Like the strands of a helix, Bob Monks’ life and mine weave in and
out, crossing, separating, then crossing again.
Our first intersection was at Harvard University in 1951. We were both
underclassmen, shared many friends, and lived in the same building (attractive to me
because it was close to classes, attractive to Bob because it was near the literary
societies). His undergraduate studies were more classical than mine (he majored in
history, and I in psychology), but he went on to Harvard Law School and I later to Harvard
Business School. These years are often called formative, but I would argue that Bob has
never stopped forming himself—and, I might add, those around him.
The strands of our helix intertwined again 26 years later when Bob
assumed the post of chairman of The Boston Company. His aim was to turn this old-line
trust company into a new-line money-management firm, and he often called on me for
informal advice. The company I had founded, Batterymarch Financial Management, was
dedicated to using technology and quantitative techniques to lower investment costs and
boost investment returns. Bob used the example of Batterymarch to demonstrate to his
colleagues the viability of these approaches. He adopted many of our techniques, and his
efforts led to the successful sale of the bank to American Express in 1981.
Our next intersection was in the early 1980s when Bob was heading up the
U.S. Department of Labor’s pension division, and I, in addition to my work at
Batterymarch, chaired a Securities and Exchange Commission committee on tender offers. I
believed that the best way to prevent hostile takeovers was through good
performance—not mechanistic defenses. Takeovers, I argued (somewhat paradoxically)
would diminish if corporations remained open to them. With exposure to the
possibility of takeovers, companies and their directors would act in the best interests of
those who elected them, the shareholders. Takeovers, then, would not occur because
companies would continuously renew themselves. I also took the then-radical position that
professional investment managers should recognize the economic value of the proxy votes in
their hands.
The message I sounded at the SEC was nothing short of a clarion call for
shareholder activism. What I didn’t know was that Bob had independently reached the
same conclusions.
Bob was, and is, best known as a vigorous investor advocate, a pioneer
in corporate governance. He was the first, to my knowledge, to identify corporate
directors as the pivotal balance for the interests of managers and shareholders. And he
developed a firm, Institutional Shareholder Services, to advise institutions of voting
opportunities and responsibilities, and an investment company, LENS, to invest money in
companies where shareholder activism could bring about performance improvement.
Most recently, and momentously, we connected when I invited Bob and his
wife Milly to join me at the Santa Fe Institute for a weekend conference on complex
adaptive systems. Bob took to the topic right away. When he heard scientists explain how a
small event could be amplified through a system, Bob saw his own shareholder activism in a
new way. When he learned that systems that strive for stability decay, and that those
living at the edge of chaos thrive, Bob found an explanation for what he had been doing
all along—a theoretical foundation for his own work in governance. It was like
watching the apple fall on Newton’s head.
Complexity has provided Bob with a new language with which to express
his ideas. This same language is becoming part of the lexicon of leading management
consulting firms. Most are actively researching complexity and incorporating it into their
day-to-day practices. I expect that 1998 will be the year complexity dominates business
conversation, and this book will lead the way. My own field, investment management, may
delay adoption of these principles until another market cycle demands new answers. On Wall
Street, it seems, innovation waits for a bear market.
In this book, Bob, combining his firm grasp of corporate governance and
his intense study of complexity, describes how corporations behave through the stages of
their life cycles. From angry shareholders to concerned chief executives, almost everyone
knows at a gut level that the present system is not working. This book attempts to explain
why. Better yet, it proposes a path for positive change. Bob’s analysis is coherent
and venturesome—and likely to offend most readers. I predict that everyone will
disagree with some part of it, but readers will surely find Bob’s ideas a valuable
stimulus for their own thinking. It prescribes adaptation, not destruction, using the
charming folk tale of the emperor’s nightingale to make its point. Bob shows that
synergy really does exist—not as a single burst of energy but as a continuous,
healthy adaptation to business conditions.
To the surprise of many friends, Bob takes a moderate course. He does
not condemn corporate managers for their ironclad budgets, rigid forecasts, and attempts
to control the uncontrollable. Rather, he provides informed support for the view that
business must consist of smaller independent units (called "agents" in the
complexity world), who pursue their own aims but who collectively achieve what is beyond
their individual capability (swarms).
Although Bob has adopted Santa Fe as his new intellectual home, we must
not forget that his ideas of flexibility, openness, and integrity are rooted not in the
American Southwest but deep in his personality. He embodied them long before he set foot
in Santa Fe.
This book sets a standard. Bob’s ability to bring complexity and
governance together for the first time—another helix of sorts—should encourage
the development of different corporate structures, different shareholder entitlements, and
different participant interests. This intersection, like that of two friends meeting
again, will produce new insights for years to come.
Dean LeBaron
Lake Sunapee, New Hampshire
September 11, 1997
