"The essential thing to remember is not that we became a world of expert managers and specialists, but that the nature of our expertise became the creation and management of constants, uniformity and efficiency, while the need has become the understanding and coordination of variability, complexity and effectiveness, the very process of change itself," writes Hock. "It is not complicated. The nature of our organizations, management and scientific expertise is not only increasingly irrelevant to pressing society and environmental needs, it is a primary cause of them . . . [t]here's no "principal" blackbird pecking away at the rest of the flock. There's no Super frog telling the others how to croak. There's no teacher tree lining up all the others and telling them how to grow. Something's crazy here!"

Chaordic [participatory/news] posts here.

Hock describes an alienation from the organized church, the result of an incident in which he was wrongly accused and says that, by age 13, he had settled into a rebellion which was "a persistent, stubborn and at times stupid refusal to accept orthodox ideas, be persuaded by authoritarian means, or seek acceptance by conformity." He hunted, fished, read and sought out a series of tough, physical-labor jobs through his teen years. He sees the seeds which shaped his life germinating from growing up in a small mountain town, an intense love of nature, the shock of encountering large institutions, and trying to unravel the paradoxes of the two.

You would not expect to read some of Hock's views, coming as they do from the person most responsible for creating the largest financial exchange in the world. But that's because Hock -- a man who cut up his credit cards and threw them away after struggling to get out of debt early in his career -- doesn't claim to have ever seen Visa as primarily a "credit-card company" but rather as a system for "value exchange" among 22,000 member banks.

The credit card is not really about money, writes Hock, but about value exchange. "The first primary function of the card was to identify buyer to seller and seller to buyer . . . the second primary function was as guarantor . . . the third primary function was origination and transfer of value data . . . we were really in the business of exchange of monetary value . . . the exchange of guaranteed alphanumeric data."

After a bitter breakup with the owner of a consumer loan company in Los Angeles where Hock had managing a financial success but was cut out of the spoils, Hock and his wife moved to Seattle, where he took a job with unspecified duties at the National Bank of Commerce. Shunted from department to department, Hock describes a period of increasing reflection about the nature of management and study of the real meaning of words such as "lead, follow, manage."

The Challenge of Management

Hock sees management as the art of inducing ordinary people to do extraordinary things. "A clear sense of direction and compelling principles about conduct in pursuit of it are far more effective than long-term plans and detailed objectives," he writes, adding: "One need not know and be able to prove in advance what could be accomplished. One need not have a precise plan about how to get there. In a complex, rapidly changing world, a clear sense of direction, a compelling purpose, and powerful beliefs about conduct in pursuit of it, seemed to me infinitely more sensible and robust than mechanical plans, detailed objectives and predetermined outcomes."

Ideal, successful, "chaordic" institutions, says Hock, are based upon community. "In a true community, the values others hold that we do not share, we nonetheless respect and tolerate, either because we realize that our beliefs will require respect and tolerance in return, or because we know those who hold different believes well enough to understand and respect the common humanity that underlies all difference." Community is about benefit, not profit, says Hock, and without an abundance of non-material values and an equal abundance of nonmonetary exchange of material value, "The nonmonetary exchange of value is the very heart and soul of community, and community is the inescapable, essential element of civil society."

Community requires proximity, he says, "continual, direct contact and interaction between the people, place and things of which it is composed." He says family is the fundamental building block of community because "it is there that the most powerful nonmaterial values are created and exchanged." Reducing society to a monetization of all value and a tyranny of measurement is effectively destroying community, he says.

The machine metaphor has come to dominate Western society's thinking about how societies and institutions should be organized, says Hock, declaring that everything physical, biological or social can be understood as a clock-like mechanism composed of separate parts which act upon each other in precise, measurable, linear causes and effects. This leads to more specialization, linear education, more rules and regulations, hierarchical command-and-control and an expectation that pulling a lever in one place will product a predictable result elsewhere, expecting humans to behave like cogs and wheels in the process. "What we have gotten," asserts Hock, "is all too obvious: obscene maldistribution of wealth and power, a crumbling ecosphere and collapsing societies . . . In our frantic attempt to know everything through use of the rational mind alone, we have fractured knowledge into hundreds of incestuous specialties and fragmented those specialties into thousands of isolated, insular trades and disciplines."

The Nature of Leadership

The steps of management, as seen by Hock, start with a statement of beliefs, an articulation of purpose, principles which support the purpose, then a progression to people, concept and structure. Leadership, he writes, is about not what things were, or how they are, but how they might become. Some excerpts: " . . . . Rules and regulations, laws and contracts, can never replace clarity of shared purpose and clearly, deeply held principles about conduct in pursuit of it . . . Without a deeply held, commonly shared purpose that gives meaning to their lives; without deeply held, commonly shared, ethical values and beliefs about conduct in pursuit of purpose that all may trust and rely upon, communities steadily disintegrate, and organizations progressively become instruments of tyranny . . . Ordinances, orders, and enforcement are simply different words for control, command and tyranny. The ultimate sanction of control is force. Force is the tool of tyranny . . . Lead yourself, lead your superiors, lead your peers, employ good people, and free them to do the same. All else is trivial."

"Leader presumes follower," he writes. "Follower presumes choice . . . a true leader cannot be bound to lead. A true follower cannot be bound to follow . . . if the behavior of either is compelled, whether by force, economic necessity or contractual arrangement, the relationship is altered to one of superior/subordinate, management/employee, master/servant, or owner/slave. All such relationships are materially different than leader/follower. Induced behavior is the essence of leader/follower. Compelled behavior is the essence of all others. Where behavior is compelled, there lies tyranny, however benign. Where behavior is induced, there lies leadership, however powerful."

"The first and paramount responsibility of anyone who purports to manage is to manage self; one's own integrity, character, ethics, knowledge, wisdom, temperament, words and acts. It is a complex, never-ending, incredibly difficult, oft-shunned task . . . the second responsibility is to manage those who have authority over us: bosses, supervisors, directors, regulators ad infinitum . . . the third responsibility is to manage one's peers -- those over whom we have no authority and who have no authority over us -- associates, competitors, suppliers, customers -- the entire environment, if you will . . . the fourth responsibility is to manage those over whom we have authority.

" . . . The common response is that all one's time will be consumed managing self, superiors, and peers. There will be no time to manage subordinates. Exactly! One need only select decent people, introduce them to the concept, induce them to practice it, and enjoy the process . . . what is there to do but see they are properly recognized, rewarded and stay out of their way? It is not making better people of others that management is about. It's about making a better person of self. Income, power and titles have nothing to do with that."

" . . . To be precise, one cannot speak of leaders who cause organizations to achieve superlative performance, for no one can cause it to happen. Leaders can only recognize and modify conditions that prevent it; perceive and articulate a sense of community, a vision of the future, a body of principle to which people can become passionately committed, then encourage and enable them to discover and bring forth the extraordinary capabilities that lie trapped in everyone struggling to get out."

" . . . In the deepest sense, distinction between leaders and followers is meaningless. In every moment of life, we are simultaneously leading and following. There is never a time when our knowledge, judgment and wisdom are not more useful and applicable than that of another. There is never a time when the knowledge, judgement and wisdom of another are not more useful and applicable than ours. At any time that "other" may be a superior, subordinate or peer."

The Management of Change

One of the most difficult challenges of management and leadership is how to manage change, writes Hock. "Making good judgments and acting wisely when one has complete data, facts and knowledge is not leadership. It's not even management. Leadership is the ability to make wise decisions, and act responsibly upon them when one has little more than a clear sense of direction and proper values; that is, a perception of how things ought to be, understanding of how they are, and some indication of the prevalent forces driving change."

No one should be condemned for failing to welcome change, writes Hock. It is hard to do. He says that when people find their internal model of reality in conflict with external realities, they react typically in one of three ways:

Hock's accounts of winning the support of the Bank of America are lucid with personal details of the "sale." Hock writes of setting up a desk in his backyard in San Francisco, bringing two phone lines out to it, and spending 16 hours a day on the phone in 1969 and early 1970 -- starting at 5 a.m., Pacific time -- talking with bank presidents around the nation seeking their agreement. He recalls a last holdout, who finally comes around when Hock tells him that if he doesn't he'll be left the only major bank in America outside the Visa service. "Until someone has repeatedly said no and adamantly refuses another word on the subject, they are in the process of saying yes and don't know it," writes Hock as one of his "MiniMaxims."

Chaordic [participatory/news] posts here.

One of the biggest hurdles, Hock writes, was gaining anti-trust clearance for a horizontal grouping of competitors. Hock writes that a provision of antitrust law allows such a formation if it can be demonstrated that the service or product is impossible to provide without joint action. The Justice Department would review the proposal, and issue a letter which did not release the organization from its obligations until the antitrust laws, but would give assurance that the department would not act against them unless anticompetitive effects were observed. Visa's organizers, around 1970, sought and received such an assurance from the Justice Department, Hock wrote. However, the antitrust issue would come up later in a debate over "duality." (see below).

The Corporation As It Was Vs. As It Is

Hock's book picks up the threads of the current corporate-charter reform movement championed by Ralph Nader and others. And he speaks of the world of accounting and corporate finance as merely aiding and institutionalizing a flawed notion of value. Corporations originally were chartered by government with limited rights, in a limited area and for a limited time. Actions not consistent with the charter would result in revocation of the charter. This concept -- The Hudson Bay Company, the British East India Tea Company etc. -- helped 16th and 17th-century imperialist nations subjugate the people of other continents became, in Hock's words, "a useful instrument for government plunder. It is not be wondered that it soon became an instrument for private plunder as well." The first U.S. general for-profit corporation was enacted by New York State in 1811, and states followed the lead, he writes, with the form become ubiquitous after the Civil War, when statutes became gradually liberalized "gradually moving away from the interests of government and society to the interests of monetary shareholders and management."

Now, writes Hock, corporations have received release from the revocation of their charters for inept or antisocial acts, leading to a reversal of roles between government and corporation. Now government is an instrument of corporate power rather than the reverse, and an instrument an instrument of tendency of wealth to acquire power, of power to protect wealth, in a vicious cycle. The purpose of social good has become incidental, he writes. "Such corporations are gradually becoming superb instruments for the capitalization of gain and the socialization of cost," he concludes. "When a corporation rips from the earth irreplaceable energy or resources, no matter how much it pays for them, or any resources more rapidly than can be replaced or at less than full replacement cost, it has socialized a cost and capitalized a gain. When it downsizes workers, abandons a community, or pays less than a living wage; when it creates and disposes of waste in the process of manufacturing or marketing a product, or at the end of its useful life; when it receives a subsidy, guarantee, or relief from taxation by government, it has socialized a cost and capitalized a gain." Other examples he gives: Using roads, railroads, airlines or public infrastructure at less than full cost: pollutes or poisons or looks for bailouts after unsound lending or speculation.

Hock's Regrets -- Involving All Members; "Duality"; Immunity; Debt

Hock says he was and is convinced that there should be many card systems in the consumer banking industry, and that there was able opportunity for others to emerge among retail, travel, communications and other industries.

Hock writes of at least four regrets about the formation of Visa and a strong sense of failure about what VISA ought to be, as opposed to what it is -- one of which appears to this writer to be the focus -- 20 years later -- of a current government antitrust inquiry into Visa and MasterCard.

Hock's first regret is that he could think of no way to fully realize the concept of including merchants and cardholders as owner-members. He writes that although VISA's core and concept were chaordic, most member banks remain mechanistic and linear. Within the next decade, he writes, the constraints that make in impossible to include merchants and cardholders as members will be greatly diminished, he writes without elaboration.

Hock's second regret is over what he sees as a failure to come to grips with the concept of "duality." At the base of this regret, may be Hock's own apparent personal ambivalence about competition vs. cooperation and command-and-control vs. collaboration. ("I used command-and-control techniques to prevent command and control," he writes. "Plain stupid!") While Hock espouses all the mantra of participatory management, it is obvious from the sum total of his book that without him there to exert personal leadership and authority -- to command -- VISA would not have emerged.

Competition and cooperation are not contraries, he writes, but are complementary. Schools are highly cooperative endeavors within which scholars vigorously compete. And so with the card business. In theory, writes Hock, exchanging authorization information and monetary value in the form of electronic particles not only might become, but ought to be a highly decentralized, competitive business, even while it requires the cooperation of the underlying members to be effective. Trying to design and impose a single, monolithic system on such an essential flow of information seemed absurd, he adds. Hock says he was and is convinced that there should be many card systems in the consumer banking industry, and that there was ample opportunity for others to emerge among retail, travel, communications and other industries. Hock said he was also convinced in 1970 that if banks were permitted to become owner-members of BOTH Visa and Mastercharge (now MasterCard International), that "would inevitably lead to all banks becoming owner-members of the two systems, interlocking them, foreclosing emergence of new systems, and severely limiting consumer choice."

Hock wanted the Visa board to forbid dual ownership by the banks. The bank members argued this would restrict their ability to offer both cards to their customer. Hock and others thought it was a necessary prohibition in order to "preserve and foster even greater competition." Hock thought that with duality allowed, the founding members of Visa would be concerned that as soon as their system became valuable, their competitors would join it. "I was equally convinced that interlocking ownership of Mastercharge and BankAmericard would inevitably result in diminishment of competitive vigor between the two, eventual dominance of one or the other, and possible merger of the two, in substance if not in fact." He thought that to promote competition, duality had to be forbidden.

Management and the new VISA board were divided on the issue. Prohibiting duality could be a antitrust liability if VISA emerged as the only successful bankcard system, for regulators would later argue it had institutionalized a cartel by forbidding new members. Near the end of 1971, the VISA board adopted a bylaw prohibiting duality in competing systems by class A members, but allowing class B members to continue to accept both BankAmericard and Mastercharge sales drafts from merchants. A Texas bank, Worthen Bank, filed suit, alleging the rule violated antitrust laws. For four years, the suit dragged on until 1974, when Worthen's appeal was denied, an injunction lifted, and VISA was free to enforce the bylaw. But by then duality had already spread among both classes of banks and the board realized it was not feasible to enforce it.

So the VISA board adopted a complete prohibition on duality at all levels. But the board decided it shouldn't enforce the prohibition without receiving a "railroad letter" from the Justice Department neither approving nor denying the policy, but giving assurance it would take no immediate action, retaining the freedom to act in any fashion when the effects of the prohibition became known. Justice launched a full-scale investigation which lasted two years. Hock argued to regulators that if VISA was permitted to enforce duality, it would result in the emergence of a third, fourth or perhaps fifth or sixth bank-card system. In the end, the Justice Department declined to issue a "railroad letter" and the duality provision was withdrawn from consideration and VISA turned, according to Hock, "to everything we could do to enhance bank-to-bank competition and minimize erosion of competition between the systems." Within six months, wrote Hock, all the major banks went "dual."

Today, Hock writes, there is no third, fourth or fifth bank card system. Diners Club and Carte Blanche are wholly owned subsidiaries of Citicorp. "Sears made a mighty effort to interlock their Discover Card by becoming a VISA issuer. The Eurocard system has emerged in Central Europe, but it is interlocked with Mastercharge. The JCB card system emerged in Japan. JCB and Eurocard have achieved limited regional acceptance, but neither has prospects of becoming a global presence. VISA and Mastercard are swiftly emerging as dominant debit-card systems." VISA has 60 percent of the global bank card business. VISA card issuance and merchant-processing transactions are rapidly consolidating in the hands of giant traditional stockholder card issuers and processors.

Hock recounts implied death threats he received at the height of the duality debate and says he wonders to this day if not insisting on a duality prohibition was a failure of will on his part, ending a chapter with this quote from Robert Frost's "The Road Not Taken:"

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in the wood, and I --
Took the one less traveled by,
And that has made all the difference.

Hock's third regret is that he missed the need to devise an "institutional immune system" to thwart a return to the old ways of management and leadership at VISA (presumably after his 1984 departure). There is intense pressure to recentralize power and wealth. VISA moved to a large new headquarters in Foster City, just south of San Francisco, instead of an old Bank of America in downtown San Francisco. Where under the Hock-era, title-less employees worked largely in either open areas or glass-walled offices, "today, so I hear, VISA has more blind cubicles than the popular cartoon characters Dilbert could count or Dogbert could mark." Eventually titles asserted themselves.

And Hock recalls that even during his tenure, VISA embarked on an ill-fated attempt to develop merchant card-processing software to solve what some bank members thought was a common need. The idea was that VISA would develop and own the software which members would use. Costs soared, deadlines were missed, a poorly chosen vendor botched the job; members could not agree on specifications and the scope of the project expanded out of control. Finally, the project was axed. "We had never gone back to our purpose and principles to ask what card-processing software for bank use had to do with 'creating the world's premier system for the exchange of value.' It had nothing to do with our purpose, or our belief about decentralization of function in pursuit of it."

Hock's fourth regret is that the VISA system has never evolved to what he had hoped it would ultimately be perceived -- a transaction device for the worldwide exchange of value instead of a mechanism to more efficiently induce consumers into debt. He writes:

"It was my hope that revenues of issuers would evolve from reliance on interest on cardholder debt, and discount from merchants, to reliance on transaction pricing for services provided. It was my hope that this would equitably distribute cost between the most affluent and the least affluent customers. Twenty-nine years later, that has not happened, and interest on debt of those who need to pay monthly supports free service to the affluent."

Hock never really says why he left VISA in 1984. But I suspect that's one reason. For, as Hock writes near the end of his book: "When people no longer believe in existing institutions and societal norms, they often turn to destructive behavior in the name of self interest. What people no longer believe in building up, they will inevitably tear down." Did Hock reach that point with VISA, and choose to leave rather than tear down?

"We have lost our local, communal stories and destroyed the places for their telling," he concludes. "Nor do we yet have a new compelling global story or communal places for its telling. The stories now endlessly drummed into us are not our stories. They are stories those with escalating power and wealth tell to one another. Stories they incessantly pour into us through commercialization of media and every other aspect of life. They are stories designed to arouse greed in the many to satisfy the few. They are stories that appeal to the worst, not the best in us. They are false stories. Deep inside, we no longer believe them. Neither do those who tell them, if the truth be known.

"If the story of a truly different and better society could be told, no matter how remote, no matter how difficult to realize, or even the story of a path to that end, it would capture the imagination of the world. It would submerge the urge for isolation and destructive behavior in excitement and new hope for the future. People would then see the wisdom of preserving the substance of the past, while enhancing and clothing it in the forms of the future. They would see the wisdom of sustaining the old order of things, even as they assist in its transformation. For the first time in history, we might engage in global evolutionary social and institutional change without an appalling cycle of destruction and reconstruction."

The Chaordic Alliance
P.O. Box 907
Half Moon Bay CA 94019-0907
Tel.: (650) 712-5830
Fax: (650) 712-5834
Website: http://www.chaordic.org
E-mail: chaordic@chaord.org

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Dee Hock - see biography - Founder & Coordinating Director, The Chaordic Alliance, Founder & CEO Emeritus VISA International...
A Brief History of The Chaordic Alliance

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