In 1986, Smith ran for the leadership of the Social Credit Party. He placed third on the first ballot, but slipped to fourth on the second. Shortly after the second ballot, he withdrew and endorsed eventual victor Bill Vander Zalm. Smith's endorsement came as a surprise; he had been expected to lend his support to the "stop Vander Zalm" movement. Smith denied any secret deal and said he was following the will of the delegates, who wanted party renewal.[5] His support was viewed as critical to Vander Zalm's landslide victory.[6] When Vander Zalm assembled his initial cabinet, Smith was notably left out.[7]
On July 6, 1988, Smith was named Attorney General.[8] He resigned from cabinet in July 1990 after the release of several recordings where he appeared to be interfering in criminal proceeding against former tourism minister Bill Reid. Smith had been attempting to discredit one of the lawyers involved. The tapes were handed to the RCMP for investigation.[9][10][11] Until this scandal, Smith was viewed as a potential successor to Vander Zalm.[12]
On December 13, 1990, he rejoined cabinet as Minister of Regional and Economic Development.[13] He was dropped from the cabinet by new Premier Rita Johnston in April 1991.