any takeover of the bank more difficult now or in 1991, when, under terms of an interstate banking law passed last year by the Legislature, major Eastern banks will be free to enter the lucrative California market.

Smith’s targets are quite ambitious, analysts say. “It’s probably a tall order in the California marketplace, which is a very competitive banking market,” said financial services analyst Dan. B. Williams at Sutro & Co., a San Francisco brokerage.

The demand for immediate results, close attention to costs and the bottom line are Smith trademarks.

A former account executive who worked at Pacific Century Advisers, a Security Pacific subsidiary selling trust and investment services to wealthy clients and institutions, said Smith “was anxious to have the organization to be successful and for it to contribute black ink to the bottom line quickly.”

Sometimes Smith’s tendency to make quick decisions caused trouble. “It was difficult to make any progress because he hired people, he changed management and he changed emphasis overnight,” said another former Pacific Century executive. Abrupt changes in management and policy did not sit well with the clients, who sought stability, the executive said.

But former Security Pacific Chief Financial Officer Frank V. Cahouet says Smith can get to the bottom of a problem quickly and will waste no time in coming up with a solution. “What he does not do is study something to death,” Cahouet, who recently took the top job at Pittsburgh-based Mellon Bank, said in a telephone interview.

Given Smith’s record, he is likely to take the current turmoil in stride. “I don’t think I have ever seen him buckle under pressure,” Cahouet said.

Entered Field by Chance

It seems that Smith can keep his cool regardless of the setting--a noisy kitchen, a tense office or a frantic fraternity house. During college days at USC, where he majored in police science, friends recall that he was unfazed by the circus-like atmosphere of his fraternity, Kappa Sigma.

“All sorts of wild things were going on, like people breaking down doors,” said Dan Angeloff, a fraternity brother who is now a Los Angeles investment banker. But Smith, he recalls, “was so easygoing that he would not be bothered by unusual events.”

Smith, a native of Glendale, got into banking by chance. After graduating from USC in 1957, he joined the Navy and was stationed on the tiny Pacific island of Kwajalein. On the island he found part-time work during off-duty hours as a bank teller.

In 1961, back in Southern California, he found work as a teller and management trainee at a Security Pacific branch at Wilshire and Harvard boulevards for $425 a month and has been with the bank ever since.

While working for the bank, he attended law school at night and received his degree. But he came to the realization that, for him, the financial rewards of banking would be greater than those of a law practice: He made $616,000 last year in salary and incentives and owns about $2.4 million worth of Security stock, according to proxy statements.

Smith spent 15 years working in branches in various operating and administrative positions. Since 1977, he has been involved in the non-banking side of Security, holding top jobs at Security Pacific’s financial management and capital markets groups before becoming vice chairman and chief operating officer of the bank in 1985.

A self-described workaholic, he begins his workday usually around 7 a.m. and leaves shortly after 6 p.m. for his La Canada home, a refuge from his workday pressures.

A devoted family man and churchgoer, Smith has been married to his college sweetheart--Loretta--for 29 years. Snapshots of his wife, three grown sons and a young daughter are scattered throughout his office.

“He can be a nice guy,” a former executive said of Smith, a tall man with an athletic build (he jogs twice a week and plays golf when he can), a thinning head of brown hair and a wide grin. He has been been described as having “teddy-bear like charm.”

“I support what he’s doing,” an employee of a Security Pacific branch said, “but he’s not making any friends.”