GILROY
– A power struggle between a group of shareholders and
management of Heritage Commerce Corp. prompted its chief executive
officer, a longtime Gilroyan, to resign this week.
Brad Smith, the founder of Heritage Bank South Valley, which has
offices in Gilroy and Morgan Hill, announced his resignation as CEO
and director of its lead company Tuesday.
GILROY – A power struggle between a group of shareholders and management of Heritage Commerce Corp. prompted its chief executive officer, a longtime Gilroyan, to resign this week.
Brad Smith, the founder of Heritage Bank South Valley, which has offices in Gilroy and Morgan Hill, announced his resignation as CEO and director of its lead company Tuesday.
Smith, 55, stepped down to help facilitate an agreement between Heritage Commerce Corp., a publicly held company based in San Jose, and a group of dissident shareholders who had nominated alternative directors for an election at an upcoming annual meeting.
“I’m pleased to say that a negotiated settlement was reached,” Smith said. “Essentially my resignation accomplished both sides getting together and compromising, and the company, in my mind, has withstood far less pressure and expense as a direct result.”
Smith has lived in Gilroy for 27 years and has been active in the banking industry for 31 years. He was CEO and president of South Valley National Bank for 14 years before becoming chairman of Heritage Commerce and helping found one of its subsidiaries, Heritage Bank South Valley, in 1999. A year later, he was appointed CEO of Heritage Commerce.
Smith stepped down to spare the company an expensive proxy fight, he said. The dissident shareholders filed a proxy challenge to add two new members to the board of directors different from those on the slate of candidates already proposed by the board. Four directors were up for re-election at the annual meeting May 27. Smith was not up for re-election. The group of shareholders also wanted to increase the size of the board from 12 to 13, allowing them to gain control of the organization, Smith said.
“This group was fairly organized and fairly aggressive, and as CEO of the company I hated to see that,” Smith said. “I didn’t want to see the shareholders bear this expense.”
Following Smith’s resignation, the two groups were able to reach a settlement, which includes the appointment of Ranson Webster to fill Smith’s vacated director’s seat. Webster is Heritage Commerce’s largest shareholder. William Del Biaggio Jr. , chairman of the board of Heritage Commerce Corp., will serve as interim CEO while the company searches for Smith’s replacement.
The shareholders also agreed – for the time being – to stop trying to get their own candidates elected to the board.
Smith said he stepped down to preclude the company from having to go through negative press and the expense, which wouldn’t be fair in the long run for shareholders, staff or customers.
“Heritage, I am very confident, is a very fine company, doing well, moving forward on its strategic objectives,” he said. “It was really poised to move forward.”
Shareholders were a little less optimistic and grew critical of Heritage’s earnings, management and strategic planning.
But Smith said in the past year ending Dec. 31, the company’s stock had risen more than 40 percent and earnings in the first part of 2004 were the highest first quarter earnings in the company’s history. Within nine years, the bank’s assets grew to more than $1 billion in December, a year earlier than projected.
Previously, Smith successfully built up South Valley National Bank and sold it at a profit.
“South Valley National Bank is recognized as a very fine community bank,” Smith said.
Del Biaggio said the search for a new CEO will begin immediately. But Del Biaggio, who stepped down as chairman in ’99 for Smith, said he will be missed.
“I like Brad very much. He’s a really good guy that we got to work with, and we got along really well,” Del Biaggio said.
Heritage Commerce employs more than 200 people. Four people work at the Gilroy branch of Heritage Bank South Valley and 11 work at the branch in Morgan Hill. The company trades on the Nasdaq as HTBK.
For now, Smith plans to enjoy some time off with his wife, Karen. They have two teen-age children, and he has two children from a previous marriage.
“I’ve been working hard for a long number of years,” he said. “And I’m looking to just kind of relax for a little bit and reset my objectives.”
