The Washington Post has received the following two communications concerning the IRIS series: International Research & Information Systems, Inc., a Fairfax, Va., company that presently provides word processing and marketing services, has used the acronym IRIS as a trademark for several years. This IRIS is not connected with the now bankrupt International Reporting and Information Systems (IRIS), which is the subject of this series. The World Bank, whose computers were pictured behind IRIS founder Anthony Stout in a front-page photo in Sunday's editions, wishes to make clear that there is no connection between Stout or his organization and the bank.
On March 10, 1982, Anthony Stout arrived punctually at the offices of the Henry Ansbacher Bank in the City of London for a meeting of the IRIS investors' board. As he turned into the building he was astonished to see his four deputies--men he had hired only six months before and thought were looking after the store in Washington--walking into the building in front of him.
At the board meeting it was announced that the four men would be making a presentation. Stout was asked to leave the room and did so, accompanied by Charles Longbottom, IRIS' chairman.
By the end of the day, it was clear Stout had been pushed aside in a coup run by his senior operational managers.
Stout, the imaginative entrepreneur and promoter, the man with the vision of the new information frontier that IRIS was to cross, was no longer in control of the enterprise he had spent two years developing. The investors he had attracted to IRIS replaced him--three months after its official launch--with his deputies, who now had to prove they could run a multimillion-dollar business as well as they had run the coup.
The new Washington team consisted of Barry Kelly, 50, a former senior CIA official; Paul Boeker, 43, an ex-ambassador and rising star in Foggy Bottom on leave from the State Department; Lee Feldman, 27, a computer whiz who had joined IRIS from the Pentagon, and John Kulp, 38, who, as a former marketing man with Citibank, was the only one of the quartet with hands-on experience of the marketplace.
IRIS (International Reporting Information Systems) was in deep financial and managerial trouble within weeks of being launched in November 1981, and by late January the four began their campaign to take over the ambitious venture, which had been organized to provide corporate and government decision makers with a worldwide flow of information through a computer network.
By then, the "Gang of Four"--as they inevitably came to be known among the IRIS staff--had become disenchanted with Stout. They had concluded that he was not giving the project the time and leadership it needed and, although he was technically within his budget, they said, money had been wasted and little had been achieved.
All the original capital--$5.5 million--had gone. The computer had swallowed $2.9 million and was still a year away from full operation. Some of the other costs incurred in the Stout era, according to his final bookkeeping submission to the investors, included $330,000 for desks and furniture, $40,000 for artwork in the Crystal City offices, $82,000 for carpeting and drapes, $147,000 for public relations and $143,000 for "architectural and design services." Stout's management fee from the inception of the project under the IRIS contract with his Government Research Corp. (GRC) until his ouster was $442,000.
In Washington, as they planned their moves against Stout, his four deputies realized that the key to success was the support of a sufficient number of the most influential investors. Three of the investors were living in London, where the March 10 investors' board meeting was to take place, and they were approached.
They included Longbottom of the London insurance company Seascope, who had become convinced that Stout had to go after a visit to Crystal City where he listened to the Gang of Four's grievances; John Wallace, the London representative of Fred Olsen, the Norwegian shipping magnate; Charles Williams of the London-based Henry Ansbacher Bank group who had been responsible for packaging much of the original investment capital.
A week before the board meeting, the four divisional managers sent a telex to Longbottom outlining the post-Stout era as they saw it. A new corporate entity, owned by them, would be established to "design, complete, maintain and market the IRIS system." Stout's contract to run IRIS would be ended, although he would remain an investor. Longbottom was invited to serve as the new corporation's non-executive chairman.
Until then, the investors had taken a largely passive role in the running of IRIS, having delegated to Stout the day-to-day managing of the operation. But now there was a growing awareness that the problems of IRIS were extensive and went beyond the immediate one of managerial control.
In their telex message, the Gang of Four expressed concern at the lack of time before the board meeting.
"We firmly believe," they said, "that the substance of our proposal be worked out beforehand."
But Kelly, they suggested, could come over to London "discreetly" four days before the meeting to talk to the other key investors, Wallace and Williams.
The tone of the telex message was confident, firm, even authoritative. It was doubtful that other alternatives put forward by the investors would be acceptable, the group stressed. What would happen if the investors did not go along was not spelled out, but the implication was some dramatic action, presumably collective resignation.
Faced with a hostile majority on the eight-member board, Stout had little choice but to give up his contract to run IRIS. He agreed to provide marketing services and to help look for new investors, but control of the operation passed to the Gang.
The Swedish investors (businessman Gustaf Douglas, Sven Brise, the representative of Skandia, Sweden's largest insurance firm, and Christian Norgren, the prince of Liechtenstein's man on behalf of The Bank in Liechtenstein) felt uneasy about dumping Stout, the project's founder and promoter, but they went along with the others.
In a compromise move at the meeting, Douglas, an art lover with a personal financial stake in IRIS who was a friend of Stout, replaced Charles Longbottom as chairman of the board. Douglas, according to several investors, lobbied energetically for the job.
"Tony is a marvelous promoter," said a close associate. "People with money need people with ideas. He puts sex appeal into the dollar signs, but he's not a manager."
Stout, for his part, felt the financial problems were caused by cost overruns in the computer operation. The investors, he thought, figured that they could do the job without his services and thus save money on GRC's management fee.
With Stout gone, the investors confronted a Washington operation with an untried management team in charge and at which few analysts and no correspondents had been hired. IRIS' financial prospects had not been enhanced by the collapse in January of the political risk insurance business, which had lured many of them to invest in the first place, and by the absence of a coherent marketing strategy.
Yet, after some hesitation, the investors sank another $7 million into IRIS. Their reasons were complex. Some of the investors, notably Ansbacher, Skandia and Olsen, seemed to think it could still work and urged the others, especially the prince of Liechtenstein to put more money in.
"The prince," said his representative, Norgren, "was more than ready to call it a day."
Some of the investors said later they felt a loyalty--and a debt--to the four new IRIS managers and wanted to give them a chance to run the operation. Others pointed out that it would have been a long and costly process to find and hire an experienced business manager, and, besides, Douglas, the new chairman, liked Kelly and wanted to try him out.
In addition, there was a desire not to disappoint former British prime minister Edward Heath, former U.S. defense secretary and World Bank chief Robert S. McNamara and other members of IRIS' advisory council who had put their names and reputations on the line. Moreover, as throughout the IRIS saga, there was a curious inertia, a reluctance to say, "Stop, we've had enough, let's get off."
So, IRIS sailed on with new money, a new, U.S.-based company and new management.
Back in Crystal City, as spring turned into summer, Kelly became the new leader because, he joked, he was the oldest. (The other three joked back that he had gotten the job because he didn't have as much to do as they did.)
Then, in the manner of coups, Kulp, the corporate marketing man and a key figure in the move against Stout, had differences of opinion with the others over sales strategy and was squeezed out in June. Kulp had a more narrowly focused view of IRIS' products than his colleagues, some of whom felt his banking experience was not broad enough for the job. His departure created a vacuum in the vital sales field, leaving IRIS exclusively in the hands of former government officials whose own experience in the marketplace was limited.
Kelly assumed the title of chief executive officer, but IRIS' leadership often tended to resemble that of a Latin American junta. It was not that it was repressive--quite the contrary--but it was difficult to know who was making the decisions. Moreover, the trio's new employment contracts suggested that they were equals, with Kelly only marginally more equal than the others. They all received raises bringing their salaries up to $125,000 a year. They were also given a small share of stock in the new IRIS company and each was promised a $92,000 bonus when their departments were operational, regardless of IRIS' viability at that time.
Boeker and Feldman often had differences of opinion over the direction IRIS should take. In these disputes, Kelly usually sought a consensus. A visitor to IRIS around that time came away with a confused impression of the leadership and IRIS' strategy. "Sitting in a room with those guys," he said, "you had several different ideas of what IRIS was all about.
"Feldman and Boeker were the two bright guys," he added, "but it was never clear what Kelly thought."
It seemed clear to the staff, however, that despite their differences the three managers were agreed that they should run IRIS. They did not hire a new corporate marketing executive to replace Kulp, deciding to handle the job themselves.
In our end of the operation, where the telephones still lay on the floor and most of the analysts' cubicles remained empty, Boeker, our boss, told us to start hiring a Washington-based staff of analysts and to fan out through Asia, Africa and Latin America recruiting correspondents.
We, the regional directors, had some reservations about this because we still did not have a clear fix on the kind of information and analysis needed, nor for whom it was intended. My recollection of the early summer last year was one of endless, inconclusive meetings, chaired by Boeker, discussing the "IRIS product."
"Not only were we beginning to look like a government," an analyst commented, "but we were being run like one."
A nagging concern for the journalists at IRIS was the adhesive quality of the "private CIA firm" label. Heath had always been worried about it and sought an assurance from the IRIS board that no more CIA people would be hired. (McNamara did not air his views publicly at the time.)
Heath had been promised by Longbottom back in January that hirings from the agency would cease unless there were overpowering reasons to do so. However, by the autumn of 1982 under Kelly's direction, nine out of IRIS' 10 top executives were former U.S. government officials, four of them from the CIA. Kelly, who had taken early retirement from the CIA to join IRIS, recruited a number of former colleagues, taking advantage of their experience and technical skills and offering them better salaries than the agency.
IRIS management continued to underestimate the adverse effects that these hirings had on the willingness of contributors to work for IRIS and on our journalistic reputations. When Richard Davey, IRIS' East European director on leave of absence from the London Times, refused to accept an analyst who had come straight from the CIA, Boeker expressed genuine surprise.
There were persistent rumors, inside and outside IRIS, that the CIA was actively worried about having a rival in the private sector and that it had planted its own operatives to ensure that IRIS failed. No proof of this ever surfaced.
The Soviet Embassy in Washington showed an interest in subscribing to the IRIS service at one time. The approach split the IRIS management. Some of the former CIA men opposed the idea, while Boeker, the consummate diplomat, temporized, arguing that it would not be advisable to have the Soviet Union as our first client. In any event, the Russians did not pursue the matter.
After the collapse, I received a telephone call from a reporter who asked: "Was it true that IRIS' only client had been the KGB?"
Meanwhile, another drama was developing. Negotiations between IRIS and Stout's GRC over the latter's running the North American service had broken down. GRC thought at one stage that a deal had been reached when Boeker, on behalf of IRIS, and Stephen Caulfield, the president of GRC, had shaken hands on it back in May. Boeker said later that while there had been a general understanding, he had never shaken hands on "agreed terms."
But in mid-August, after consultations with the board, the management decided to set up IRIS' own North American service. Stout was furious and told the investors in Europe he would seek an injunction preventing IRIS from marketing such a service on the grounds that it violated the "non-competition" clause of his agreement with them, unless they changed their minds. The investors chose to call what they thought was his bluff and in mid-September Stout launched a lawsuit seeking the injunction against his own creation.
The investors were appalled. In European business circles, that sort of thing simply wasn't done. At the next board meeting, a countersuit was agreed upon. This suit, which sought to block the injuction, alleged that Stout had violated his own pledge of non-competition with IRIS. It also demanded immediate repayment of a $300,000 loan he had been given by the investors as an advance for GRC's providing IRIS with a North American service.
During the meeting, the investors made it clear that expense would not be an object in pursuing the case. Prince Franz Josef II of Liechtenstein, red in the face, told his colleagues that his family had been in business for 400 years. Never, but never, he said, had it been involved in litigation. NEXT: The sky's the limit