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hi I'm Katherine Klein I'm a professor
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in the management department at Wharton
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and the vice Dean for social impact and
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I'm going to be speaking today with John
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Montgomery founder and chief investment
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officer of Bridgeway Capital Management
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uh and I'm just really looking forward
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to this conversation to really explore
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with you John what it means to be a
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values-driven company so welcome thanks
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for meeting with me thank it's great to
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be here really is so John you uh 22
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years ago you found Bridgeway Capital
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Management over $4 billion in assets um
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and obviously your financial success is
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very important another striking example
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of U aspect of your company is the
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extent to which your values driven and
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um so I know from our conversations and
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from your website that you say
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consistently the core values of
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Integrity performance efficiency and
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service guide your company yes and
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what's so striking to me about about
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that you know Integrity performance
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efficiency and service a lot of
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companies say this I mean to the point
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where I I actually put in Google company
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values put these four in and Bridgeway
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Capital Management is not the only
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company that espouses these four values
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my sense is you your company lives them
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in a and enacts them more fully than
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many companies um so so let's start by
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that by by talking about that what does
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it mean to live these values in your
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company how would we see
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that well um you know I think of a
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report card on those and sometimes
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that's actually an edgy conversation um
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but from 22 years ago uh I took uh time
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more time than most people take in
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starting Adventure um to actually write
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uh the mission statement of Bridgeway so
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really put a lot of thought into the
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values and trying to answer the question
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so how would was baked in from the
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beginning it was baked in from the
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beginning so our mission statement has
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has has been tweaked some so there are a
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few words that are different and we've
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uh crafted some of the wording um better
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but the four business values are exactly
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as um as we wrote them down uh 22 years
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ago and
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um Integrity is at the top of the list
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and that actually is in a specific order
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so we like to say Integrity trumps the
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other ones it's actually probably the
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hardest to measure and the hardest to um
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know are we are we actually doing what
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we mean to say here um so service you
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know in in a service industry there are
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some ways to measure service you can you
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know interview your clients and their
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metrics to do that so reasonably you
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have have some Clues on what you're
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doing service-wise investment
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performance- wise in our industry
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there's some very clear um metrics The
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Return part is much easier than the risk
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part disagreement about the risk but
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nevertheless as an industry for
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something that you're producing we
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actually have very strong metrics on
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that
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Integrity well okay so means we don't
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lie cheat and steal well you know that's
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that's a good beginning that's a that is
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a good beginning in the financial
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services business you can absolutely
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take that for a given but but but
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essentially almost everybody in any
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industry walks around thinking they're a
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good person right um it's it's a
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disconnect not to be able to um to say
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that actually doing it and having very
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high standards is much is much different
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and how do you know so um I think of um
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one of the questions is um how do you
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how is it just not a word on a piece of
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paper right so let me describe a couple
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of ways in which that's true great um uh
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one is uh in the hiring process so if
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you're if you're really want to
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seriously be about a company of
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Integrity you makes a big difference who
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you hire um and we look for people who
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can distinguish aspects of Integrity so
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you're not just saying to people well
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honesty is important are you honest
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that's right uh because you know you're
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going to get what you what you uh think
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out of that one of the um one of the
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partners at Bridgeway um in his early
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career worked for two weeks under the
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top leadership of Enron in the early
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stages of Enron yeah now I come from
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Houston everybody in Houston knows
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somebody that worked for Enron and
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typically it took out their career their
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savings and and their retirement all in
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one Fell Swoop right um the partner at
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Bridge way in two weeks came home to his
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wife and said the following I can't work
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for these people they're Crooks wow now
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this was more than a decade before
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things blew up over in my view issues of
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Integrity right and I believe even um so
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so one is we we look for that people
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that have that kind of int like wow I
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certainly didn't see that I had other
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friends at inran they didn't see that uh
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coming so what is it about this man who
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has that strong an antenna for um
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for well in his in his words you know a
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a crook so I don't you know I'm I'm I'm
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not I'm not here to dissect Enron but it
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was a but but was a specific instance
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the other one that comes to me is in the
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hiring process um we try and
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specifically go after the issue of
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integrity and and on my team we have
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done a role play um that basically is
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intended to paint you into a corner yeah
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um of either telling a white lie or
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being disloyal to the
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company and you can see people you know
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as you're you know you're doing role
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play and you're kind of you can see
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there like uhoh now what do I do um
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because like I'm if I'm disloyal to the
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company I'm probably not going to get
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this job but and this is just a little
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white lie it's not you know it's be like
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I'm out to lunch yeah like this you're
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so you're asked to do that represent it
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on behalf of somebody else at
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Bridgeway our standard is you don't lie
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and uh your word of Integrity being true
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to your word is very very important yeah
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now it gets harder than that I'm I
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consider myself a person of Integrity I
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have a very hard time getting places on
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time but if I tell somebody I'm going to
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be somewhere at a particular time and
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I'm not there where is my Integrity in
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that in that word and what and how do
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people see that that's that's
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complicated in a in in some cultures
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there would be no expectation to be
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there literally you know right on time
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in ours it tends to have some other um
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negative consequences so I myself
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struggle with um areas of Integrity but
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the role play brings that out and you
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can just see in the roleplay a morning
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in time where they're like oh if I go
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this way right um and I've had people
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you know say the white lie uh and then
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you decompress it afterwards and say
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things like well well you know when I
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was in college and I had a roommate I
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did this it's just what people do right
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it's just polite it's just you know it's
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people do it people expect it they don't
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literally mean you know think that
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you're out to lunch it's just an excuse
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um we're continually trying to move in
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the direction uh of the highest
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standards of Integrity uh that we can so
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that's the second one the third one that
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I would say that gets down to the actual
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operations of Bridgeway would be um we
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have an internal slow that goes like
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this what's in the best long-term
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interest of current investors at
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Bridgeway every every adjective and and
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word in that sentence is very very
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specific it's longterm it's not just
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what we can do to cut Corners now and
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sometimes you like you lose Revenue
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generating opportunities when you're
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really serious about that and it's
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current investors not the next one that
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we hope to get so you have opportunities
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to make a trade off off in terms of how
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you spend your time that's a very active
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um question we want our investors to
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know that when they're not in the room
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right that we're thinking literally
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about their best interest and this and
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this phrase what's in the best long-term
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interest of current investors is a way
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to help draw us back in so in just in
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operational decisions we'll sometimes go
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right the four business values on the on
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the board and say how does this inform
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our decision or say is there any way in
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which our SL is being compromised by
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entering into this operation so let me
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ask you about some other
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practices and and things uh you know
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very strong defining and distinctive
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practices that you that you have um that
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I assume a reflection of your values and
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I'll and I will so in order of
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importance perhaps or important striking
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to me anyway I would say number one
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Bridgeway uh donates 50% of its profits
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to support charitable and nonprofit
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causes organizations yes every year so
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50% of your profits you donate number
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two you maintain a 7 to1 salary ratio
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for all full-time employees so you as
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the most you know the founder that the
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the chief investment officer of
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Bridgeway are making seven times what
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your lowest paid full-time employee
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could make I can only imagine you
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probably know what that differential is
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and if you were with another firm uh and
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um
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did I use the word employees I think I
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just used the word employees you Dida
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and you never use the word employees
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right so that would be a third one those
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count 50% of after tax profits to
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support uh nonprofits 7 to1 salary ratio
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don't call them employees so tell us
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about those decisions how they reflect
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your values and how they create a
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culture that's distinctive for Bridgeway
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okay um well some of these things
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there's just a an Natural Evolution or
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something in time and then you work out
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the details or the implications of um
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the giving back half is one way we say
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it uh Ed Bridgeway was um frankly a very
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naive idea from the very beginning it
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went like this um I'm thinking about
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leaving my secure job in another
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industry that has a paycheck associated
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with it to start a company and
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investment advisory firm in an industry
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where I've never worked before most
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people don't make that transition quite
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in that way but I thought I had some um
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skills and Gifts in in investing and had
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been doing it personally for six years
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and had a reason why I thought the
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structure and using quantitative methods
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and investing um worked and would be a
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good idea it's a lowcost way to do what
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we do and if you're successful in our
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industry um you have the revenues and if
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you're lower cost then you have very
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strong profits so I'm thinking about the
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structure of this and there's some other
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wonderful Financial characteristics but
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thinking about this and thinking like
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okay this should actually be a very
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profitable company um if we do this and
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what will we do with that money my wife
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and I were 37 at the time and I thought
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you know we've already kind of achieve
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the level of the American dream that
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well beyond what we' aspired to or
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thought when we were courting in college
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um I thought I'd be making the
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equivalent today of maybe $60,000 a year
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in the path that I um thought so we had
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a house um you know we had a car at that
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point I guess we had two cars um we had
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children we were on our way to saving
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enough for their college education like
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we were on track um on all the things
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and I I um I had some reservation about
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too much so too much isn't always a good
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thing in a lot of areas in life and I
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think that's true about money as well so
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I had this uh dilemma and conversation
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my wife I'm sure an investment manager
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can say that
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but you just did so I did that's true um
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which I think actually I think that's a
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powerful thing in inside our but you're
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right it's unusual so um uh we thought
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uh well if we gave half away then there
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would be less and it wouldn't be as big
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of a problem it was I mean that was
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literally the thought process wasn't any
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more complicated than that I didn't go
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out and do surveys like I do for some
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things it was just a thought um and then
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I started thinking well if you did that
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um maybe you could have that be part of
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the fabric of Bridgeway so as in the
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process of writing a mission statement
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and the idea of giving back and
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attracting people to our organization
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who similarly wanted to make a really
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strong difference in their life and the
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and the giving back half provides some
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resources to help uh reinforce that
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right of the 12 good ideas in starting
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Bridgeway that I thought I have PS nine
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of them probably weren't marketable um
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two of them were and so we're here today
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and that's great but the one the concept
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of giving back which is a pretty naive
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um idea then very few Role Models I
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didn't have there are some today more
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happily um was uh just a naive idea but
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the single most powerful 10 times more
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powerful than I had any idea of at the
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time so I do want to hear about these
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these other aspects of the company the 7
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to1 ratio and so on but tell us about
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what this you know the the why this is
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so powerful in what way has this been
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powerful now Bridgeway Foundation has
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done some remarkable things um but in
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what ways has has this giving back been
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powerful um The Leverage of it is huge
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and Frank it's just fun um so sometimes
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I think you know if more business people
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could get inside my head and see how
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powerful it is for the business and how
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fun it is just by way of living life
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like their philanthropic corporate
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philanthropy would just Skyrocket so
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sadly I'm not I haven't gotten the key
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to communicating that well but on the
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business side just as an example we are
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able to attract more people and we know
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from research that the millennial
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generation is more attune uh to this
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conversation of wanting to make a
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difference so we say if you're all about
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making you know a seven figure salary
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you can do that in our industry other
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places you can't do that at Bridgeway
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that's the 7 to one cap but um you
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shareing the profits through our um
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stock ownership plan that everyone all
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the full-time Partners at Bridge White
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that's all the full-time people um uh
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committed with a long-term relationship
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uh at Bridgeway um have so um you're
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able to attract people that you wouldn't
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be able to otherwise and you get to keep
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them longer and that's a part that's
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also very powerful um uh um so it's not
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that people never leave Bridgeway and
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and we're not trying to create golden
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handcuffs to keep people there but we're
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trying to create an amazing place to
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work about people serious about the
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service that we provide investment
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advisory services and giving back at the
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same time on my team the investment
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advisory team we've lost one portfolio
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manager or researcher in 20 years
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amazing so it's I would say that's so
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despite this the seven
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to maybe not even despite the 7 to1
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salary cap maybe in part because of that
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you're still able to attract great
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talent and talent who want who comes to
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bridgew want and those folks want to
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stay and in the early years and people
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like John that's crazy you know a you
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won't be able to attract them and B
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you'll train them up and lose them right
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in 20 years we haven't lost anybody a
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Bridgeway over that we've had people
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move away for family reasons or um you
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know other reasons though our turnovers
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uh quite low um but this hasn't hit the
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radar screen I can't say it never will
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right um but uh that hasn't been a
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problem yet and and and how do you think
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the 7 to1 salary ratio affects the
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Dynamics within your company the set of
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relationships among your partners it
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just it sends a signal that we're about
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something else so frankly you know my
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salaries of a public record it's easy to
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live off of and nobody's going to cry
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about the seven right um but it's damped
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down like the president of our company
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could easily make twice as much if he
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wanted to just earn more at another
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place could he have the quality of life
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that he has in his home life that we
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intentionally try and support for all
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the partners at Bridgeway um would he
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have the opportunities and giving that
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he had has um serving on boards and
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portable water is one of his um big
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things he's done some amazing things
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there you know you only get to live life
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one way you don't really know um but
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these are big things right right we hear
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we hear stories of spouses uh talk about
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Bridgeway and what it's meant in their
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lives and that's when you really think
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okay we really have something here yeah
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so we're going to need to wrap this up
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shortly I'm interested in how your part
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Partners influence your philanthropy so
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part of I know you have a passion uh and
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a deep commitment to ending genocide
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it's not the the only kind of work that
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you're funding through the Bridgeway
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foundation so how are you connecting
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Partners who are coming to you you know
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for this social mission in part for this
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very distinctive company how do they
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drive the philanthropy that that your
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company enables so we're still creating
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that so that's a that's a creative
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process at Bridgeway we've done some
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very creative things along the way um uh
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and we are very happy to borrow ideas
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from other people so um one is uh uh we
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have a um a design what we call a
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designation which means a certain amount
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of money um that every partner has to
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give away we send it to their Donor
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advised fund the early years of
00:17:45
Bridgeway this is problematic because
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like there's certain things as Bridgeway
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we don't want to support right and we
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finally said look we trust these people
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enough to have them be partners at
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Bridgeway um uh and the donor advisor
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fund provided a way to give it to that
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entity and then they control where it
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literally goes from that so that was one
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step another step is the um Affinity
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groups or committees um that we've had
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at Bridgeway over the years so that's
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where groups of Partners get together to
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go after some topics so we've had one on
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micro Finance for example
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internationally had one on portable
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water two on education these are areas
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that partners are particularly
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interested in my personal area of
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passion is peacemaking and ending
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genocide so a life calling on my part
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and it's a big deal to me um and I'm
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very passionate about it and uh and the
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other partners support this as as part
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of what we call the core Mission at
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Bridgeway um but everybody's called to
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you know a different area and based on
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your own experiences in life you may be
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more powerful in one place than another
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we don't want to discourage that we want
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to light that up so it took us probably
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10 years to figure this out and how to
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how to start these you know like giving
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groups and involving the Partners more
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in the process um and money is part of
00:19:01
it but it's also volunteering it's also
00:19:03
serving on boards it's just being
00:19:05
creative about what we call
00:19:07
transformational change in Bridgeway
00:19:09
yeah so last question I can imagine
00:19:12
people listening to this conversation
00:19:14
and at once thinking this sounds great I
00:19:17
believe these
00:19:19
values you know I I want to do this I
00:19:21
want to be part of this kind of company
00:19:22
I want to create this kind of company
00:19:24
and on the other hand thinking I'm too
00:19:26
busy I don't have time I don't have time
00:19:28
in my work role to to drive this forward
00:19:30
in my company what's your response to
00:19:33
those who who may be attracted to what
00:19:36
you and inspired by what you're doing
00:19:38
and simultaneously thinking too hard too
00:19:40
much time I can't I can't do it um well
00:19:44
I think about that like this I think
00:19:46
about um uh I tell a story about life
00:19:48
stages and I say if you think that at 20
00:19:52
years old you're too young you're too
00:19:56
inexperienced you have you know student
00:19:58
loans to pay off um uh nobody's going to
00:20:02
listen to you then and it and it 80 you
00:20:07
think I'm too old um um you know I'm I'm
00:20:12
spent people won't listen to me because
00:20:13
I'm too old I might not be able to
00:20:15
remember uh the conversation then I
00:20:17
guarantee you at 40 what you'll be
00:20:20
saying is I've got a big mortgage I've
00:20:23
got kids whose college education I have
00:20:25
to fund I've got all these demands on my
00:20:28
life there's no way right there is no
00:20:31
time of life or situation where you
00:20:33
either can or can't do it it's a
00:20:35
decision that you make and how you spend
00:20:36
your life so at any of those stages you
00:20:39
know live your life fully be about
00:20:41
something important and if you're too
00:20:43
busy make the decision to figure out how
00:20:45
to how to reduce that there was when I
00:20:48
was aged 37 uh there was a moment in
00:20:51
time where I had a kind of a
00:20:54
breakthrough on I was too busy and and
00:20:56
well it was clear to me I was too busy
00:20:58
so I took some dramatic steps to
00:21:00
withdraw from some things um we say
00:21:02
there's there's you don't have an
00:21:04
authentic yes if there's not the
00:21:05
possibility of a no so no is an
00:21:07
important word uh in life too to focus
00:21:10
on what you're really good at what
00:21:11
you're passionate about why would you
00:21:13
not do that yeah why would you not do
00:21:15
that people think they're trapped in
00:21:17
you're not trapped in yeah there are
00:21:19
there are you know I could go on but
00:21:23
getting the energy of people around you
00:21:25
to help make those transitions I think
00:21:27
is key and important and you don't have
00:21:29
to be rich you don't have to have the
00:21:30
resources that I or Bridgeway do to make
00:21:33
those transitions great thank you so
00:21:35
much for talking with us it's great to
00:21:36
have you with us thanks John thank you
00:21:38
Catherine thank
00:21:57
you
