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