Local business leaders talk about retaining talented young people, but sometimes, the call of the coasts can’t be ignored. That was the case for Jerry Schlichter. The Mascoutah, Ill., native went west for law school in 1969, despite objections from his father, an airplane mechanic who worried his son might become a hippie. Sure enough, Jerry protested the Vietnam War and marched for civil rights. Eventually, that sense of purpose brought him back to the Midwest, where he went to work at an East St. Louis, Ill., firm that represented the common man.
Over the years, Schlichter’s clients have included student protesters, victims of environmental disasters, and lately, workers with retirement accounts beset by excessive fees. (The New York Times labeled him “A Lone Ranger of the 401(k)’s.”) But the founding and managing partner of Schlichter Bogard & Denton is best known for his work away from the office. He was the driving force behind Missouri’s historic tax credit, a tool used to redevelop much of St. Louis’ urban core. He and his wife started a successful mentorship program for elementary-school students. And he co-founded Arch Grants, now in its third year of giving seed money to startups, on the condition that the founders live or move here. These days, Schlichter is the one trying to keep talented kids from leaving.
In law school, you got a summer job working for Joe Cohn in East St. Louis. He and some other lawyers were representing seven students at Washington University who had been involved in a demonstration on campus, which resulted in heavy federal criminal charges. I worked on that for the summer, for $90 a week. It was a great job.
What came of the case? Two students were convicted of throwing a cherry bomb in the direction of a police officer, not hitting him. To show you how polarized the times were, these were just middle class students going to college, and they were given five years in the federal penitentiary with no prior convictions.
One of those defendants was Howard Mechanic, who later gained some notoriety. When it came time for sentencing, he didn’t show up. It turned out he went underground. During Bill Clinton’s presidency, a reporter in Arizona was interviewing a local [city-council] candidate and checked out his background. It didn’t check out. She confronted him later, and he said, “OK, this is not the truth… I have been underground for 25 years.” On his last day in office, President Clinton pardoned him.
This might come as a shock, but some people don’t have a high opinion of personal-injury lawyers. You don’t fit the stereotype. For me, it’s much more than a job. It’s a value system. We handle cases where we believe we can make a difference in the lives of people, which goes back to my values a long time ago.
You’ve made a career of those types of cases. I’ve had civil-rights cases involving minorities, with discriminatory employment practices. I had a case involving a company called Rent-A-Center, which had a problem with more than 98 percent male employees. I had some environmental cases; Times Beach was a case that was very well-known here, in which I represented people in that community.
Does one case stand out? I represented a widow and three children of a firefighter named Derek Martin, who was killed in the line of duty in the city as a result of a defective mask, a breathing apparatus. That was a very intense and rewarding case. It resulted in a jury verdict, after a five-week trial, of a very substantial sum. We brought in firefighters from across America who talked about the same problem. They had reported it to the company without anything being done. The jury assessed punitive damages against the company to try to deter that kind of conduct.
How did you get involved with 401(k) cases? Our clients were expressing more and more concern about their retirement. Two questions: I can’t figure out what’s going on in my plan, and I’m thinking I might not have enough to retire on.
Those are common concerns. We’ve seen a shift in this country from the defined-benefit model—say $1,000 a month, a pension, where you don’t worry about the stock market—to the 401(k) model, the defined-contribution model, where the employer makes a match and then is finished. My mother, for example, lived on my dad’s pension. She would no more have been able to pick stocks than fly to Mars.
You sue employers for not negotiating with banks to keep fees reasonable. Yes, on behalf of the workers and the retirees. We have cases in which we allege that there are excessively high fees being charged, and in some cases, conflicts of interest. The important thing is that a 1 percent difference in fees in a 401(k) plan over an average work life makes a 28 percent difference in retirement assets. It seems like a little, but it’s not.
You’ve had quite a bit of success. I believe that the courts and the media are recognizing more and more the importance of making sure that 401(k) plans are run as they should be and the fees are reasonable, because it has a very big impact on people’s retirement if they’re not.
How did Arch Grants get started? A lot of people, myself included, are tired of the narrative about St. Louis, the idea of declining jobs. It was clear to me that we’re not going to attract Fortune 500 companies to move here and build the economy.
If anything, that flow is headed in the opposite direction. We’ve had, historically, a disproportionate number of Fortune 500 companies headquartered here. That, as you point out, has significantly changed. So if we’re going to be a city of significance, and if we’re going to grow our economy and provide opportunity for young people, in my opinion, we have to do it from the ground floor up, from the grassroots.
That means startups. I looked at other startup competitions and decided to try to do that here. It was important to have scale. Then, another thing that was important was not taking equity in the companies.
Taking equity is the norm. Why be different? To make this opportunity in St. Louis more attractive, and to make the companies themselves more attractive to follow-on investors, because they would have 100 percent of their companies retained and have more flexibility.
You give each company $50,000. How’s that compare to other competitions? It’s generous. We also have a robust package of support services: business mentoring, full legal, marketing services, cloud computing, and cheap space. Plus, being involved in a community of entrepreneurs. One of the critical components of success as a startup business is having access to others who are also in the space, because they can share information, share ideas, sometimes share technology, and not feel that they have to invent the wheel themselves.
The local startup scene has gained momentum. The community has been tremendously supportive. People really want to do something different here. I think young people in particular want to be a part of something that’s community-based. One of the startups this past year came here, called Candy Lab, two young founders from San Diego, Calif. They came here for the final weekend of pitches.
That’s an augmented-reality company. You’re on top of it. I said, “Why St. Louis?” They said, “Look, we’ve only been here this weekend, but we can see the community is invested in our success. If we’re here, we’re going to have a lot of people who are trying to help. In California, we can’t get attention from anyone.”
They won an Arch Grant. They’re here downtown working. We hear over and over again that people are very helpful. The entrepreneurs are supportive of each other as well. That’s different from a lot of cities. This is an affordable environment for entrepreneurs that doesn’t require them to put so much of their money into commercial and residential rent as it does on the coasts. In fact, more than one person has said, at this point in time, the place to start a business is any place other than San Francisco.
If not San Francisco, it might as well be St. Louis. I think we have an opportunity here to bring in talent and keep our own talent in a way we haven’t done before. We’re going to work very hard to build sustainable funding for Arch Grants. If we can, then we’ll be able to assure that year after year, there are grants and a new round of startups, new technologies, innovation, and new talent staying here or coming here. That in turn will, in my opinion, attract venture capital, because ideas will be seen as very much in abundance in St. Louis.
There’s a bill that would give Arch Grants state funding. We feel the state needs to be a player in this new economy. Other states are putting, in many cases, vast resources into supporting innovation and startups. That bill would actually help fund organizations similar to Arch Grants throughout the state. The state could become known for innovation with a relatively small amount of money if that legislation passes.
Have any of the companies really taken off? FoodEssentials. Three founders, two from Australia and France, were in Chicago. They couldn’t get traction. They got an Arch Grant, moved here in June 2012. They do independent food labeling. There is a lot more concern now by consumers about the quality of their food content. They have now gotten a $3 million contract with the FDA.
Wow. They have currently eight full-time employees. They recently moved out of the T-REX space into larger space downtown, a block away. We’re giving also two grants, follow-on grants, of $100,000. They received one of those grants. This is a company that could be anywhere, and it’s here in St. Louis because of Arch Grants.
Any others? Another example is simMachines, founded by a native of Costa Rica who studied in Japan and Berlin. He does similarity search of big data, which is an exploding field. World-class scientist. Heard about Arch Grants in Tech Crunch magazine. Applied, received an Arch Grant, and then we had to get him an immigrant entrepreneur visa, which is challenging. He’s doing great work with cutting-edge, world-class technology. He could be anywhere in the world. He’s here in downtown St. Louis.
Any surprising results? Obsorb. The founder moved here from Dallas. He then went to Canada on a sales call. The company there bought Obsorb. It was a loss for us here in St. Louis, because we lost the company. It was a success for the company, because it validated their business model. This happens. Companies get acquired.
But it didn’t end there. The founder didn’t go back to Dallas. He came back here to St. Louis. He’s in T-REX as we speak, and he formed a new business with a guy from San Francisco, who has since moved here. He’s trading the Golden Gate Bridge for the Gateway Arch. Then another friend has decided to move his company from Seattle and meet up in St. Louis. That was not happening a few years ago.
Sometimes, these startup competitions seem like gimmicks. Is there substance behind the style? Many startups are not successful. I believe that if you put enough fishing lines out there, some of them are going to get bites. It’s not always the case that somebody’s first idea is their best idea. There is a saying in Silicon Valley, “Failure is the hallmark of success,” because you learn from it.
Eventually, they’ll come up with something good? In the global economy in which we compete, good ideas and innovation, usable technology, those things are going to win out. Because Arch Grants is a global competition, we can get great ideas from all over the country and outside the country. Hopefully, we’ll create the next Express Scripts or the next Enterprise or the next Emerson, which may sound grandiose, but you’ve got to try.
St. Louis isn’t the only city hitching its hopes to startups. Can we compete? Yes, we are. Of course, the key is capital. That’s why, with Arch Grants, non-diluted capital is provided. Recently, Forbes had an article titled “Arch Grants: Transforming St. Louis Into America’s Next Startup City.” There is a new narrative now developing nationally about St. Louis.
To get an Arch Grant, a company has to come for a year. After that, they could leave. Just as every company is not going to be a success, every out of town company that moves here won’t be a success. That’s one of the reasons that we started Friends of Arch Grants, which is a very dedicated group of people who support Arch Grants in many ways, by networking, by helping raise funds, by being a part of events, by meeting the needs of entrepreneurs. We want to try to maximize the chance that they will stay here.
When Sarah Spear was ousted as Arch Grants director, there were hard feelings. Do you have any regrets about how that was handled? [He pauses.] Personnel matters are often difficult. [Another long pause.] We respect the confidentiality of that personnel matter.
Does St. Louis have any other advantages? We have a wonderful collection of historic neighborhoods, which some cities would die for. We had a period in the ’90s, after the curtailment of the federal historic tax credit, when there was no historic rehab going on and the future of these great buildings was very grim. There had been a 96 percent decline in historic rehab in Missouri. It was clear to me that we were going to see a tragic loss of our best asset to the wrecking ball. So I decided to try to do something to change that narrative and to work to establish a state historic tax credit.
That started in 1998. The result has been $4 billion in direct historic rehab in St. Louis. The Chase Hotel was this dark hulk of a wonderful building on a prominent corner for nine years, which couldn’t get open because the numbers didn’t work. Four days after the governor signed the state historic tax credit, they signed their financing documents to start a rehab of The Chase.
Then there’s Washington Avenue. The whole street was virtually all empty-but-wonderful buildings. The future was clear for those buildings—they were going to come down. What’s happened with Washington Avenue was certainly what those of us who founded the historic credit hoped for. It’s gratifying.
Despite its successes, the historic tax credit has many political opponents, including Gov. Jay Nixon. There’s only been one tax-credit program that’s been the subject of a study, and that’s the historic tax credit by Saint Louis University. That documented 43,000 jobs created, which is by far the greatest jobs program in the history of the state of Missouri, and $7 billion in the state of direct economic development.
Critics argue some of that development would have happened anyway. Seventy percent of the eligible buildings for the historic credit are in areas of disinvestment. In effect, it’s concentrating resources in the areas that need them the most. It’s green development. There’s no need to build infrastructure, sewers, highways, roads, all that. It’s already in place. For every dollar of expenditure by the state, $1.78 is returned to the state and local treasuries from the investment.
That’s based on the idea that once these buildings are developed commercially, they generate tax revenue? Yes. Education, for example, is where we need more investment in the state. Education at the local level is funded primarily by local property taxes. When you go from a derelict building that’s abandoned and in danger of collapsing to a vibrant building that’s been rehabbed, the assessed value goes dramatically up. That results in more money for education.
A report from Missouri Auditor Tom Schweich said that only 49 to 85 cents of each dollar actually goes to development. Well, first of all, 85 percent of the dollar is a pretty good return. He did not take into account state taxes. Taxes are increased on these buildings, and the wages to rehab them and the wages of people who work or live in them are taxed. I would say the foremost preservation economist in America, Donovan Rypkema, and his study, compared to a person who is actively raising money to run for statewide office when he does the study, I put my money on the neutral party.
One criticism has been that owners of vacant buildings can charge a premium, because they know buyers can get credits. I would say the question isn’t, “Did somebody who owned a historic building and didn’t do anything with it get a significant profit on selling that to a developer?” My question would be, “What is the end result, and what would have happened without the credit?”
What do you think about the proposals to place a stricter cap on the credits? It has been capped. If it’s slashed as has been proposed in the legislature, what’s going to happen is this is all going to come to a screeching halt. Some of the buildings that have not been rehabbed, developers cannot and will not buy those buildings, hold them, get in line where they may have to wait for years before they can use the credit. They’ll simply go back to what we had before.
And historic buildings attract young entrepreneurs? Young people, I can’t say all, but certainly many want to be in an urban, dense environment and not in far-off suburban locations. If Washington Avenue looked like it did in the year 2000, many of these entrepreneurs would not be in St. Louis.
Where did the idea for Mentor St. Louis come from? When I was in college, my job was to be a playground supervisor during noon hour in an African-American neighborhood. In getting involved with the students, it was so clear what a little bit of attention meant to some of the kids, especially kids from single-parent homes. My wife and I decided to try to do something about the problems with elementary-age kids in the St. Louis Public Schools. It was able to grow and become the largest volunteer program in the district, which it is now.
Any anecdotes? Recently, we were talking to a young woman who was a mentor for a first grader. When we talked to her recently, he had been accepted into and was going to Fontbonne University. She had maintained a relationship all the way through elementary school and high school, and now he was starting college, and he was babysitting her child.
Last year, you won the prestigious St. Louis Award. I was flattered by it. More appropriately, the focus would be on the people who have made the things I’ve been involved with happen. People in St. Louis really want to change things. I think there is a pent-up feeling that they want a different narrative.
