At high-flying Muni Financial Services, Harry Clark did everything he could for his people -- he empowered them, rewarded them, and gave them a sense of mission that extended well beyond the bottom line. So how come they let him down?

Meet Harry Clark. You know the type.

Clark is the founder, owner (with his wife, Linda), and chief executive of Muni Financial Services (MFS), a hot little company in an industry he more or less invented seven years ago, when he was 26 years old.

Clark's story -- its theme, at least -- ought to be familiar to you, dear reader. Once he was just another eager-puppy M.B.A. at a small government consulting firm in Irvine, Calif. While there he helped create a software package that was supposed to help cities, counties, and special districts administer bond issues. The problem with putting software in the hands of municipal managers, Clark came to believe, was that "all we were doing was giving them the ability to screw things up more efficiently." Because he is who he is ("one of Harry's strengths is blowing boundaries and limitations away and doing it anyway," a colleague says), Clark went one step further, imagining a business that would take care of everything: plot the districts, collect the payments, go after the deadbeats, year after year, in and out of decades, for as long as the bonds were out there.

Consulting firms live or die on consistency of revenues. That was the beauty of Clark's new venture. Here he was "dialing for dollars" out of a barn behind his house, signing his clients to 25-year contracts. Business was good. He quit the barn and eventually moved into (and then bought, and then remodeled with marble tile and mythical statuary) a concrete-and-glass office building at the foot of a steep canyon road in picturesque Temecula, Calif., one hour northeast of San Diego. From 1989 through 1993 MFS's sales grew by more than 900% -- fast enough for the company to make the Inc. 500 list. Revenues in 1994 topped $4 million.

Success in business and the life it brings mean a lot to Clark. He has in spades what the psychological testers who have examined him call "capacity for status," and he willingly admits as much. He wants you to notice the Rolex on his wrist and his well-cut sport coats, to admire his big house and be amazed at his collection of 11 antique cars. Clark is a rich man -- getting richer all the time. He takes pleasure in that -- simple, ingenuous pleasure. And that says a lot about the kind of guy he is.

But there's more to this man than the Packards parked in his garage. In life, as in business, Clark is guided by a sense of purpose, he says. Like the Philadelphia Quakers of old, he insists he wouldn't be satisfied just to be doing well; he wants to do good. He wants to make working at MFS a "meaningful experience," for him and for the 40 souls in his employ.

"A lot of business owners, all they care about is running the business," Clark says -- or rather, seems to ask. His voice is high-pitched and his phrases build, modestly, to inflection points. "They don't even think about the values and principles and environment that their employees are in. They're doing it as a transaction. Well, for me this isn't a transaction. It's a lifestyle. It's a belief. It's a community." That says a lot about the kind of guy Clark is, too.

And so, too, finally, does Clark's sense of his role in the community he has created. "My nature isn't to be the leader," he says, just "an influential member of the club." That's how it was back at Cal State Long Beach, apparently, where Clark was a varsity heavyweight wrestler. "I'd always be one of the stars and one of the responsible members but never the team captain. I've never had an interest in anything like that. There are people who always do that kind of stuff, and then there are people, like me, who just want to be important. They don't want to be The One."

* * *

Last June Clark did something many entrepreneurs like him only dream about. He went on sabbatical. Three months he was gone, really gone -- touring New England by minivan, lounging at the family cabin in Big Bear Lake, Calif., backpacking in Alaska. "Never talked shop," he says. "Never saw financials. Didn't know if we were close to going out of business. I knew nothing."

It was not an impulsive act. Clark values separation. He takes three-day weekends frequently and weeklong vacations regularly. Distance from work helps clarify his thinking, he says, and pays off in ideas. All directors at MFS are entitled to a three-month sabbatical after six years on the job; managers get six weeks. That's been the company policy from the start. Clark, having been around the longest, was the first to qualify. Not to have taken his, he says, would have sent the wrong signal.

So Clark disappeared, left his company at the height of the busy summer levy season, left it, moreover, in the hands of an outsider he'd brought on board only months before: Tom Walker, a former hotel executive with ITT Sheraton, new to municipal finance and so unlike Clark in every particular as to be almost his mirror opposite.

It was an interesting experiment, brave even, a kind of test. "I've got good people," Clark says. "I had absolute faith that they knew what they were doing. I hoped I could remove myself and have things go on. I like to think I'm not needed."

Not so, says Carla Stalling, an MFS associate director and a longtime Harry watcher. "Harry says he doesn't want to be in control. He's not telling the truth."

* * *

Tom Walker arrived at MFS on Valentine's Day -- "an auspicious start," he would say later. The company by now was four years and two buildings removed from Clark's barn, and the staff had grown sevenfold. Employees worked in offices or cubicles rather than all together in one big room. They sent their colleagues voice mail instead of tapping them on the shoulder. They didn't wear shorts and T-shirts as they had in the barn, which had been impossible to keep cool. But behind the facade of corporate anonymity was a peculiar, almost clannish operation, shaped by Clark in his own image.

It's hard to pinpoint the origin of Clark's notion of the ideal workplace. He'll tell you that the year he spent as a college student in Denmark, where he was exposed to socialism for the first time, was influential. That and all the human-resources courses he took in college. Straight out of school, in his first job at a Big Six accounting firm in San Diego, Clark designed a two-way employee-supervisor evaluation form that became a national model for the firm's review process. But the epiphany, he says, followed his brief, bitter experience with party politics. Clark was a member of the board of Democratic Associates of Orange County. He resigned after other board members refused to lower dues for senior citizens, which struck him as contrary to the party's ideals.

"From that point forward I decided I can't change the world -- it will never happen," says Clark. "But what I can do with the people who work for me is change their lives. I can change these guys spiritually, intellectually, economically, politically. There's so much influence that I have, just in the way I run this business."

When Clark talks about changing the lives of his employees, in practice he means first of all providing them with a nice set of benefits: three weeks' vacation to start; flextime; health insurance; dollar-for-dollar matching contributions on 401(k) plans, up to 4%; profit sharing at 7%; a generous bonus plan; an on-site workout room; access to Clark's mountain cabin for $20 a night; and periodic surprises, like the holiday bus trip to the local mall, where he passed out two $50 bills to all of his employees and ordered them to spend it on themselves.

Changing lives also means keeping everybody in the loop. That was a lot easier when there were half a dozen people in the company and only two profit centers. These days Clark relies on a device he calls a Yes Meeting. Anyone can call a Yes Meeting anytime -- just push the page button on your telephone. Attendance is mandatory. If you're busy, the others will wait for you. Yes Meetings can be about almost anything -- strategy, planning, financial results -- but typically, the purpose is to announce a new client. Protocol demands that you share the credit as widely as possible. At the end you stand up and wave your arms and lead everybody else in a cheer: "One-two-three yes!"

Yes Meetings can seem a little weird to the uninitiated. The first one felt like "groupthink," says Jeff Hamill, an associate who joined MFS last spring. "I was pretty cynical about it." He has since observed a fair amount of eye rolling among employees -- even on the part of old-timers -- as they head down the hall to another Yes Meeting.

Hokey or not, Clark's Yes Meetings contribute to a sense of we're-all-in-this-togetherness at MFS, and most employees seem genuinely to appreciate that. "In other companies that I've worked for, management tends to be mysterious," says Cindy Fox, who started as a secretary in the barn and now heads human resources. "Harry is up front. He wants everyone to see the vision."

Finally, changing lives means providing his employees with plenty of room to grow. "It's absolutely phenomenal how you can take someone who is just a staff person and, if you put him in the right position with the right circumstances, the limits on his performance can be so high," Clark says. Indeed, MFS is full of success stories like Fox -- people who, Clark says, were hired as "grunts to the more expensive people" and are now "board members and team leaders, and they kick ass."

"You have to be a special person to work here," says Carla Stalling. "You have to have your own internal goals, which are usually off the scale. And as soon as Harry sees that you're willing to give more than 100%, he starts to stretch you." Stalling had been an academic research assistant and administrator before Clark offered her an entry-level job in 1991; today she's director of one of the company's six divisions and a member of the internal board. Greg Ghironzi, a manager, worked at Hughes Aircraft and later as a self-employed construction contractor. Pablo Perez, another manager, came from the public sector; like Ghironzi and a handful of others at his level, he doesn't have a college degree.

Sometimes, says, Stalling, "the stretching can be painful." Not everyone thrives. But the survivors -- those who have prospered in Clark's demanding system -- share qualities that together define a powerful staff identity: capable, confident, hardworking, independent, and suspicious -- even scornful -- of outsiders.

You can't say Walker had no idea what he was getting into. Coming from a multinational corporation into an entrepreneurial upstart with a charismatic leader, Walker says, he "expected things would be different." Then again, he adds, as tactfully as he can, "my expectations were more than validated."

* * *

The controller hadn't been doing his job. He'd had plenty of chances; it just wasn't working out. "Which I knew," says Perez, "and most people knew. I mean, he was messing up numbers and stuff. He was blaming it on other people. We were getting reports that looked like crap, numbers that didn't make any sense." Inevitably, the controller was fired.

The task of making the announcement to the staff fell to Walker, the new director of operations. It was exactly the kind of administrative chore for which Clark had hired Walker in the first place. After six years of doing everything himself, Clark was beginning to feel bogged down. He had reached that stage in every successful company's growth at which mere survival was no longer an issue; what really mattered now was plotting the next leap forward. The challenge, as Clark saw it, was how best to leverage MFS's hard-won expertise. He hoped to capitalize on the trend toward privatization in local government, to offer new services and break out of California. He was just then in the early stages of negotiating a strategic alliance with fascinating implications for future growth. The outline of Clark's dream -- of an MFS that would one day be "very big, doing close to a billion dollars a year, internationally" -- was beginning to take shape. But, says Clark, "I was spending so much of my time in day-to-day stuff that didn't matter. I wanted somebody else to handle all that."

All that, then, would be Walker's job. Clark hired Walker when he did because he knew he'd soon be leaving on sabbatical, and he needed someone to run the company in his absence. But he never meant for Walker to be merely a caretaker. Walker was his freedom -- freedom to go on sabbatical today, to ascend to a chairman's role tomorrow. "The way I look at it," Clark says, "Tom is going to be president, OK?"

Along came the meeting to announce the firing of the controller. It was Walker's meeting, but Clark was there -- listening, watching. And Walker hung himself.

Perez remembers: "Tom announced that it was a 'mutual agreement,' that it was better for him and better for us to go our separate ways. That wasn't good, because most people knew he was fired. Tom came across like a liar, like we couldn't trust him, like he was covering everything up. That wasn't Harry's way of doing things. Harry would have said, 'I had to let him go. He wasn't doing the things he was supposed to be doing.' That's what people are used to."

"The employees knew," Clark would say later. "Everybody's BS detector just went, 'Ding, ding, ding!"

Clark himself is famously blunt. That's his style -- part One-Minute Manager, part California cruel (honesty no matter what). Granted, he's not nearly as bad as he used to be. There was a time when he routinely crossed the line from "assertive to abusive," says Ghironzi. "You could park a Volkswagen in your backside, it got bored out so well." Karolyn Cline, a senior associate, remembers how once after a meeting, Clark "reduced me to tears" because "I was slouching and he didn't like that." But although such outbursts are less common now, Clark is no less reticent if he has something unpleasant to say -- about you or anybody else. His employees expect it of him.

"Here you're honest," says Clark. "I mean, drop your pants! No matter what the issue is. Because otherwise, where do the lies stop? Unless there's full disclosure all the time, you never know." Clark says he was appalled at the tone of Walker's announcement, the way Walker deliberately skirted the truth.

"I know why you did it," Clark told Walker privately after the meeting. "It's standard operating procedure in corporations. But with this staff, it won't fly."

Fine, but Walker had handled it the best way he knew how -- that's his position. Tom Walker is not Harry Clark. Walker's a different animal: a hotelier, first of all; a man with a smile, well versed in the art of smoothing things over, of putting the best possible face on a difficult situation; and of course, a corporation man. Ten years he worked for ITT Sheraton. You see it in the way he dresses ("I get teased because I'm a relentless wearer of suits and ties, and that is rather different from the modus that I walked into here") and in his management style.

"I asked for his [the controller's] resignation, and he tendered it," says Walker. "He didn't have a choice, and he knew it. Had he not resigned, I'd have taken more forceful steps."

Nonetheless, says Walker, "in front of the whole organization, I'd just as soon say I accepted this person's resignation as say I fired him. Harry's position is that you lose credibility. Mine is that there are people who, when they say, 'Call a spade a spade,' they mean that things need to be depicted in the harshest, most abrasive terms possible. I think a softer approach is very good with a lot of people in a lot of situations."

Six weeks later, in June, Clark left on sabbatical and Walker found himself in charge, temporarily, of MFS. That scenario differed slightly from the one Walker had envisioned at the outset, he says. His own sense of why Clark had hired him was that Clark had huge ambitions for the future of his company, that he felt constrained by "a kind of strategic thinness," that what he had on staff were mainly "day-to-day tacticians," and that he wanted "help thinking in larger corporate terms than was customary here." So Walker saw himself, at least partly, as a big-picture guy. He did not expect -- three months after he started, new to the company and new to the industry -- to be running the show. Says Walker, "If he said, 'By the way, in June I'm going on sabbatical,' that was something that didn't register early on in our conversation."

No matter, Clark was gone. What followed, in Walker's words, was "a certain amount of fallout." What followed, in one employee's words, was "total chaos."

* * *

Suddenly, the rules changed. "Our general MO," says Ghironzi, "had been high-octane, somewhat eccentric people kicking ass in what they do and running over everyone in the way and knocking the socks off our clients and conquering the world." Under Walker "it was, 'Do I look right? Am I at my desk at 8?' Guys who were used to skipping vacations and sleeping at the office didn't like to be chewed out when they didn't come to work early enough."

The structure changed. Before, "we didn't have a hierarchy of reporting and all this stuff," says Stalling. "There was Harry and there was us." After Clark left, suddenly there were levels, with Walker at the top and Mike Ford, a municipal-finance consultant, also new to the company, just below him. "I don't know how other people felt about it, but I wasn't going for it," says Stalling. "No way. Tom comes from the hotel industry. Give me a break! He compares parcels with bedrooms. I mean, that's ridiculous. And Mike, you know, is just weak. Just plain weak in terms of management and getting things done."

And the tone changed. Employees grown accustomed to Clark's way found Walker too much the fence-sitter. The Yes Meetings continued, but somehow they weren't the same. Now they were less about sharing credit and more about taking credit. Before, MFS had felt like a close-knit community to most employees. After Clark left there was "a lot of conflict," says Ghironzi. "Back stabbing and jockeying for positions that didn't exist," says Cline -- her point being that the alpha dog hadn't left the pack for good, he was due back in three months. "I was shocked and disappointed," she goes on. "This was our chance to show Harry that we were adults and could operate without him, and we obviously failed. I couldn't wait for Harry to come back."

Cline wasn't the only one who missed Clark. Everybody did. His employees needed him, that was obvious now. But whose fault was that? In other words, had they really "failed"? Or did Clark have them right where he wanted them?

* * *

Cut to December. Clark's sabbatical ended three months ago. Time for an important year-end Yes Meeting.

Everybody gathers in the hallway outside Clark's office. The early financial results are in, and they're not good. Revenue growth has slowed; profits are down. The reasons? There are lots of them: the cost of the new building, a major 1994 expense; the acquisition -- yet to pay dividends -- of a smaller competing business; a failure to market as aggressively as in years past; Harry's own absence; the turmoil that erupted. Lots of reasons, but one major one: "Over the summer the senior staff let me down," is what Ford, himself a senior staff member, hears Clark say, even if those are not exactly his words.

"Wow, this is hard," Ford is thinking. Perez, meanwhile, has his eye on Walker -- "Tom doesn't look good at all," he tells himself. "He's choking on a bone or something."

But Clark's not finished. The bonus pool, $115,000 in 1993, would be about 50% less this year. Very disappointing, but it gets worse. Clark has an idea, something he wants everyone to at least think about. There are some people in the company, hard-pressed people with families, who can't afford to buy a computer. Clark thinks it's a shame that any kid today should grow up without a computer in the house. He wants to help. No, he wants everybody to help. He wants to take 20% of the bonus pool and set it aside in the form of $1,000 grants to help needy employees buy their own computers.

Then comes the kicker. Harry wants everyone to know that the board members -- that would be Walker, Ford, and the rest -- have already heard about his computer idea, and by the way, they're against it. They make more money than anybody else but don't want to give up even a small piece of their bonuses to help those who need help the most.

The board members are to blame for the lousy bonus, Harry seems to be saying. And what's more, they're greedy.

Clark may in fact have used the "G" word at that point, or he may not have; accounts differ. But his drift was clear, as was his preference. And the staff understood. The next day, they voted overwhelmingly to override the board and distribute the money for computers.

"I'm so proud of the staff," Clark says. "They went for it, and not only did they go for it, they felt really good about it. The people -- staff, employees -- are much more caring about everybody than the management team is."

Wrong, says Walker. "The board didn't really shoot the idea down," he says. "I was there. What the board had said was, 'What we're talking about in this room is essentially taking money out of people's pockets to underwrite a purchase on the part of a small subset of people. We don't want to make that decision for them." Moreover, says Walker, "Harry's perception of that meeting is that we achieved consensus, and people are happy with it. But I can tell you there's more division than that simplified picture of things would suggest. There were people who wanted the money but didn't say anything because they didn't want to be not doing the right thing."

On that point, Walker gets support from an unexpected source: Perez. "Because I'm more at the middle level, I get more feedback from the associates than anyone else does," he says. "I know that people needed cash over the computers." Besides, says Perez, if the staff told Clark what he wanted to hear rather than what they really felt, well, it wouldn't have been the first time: "He wanted us to believe that he was saying, 'You decide.' But I know that inside he really wanted to say, 'Support me.' Harry's a master at that; there's nobody better. I think he already knew what he was going to do."

Stalling was at the board meeting, too. There are not many issues on which she would side with Walker rather than with Clark, but this is one of them. She, too, takes issue with Clark's characterization of the board as greedy. If there's a greedy party, she suggests, maybe it's Clark. "I would never have considered reducing the bonus pool to pay for computers," she says. "Why should we do that when Harry could just pay for them?"

After all, Clark took his full bonus. That was never an issue. It may have been a disappointing year for MFS, but it was a very satisfying one for Clark personally. His compensation totaled about $750,000, he says, much of which, he's quick to add, was "zero net, a bonus to me to pay company taxes." On the other hand, he gave himself a raise this year, a nice one -- from $125,000 to $200,000. That's nearly three times Walker's salary, for example. What about Stalling's question, then: Why raid the bonus pool to pay for what, in Clark's tax bracket, amounts to pocket change?

At first, Clark seems taken aback by the question. "It's all my money," he says finally. "Know what I mean? I don't have to bonus them anything."

* * *

When Clark talks about Walker these days, he tries hard to be supportive. "What he did during my sabbatical in terms of his decisions was fabulous, absolutely fabulous," says Clark. "It was the cultural stuff, the way he handled things that hurt so much. My hope is that after a year or two he's going to get it." Clark still says Walker will become president of MFS one day. He insists that Walker is "getting the chance to succeed."

Meanwhile, though, Clark has continued to act in ways that marginalize Walker and further undermine his authority. After the bonus flap, Clark put an end to monthly board meetings in favor of weekly meetings involving both directors and managers -- a larger group over which Clark has more control. Also, he has removed Walker as director of operations and put in his place Gay Eichhoff, a veteran of the barn days. Walker is over in local improvement district administration now -- "learning the business," says Clark.

Walker says he doesn't resent the move. "That actually fit in some fairly useful ways my own plan for self-development," he says. But he does admit to wondering, sometimes, just where he stands with Clark. "Some of the things Harry has said about me," says Walker, "in a corporation like ITT Sheraton, if those things had been said, they would have been said about people who were looking for work."

And Walker worries about the way he's been isolated within the company. He knows that although he has spent almost a year at MFS, there are people in the company "who still have their suspicions" about him. For example, Ghironzi, who admits, "I'm still having a hard time with Tom, just passing him in the hall." And for that, Walker thinks Clark may be partly to blame.

"What he has done has contributed to that sense of isolation," Walker says. "It's a little like Ronald Reagan in the White House getting in front of the cameras and saying, 'It's you, the American public, and me against those rascally politicians in Congress.' You need to be careful with that. That kind of presentation doesn't breed unity."

Clark knows that, of course. So why does he do it? Maybe that's the trouble with Harry -- or part of it, anyway. He says he doesn't want to be The One. He says, "I don't have a need to be needed." To prove it he goes away. But what he proves, instead, is how much MFS depends on him.

So did Clark fail? Not necessarily.

"Sometimes I think if Harry had been born 100 years ago, he would have done really well in a small town where he took care of everybody, provided for them from birth to death, gave them all kinds of benefits," says Chuck Levine, a managing director and another longtime Harry watcher. "I think he would like that."