Chances are you won’t have time to deal with the unimportant things, which is better than not having time to deal with the important things. Don’t mistake possibilities for probabilities. Use principles. Believability weight your decision-making. Convert your principles into algorithms and have the computer make decisions alongside you. Be cautious about trusting AI without having deep understanding. An organization is a machine consisting of two major parts: culture and people. A great organization has both great people and a great culture. Great people have both great character and great capabilities. Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven’t been built before. Tough love is effective for achieving both great work and great relationships. In order to be great, one can’t compromise the uncompromisable. A believability-weighted idea-meritocracy is the best system for making effective decisions. Make your passion and your work one and the same and do it with people you want to be with. Realize that you have nothing to fear from knowing the truth. Have integrity and demand it from others. Never say anything about someone that you wouldn’t say to them directly and don’t try people without accusing them to their faces. Don’t let loyalty to people stand in the way of truth and the well-being of the organization. Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up. Speak up, own it, or get out. Be extremely open. Don’t be naive about dishonesty. Be radically transparent. Use transparency to help enforce justice. Share the things that are hardest to share. Keep exceptions to radical transparency very rare. Make sure those who are given radical transparency recognize their responsibilities to handle it well and to weigh things intelligently. Provide transparency to people who handle it well and either deny it to people who don’t handle it well or remove those people from the organization. Don’t share sensitive information with the organization’s enemies. Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency. Cultivate Meaningful Work and Meaningful Relationships Be loyal to the common mission and not to anyone who is not operating consistently with it. Be crystal clear on what the deal is. Make sure people give more consideration to others than they demand for themselves. Make sure that people understand the difference between fairness and generosity. Know where the line is and be on the far side of fair. Pay for work. Recognize that the size of the organization can pose a threat to meaningful relationships. Remember that most people will pretend to operate in your interest while operating in their own. Treasure honorable people who are capable and will treat you well even when you’re not looking. Create a culture in which it is okay to make mistakes and unacceptable not to learn from them Recognize that mistakes are a natural part of the evolutionary process. Fail well. Don’t feel bad about your mistakes or those of others. Love them! Don’t worry about looking good, worry about achieving your goals. Get over “blame” and “credit” and get on with “accurate” and “inaccurate.” Observe the patterns of mistakes to see if they are products of weaknesses. Remember to reflect when you experience pain. Be self-reflective and make sure your people are self-reflective. Know that nobody can see themselves objectively. Teach and reinforce the merits of mistake-based learning. Know what types of mistakes are acceptable and what types are unacceptable, and don’t allow the people who work for you to make the unacceptable ones. Get and stay in sync Recognize that conflicts are essential for great relationships because they are how people determine whether their principles are aligned and resolve their differences. Spend lavishly on the time and energy you devote to getting in sync, because it’s the best investment you can make. Know how to get in sync and disagree well. Surface areas of possible out-of-syncness. Distinguish between idle complaints and complaints meant to lead to improvement. Remember that every story has another side. Be open-minded and assertive at the same time. Distinguish open-minded people from closed-minded people. Don’t have anything to do with closed-minded people.
Though we mostly don’t carry out these calculations explicitly, we constantly make them intuitively. For example, when you decide to take an umbrella to the store even though there’s just a 40 percent chance of rain, or you check your phone to confirm the directions somewhere, even though you’re almost certain you know the way, you’re making expected value calculations. Sometimes it’s smart to take a chance even when the odds are overwhelmingly against you if the cost of being wrong is negligible relative to the reward that comes with the slim chance of being right. As the saying goes, “It never hurts to ask.” This principle made a big difference in my own life. Years ago, when I was just starting my family, I saw a house that was perfect for us in every way. The problem was that it wasn’t on the market and everyone I asked told me the owner wasn’t interested in selling. To make matters worse, I was pretty sure I would be turned down for an adequate mortgage. But I figured that it wouldn’t cost me anything to call the owner to see if we could work something out. As it turned out, not only was he willing to sell, he was willing to give me a loan! The same principle applies when the downside is terrible. For example, even if the probability of your having cancer is low, it might pay to get yourself tested when you have a symptom just to make sure. To help you make expected value calculations well, remember that: Raising the probability of being right is valuable no matter what your probability of being right already is. I often observe people making decisions if their odds of being right are greater than 50 percent. What they fail to see is how much better off they’d be if they raised their chances even more (you can almost always improve your odds of being right by doing things that will give you more information). The expected value gain from raising the probability of being right from 51 percent to 85 percent (i.e., by 34 percentage points) is seventeen times more than raising the odds of being right from 49 percent (which is probably wrong) to 51 percent (which is only a little more likely to be right). Think of the probability as a measure of how often you’re likely to be wrong. Raising the probability of being right by 34 percentage points means that a third of your bets will switch from losses to wins. That’s why it pays to stress-test your thinking, even when you’re pretty sure you’re right. Knowing when not to bet is as important as knowing what bets are probably worth making. You can significantly improve your track record if you only make the bets that you are most confident will pay off. The best choices are the ones that have more pros than cons, not those that don’t have any cons at all. Watch out for people who argue against something whenever they can find something, anything, wrong with it, without properly weighing all the pluses and minuses. Such people tend to be poor decision-makers. Prioritize by weighing the value of additional information against the cost of not deciding. Some decisions are best made after acquiring more information; some are best made immediately. Just as you need to constantly sort the big from the small when you are synthesizing what’s going on, you need to constantly evaluate the marginal benefit of gathering more information against the marginal cost of waiting to decide. People who prioritize well understand the following: All of your “must-dos” must be above the bar before you do your “like-to-dos.” Separate your “must-dos” from your “like-to-dos” and don’t mistakenly slip any “like-to-dos” onto the first list. Chances are you won’t have time to deal with the unimportant things, which is better than not having time to deal with the impor-tant things. I often hear people say, “Wouldn’t it be good to do this or that?” It’s likely they are being distracted from far more important things that need to be done well. Don’t mistake possibilities for probabilities. Anything is possible. It’s the probabilities that matter. Everything must be weighed in terms of its likelihood and prioritized. People who can accurately sort probabilities from possibilities are generally strong at “practical thinking”; they’re the opposite of the “philosopher” types who tend to get lost in clouds of possibilities.
This evolutionary process of productive adaptation and ascent, the process of seeking, obtaining, and pursuing more and more ambitious goals, does not just pertain to how individuals and society move forward. It is equally relevant when dealing with setbacks, which are inevitable. At some point in your life you will crash in a big way. You might fail at your job or with your family, lose a loved one, suffer a serious accident or illness, or discover the life you imagined is out of reach forever. There are a whole host of ways that something will get you. At such times, you will be in pain and might think that you don’t have the strength to go on. You almost always do, however; your ultimate success will depend on you realizing that fact, even though it might not seem that way at the moment. This is why many people who have endured setbacks that seemed devastating at the time ended up as happy as (or even happier than) they originally were after they successfully adapted to them. The quality of your life will depend on the choices you make at those painful moments. The faster one appropriately adapts, the better. No matter what you want out of life, your ability to adapt and move quickly and efficiently through the process of personal evolution will determine your success and your happiness. If you do it well, you can change your psychological reaction to it so that what was painful can become something you crave. Weigh second and third-order consequences. By recognizing the higher-level consequences nature optimizes for, I’ve come to see that people who overweigh the first-order consequences of their decisions and ignore the effects of second and subsequent-order consequences rarely reach their goals. This is because first-order consequences often have opposite desirabilities from second-order consequences, resulting in big mistakes in decision-making. For example, the first-order consequences of exercise (pain and time spent) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa. Quite often the first-order consequences are the temptations that cost us what we really want, and sometimes they are the barriers that stand in our way. It’s almost as though nature sorts us by throwing us trick choices that have both types of consequences and penalizing those who make their decisions on the basis of the first-order consequences alone. By contrast, people who choose what they really want, and avoid the temptations and get over the pains that drive them away from what they really want, are much more likely to have successful lives. Own your outcomes. For the most part, life gives you so many decisions to make and so many opportunities to recover from your mistakes that, if you handle them well, you can have a terrific life. Of course, sometimes there are major influences on the quality of our lives that come from things beyond our control, the circumstances we are born into, accidents and illnesses, and so forth, but for the most part even the worst circumstances can be made better with the right approach. For example, a friend of mine dove into a swimming pool, hit his head, and became a quadriplegic. But he approached his situation well and became as happy as anybody else, because there are many paths to happiness. My point is simply this: Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things being beyond your control. Psychologists call this having an “internal locus of control,” and studies consistently show that people who have it outperform those who don’t. So don’t worry about whether you like your situation or not. Life doesn’t give a damn about what you like. It’s up to you to connect what you want with what you need to do to get it and then find the courage to carry it through. I will show you the 5-Step Process that helped me learn about reality and evolve. Look at the machine from the higher level. Our uniquely human ability to look down from a higher level doesn’t apply just to understanding reality and the cause-effect relationships underlying it; it also applies to looking down on yourself and those around you. I call this ability to rise above your own and others’ circumstances and objectively look down on them “higher-level thinking.” Higher-level thinking gives you the ability to study and influence the cause-effect relationships at play in your life and use them to get the outcomes you want.
Why doesn’t thoughtful disagreement like this typically occur? Because most people are instinctively reluctant to disagree. For example, if two people go to a restaurant and one says he likes the food, the other is more likely to say “I like it too” or not say anything at all, even if that’s not true. The reluctance to disagree is the “lower-level you’s” mistaken interpretation of disagreement as conflict. That’s why radical open-mindedness isn’t easy: You need to teach yourself the art of having exchanges in ways that don’t trigger such reactions in yourself or others. This was what I had to learn back when Bob, Giselle, and Dan told me I made people feel belittled. Holding wrong opinions in one’s head and making bad decisions based on them instead of having thoughtful disagreements is one of the greatest tragedies of mankind. Being able to thoughtfully disagree would so easily lead to radically improved decision-making in all areas, public policy, politics, medicine, science, philanthropy, personal relationships, and more. Triangulate your view with believable people who are willing to disagree. By questioning experts individually and encouraging them to have thoughtful disagreement with each other that I can listen to and ask questions about, I both raise my probability of being right and become much better educated. This is most true when the experts disagree with me or with each other. Smart people who can thoughtfully disagree are the greatest teachers, far better than a professor assigned to stand in front of a board and lecture at you. The knowledge I acquire usually leads to principles that I develop and refine for similar cases that arise in the future. In some cases in which the subjects are just too complex for me to understand in the time required, I will turn over the decision-making to knowledgeable others who are more believable than me, but I still want to listen in on their thoughtful disagreement. I find that most people don’t do that, they prefer to make their own decisions, even when they’re not qualified to make the kinds of judgments required. In doing so, they’re giving in to their lower-level selves. This approach of triangulating the views of believable people can have a profound effect on your life. I know it has made the difference between life and death for me. In June 2013, I went to Johns Hopkins for an annual physical, where I was told that I had a precancerous condition called Barrett’s esophagus with high-grade dysplasia. Dysplasia is an early stage in the development of cancer, and the probability that it will turn into esophageal cancer is relatively high, about 15 percent of cases per year. Cancer of the esophagus is deadly, so if left untreated, the odds were that in something like three to five years I’d develop cancer and die. The standard protocol for cases like mine is to remove the esophagus, but I wasn’t a candidate for that because of something specific to my condition. The doctor advised that I wait and see how things progressed. In the weeks that followed, I started to plan for my eventual death, while also fighting to live. I like to: Plan for the worst-case scenario to make it as good as possible. I felt fortunate because this prognosis gave me enough time to ensure that the people I cared most about would be okay without me, and to savor life with them in the years I had left. I would have time to get to know my first grandson, who had just been born, but not so much time that I could take it for granted. But as you know by now, rather than following what I am told is best, even by an expert, I like to triangulate opinions with believable people. So I also had my personal physician, Dr. Glazer, set up visits with four other experts on this particular disease.
Declare “martial law” only in rare or extreme circumstances when the principles need to be suspended. While all these principles exist for the well-being of the community, there may come times when adhering to them could threaten the community’s well-being. For example, we encountered a time when there were leaks to the media of some things that we made radically transparent within Bridgewater. People at Bridgewater understood that our transparency about our weaknesses and mistakes was being used to present distorted and harmful pictures of Bridgewater, so we had to lessen our level of transparency until we resolved that problem. Rather than just lessening this degree of transparency, I explained the situation and declared “martial law,” meaning that this was a temporary suspension of the full degree of radical transparency. That way, everyone would know both that it was an exceptional case and that we were entering a time when the typical way of operating would be suspended. Be wary of people who argue for the suspension of the idea-meritocracy for the “good of the organization.” When such arguments win out, the idea-meritocracy will be weakened. Don’t let that happen. If people respect the rules of the idea-meritocracy, there will be no conflict. I know that from my experiences over decades. However, I also know that there will be people who put what they want above the idea-meritocracy and threaten it. Consider those people to be enemies of the system and get rid of them. Recognize that if the people who have the power don’t want to operate by principles, the principled way of operating will fail. Ultimately, power will rule. This is true of any system. For example, it has repeatedly been shown that systems of government have only worked when those with the power value the principles behind the system more than they value their own personal objectives. When people have both enough power to undermine a system and a desire to get what they want that is greater than their desire to maintain the system, the system will fail. For that reason the power supporting the principles must be given only to people who value the principled way of operating more than their individual interests (or the interests of their faction), and people must be dealt with in a reasonable and considerate way so that the overwhelming majority will want and fight for that principle-based system. While we talked about an organization’s culture in the last section, its people are even more important because they can change the culture for better or for worse. A culture and its people are symbiotic, the culture attracts certain kinds of people and the people in turn either reinforce or evolve the culture based on their values and what they’re like. If you choose the right people with the right values and remain in sync with them, you will play beautiful jazz together. If you choose the wrong people, you will all go over the waterfall together. Steve Jobs, who everyone thought was the secret to Apple’s success, said, “The secret to my success is that we’ve gone to exceptional lengths to hire the best people in the world.” Remember That the who is more important than the what. Anyone who runs a successful organization will tell you the same. Yet most organizations are bad at recruiting. It starts with interviewers picking people they like and who are like them instead of focusing on what people are really like and how well they will fit in their jobs and careers. As I describe in Chapter Eight, Hire Right, Because the Penalties for Hiring Wrong Are Huge, to hire well, one needs a more scientific process that precisely matches people’s values, abilities, and skills with the organization’s culture and its career paths. You and your candidate need to get to know each other. You have to let them interview your organization and you have to honestly convey to them what it’s like, warts and all, and be crystal clear about what you can expect from each other. But even then, after you both say yes, you won’t know if you have a good fit until you’ve lived together in your work and your relationships for a while. The “interviewing” process doesn’t end when employment begins, but transitions into a rigorous process of training, testing, sorting, and most importantly, getting in sync, which I describe in Chapter Nine, Constantly Train, Test, Evaluate, and Sort People.
Be willing to “shoot the people you love.” It is very difficult to fire people you care about. Cutting someone that you have a meaningful relationship with but who isn’t an A player in their job is difficult because ending good relationships is hard, but it is necessary for the long-term excellence of the company. You may have a need for the work they’re doing (even if it’s not excellent) and find it hard to make a change. But they will pollute the environment and fail you when you really need them. Doing this is one of those difficult, necessary things. The best way to do it is to “love the people you shoot”, do it with consideration and in a way that helps them. When someone is “without a box,” consider whether there is an open box that would be a better fit or whether you need to get them out of the company. Recognize that if they failed in that job, it is because of some qualities they have. You will need to understand what those qualities are and make sure they don’t apply to any new role. Also, if you learn that they don’t have the potential to move up, don’t let them occupy the seat of someone who can. Remember that you’re trying to select people with whom you want to share your life. Everyone evolves over time. Because managers develop a better idea of a new hire’s strengths and weaknesses and their fit within the culture than what emerges from the interview process, they are well positioned to assess them for another role if the one they were hired for doesn’t work out. Whenever someone fails at a job, it’s critical to understand why they failed and why those reasons won’t pose the same problems in a new job. Be cautious about allowing people to step back to another role after failing. Note I said “be cautious.” I didn’t say never, because it depends on the circumstances. On the one hand, you want people to stretch themselves and experiment with new jobs. You don’t want to get rid of a great person just because he or she tried something new and failed. But on the other hand, if you look at most people in this situation, by and large you’ll regret allowing them to step back. There are three reasons for this: You’re giving up a seat for someone else who might be able to advance, and people who can advance are better to have than people who can’t; The person stepping back could continue to want to do what they aren’t capable of doing, so there’s a real risk of them job slipping into work they’re not a fit for; The person may experience a sense of confinement and resentment being back in a job that they probably can’t advance beyond. Keeping them is generally viewed as the preferable short-run decision but in the long run it’s probably the wrong thing to do. This is a hard decision. You need to understand deeply what the person in this situation is like and weigh the costs carefully before deciding. Remember that the goal of a transfer is the best, highest use of the person in a way that benefits the community as a whole. Both affected managers should be in sync that the new role is the best, highest use or escalate up the chain to make a determination. The manager wanting to recruit the person is responsible for not causing a disruption. An informal conversation to see if someone is interested is fine, but there should be no active recruiting prior to getting in sync with the existing manager. The timing of the move should be decided by the existing manager in consultation with relevant parties. Have people “complete their swings” before moving on to new roles. There should always be follow-through, not interruption, unless a pressing reason exists (when, say, a person would be a great click for another job that needs to be filled immediately). In a company where things are evolving quickly and people are expected to speak openly, it is natural that there will be a steady stream of opportunities for employees to move into new roles. But if too many people jump from one job to another without fulfilling their responsibilities, the resulting discontinuity, disorder, and instability will be bad for managers, bad for the culture, and bad for the people moving, because they won’t be adequately tested in their ability to move things to completion. As a guideline, a year in a job is sufficient before having conversations about a new role, although this isn’t black and white, the range could easily vary depending on the circumstances.
There is one grand design for the brains of all mammals, fish, birds, amphibians, and reptiles, which was established nearly 300 million years ago and has been evolving ever since. Just as cars have evolved into different versions, sedans, SUVs, sports cars, etc., that rely on many of the same underlying parts, all vertebrate brains have similar parts that do similar things but that are well adapted to the needs of their own particular species. For example, birds have superior occipital lobes because they need to spot prey (and predators) from great heights. While we humans think of ourselves as superior overall because we overemphasize the importance of our own advantages, other species could justifiably make the same claims on their own behalf, birds for flight, eyesight, and instinctual magnetic navigation; most animals for smell; and several for appearing to have particularly enjoyable sex. This “universal brain” has evolved from the bottom up, meaning that its lower parts are evolutionarily the oldest and the top parts are the newest. The brainstem controls the subconscious processes that keep us and other species alive, heartbeat, breathing, nervous system, and our degree of arousal and alertness. The next layer up, the cerebellum, gives us the ability to control our limb movements by coordinating sensory input with our muscles. Then comes the cerebrum, which includes the basal ganglia (which controls habit) and other parts of the limbic system (which controls emotional responses and some movement) and the cerebral cortex (which is where our memories, thoughts, and sense of consciousness reside). The newest and most advanced part of the cortex, that wrinkled mass of gray matter that looks like a bunch of intestines, is called the neocortex, which is where learning, planning, imagination, and other higher-level thoughts come from. It accounts for a significantly higher ratio of the brain’s gray matter than is found in the brains of other species. Meaningful work and meaningful relationships aren’t just nice things we chose for ourselves, they are genetically programmed into us. Neuroscientists, psychologists, and evolutionists agree the human brain comes pre-programmed with the need for and enjoyment of social cooperation. Our brains want it and develop better when we have it. The meaningful relationships we get from social cooperation make us happier, healthier, and more productive; social cooperation is also integral to effective work. It is one of the defining characteristics of being human. Leonard Mlodinow, in his excellent book Subliminal, writes, “We usually assume that what distinguishes us [from other species] is IQ. But it is our social IQ that ought to be the principal quality that differentiates us.” He points out that humans have a unique ability to understand what other people are like and how they are likely to behave. The brain comes programmed to develop this ability; by the time they are four years old, most children are able to read others’ mental states. This sort of human understanding and cooperation is what makes us so accomplished as a species. As Mlodinow explains, “Building a car for example requires the participation of thousands of people with diverse skills, in diverse lands, performing diverse tasks. Metals like iron must be extracted from the ground and processed; glass, rubber, and plastics must be created from numerous chemical precursors and molded; batteries, radiators and countless other parts must be produced; electronic and mechanical systems must be designed; and it all must come together, coordinated from far and wide, in one factory so that the car can be assembled. Today, even the coffee and bagel you might consume while driving to work in the morning is the result of the activities of people all over the world.” In his book The Meaning of Human Existence, Pulitzer Prize–winning author Edward O. Wilson surmises that between one million and two million years ago, when our ancestors were somewhere between chimpanzees and modern homo sapiens, the brain evolved in ways supporting cooperation so man could hunt and do other activities. This led the centers of memory and reasoning in the prefrontal cortex to develop beyond those of our primate relatives. As groups became more powerful than individuals and our brains evolved in ways that made larger groups manageable, competition between groups became more important than competition between individuals and groups that had more cooperative individuals did better than those without them. This evolution led to the development of altruism, morality, and the sense of conscience and honor. Wilson explains that man is perpetually suspended between the two extreme forces that created us: “Individual selection [which] prompted sin and group selection [which] promoted virtue.”
It’s easy to tell an open-minded person from a closed-minded person because they act very differently. Here are some cues to tell you whether you or others are being closed-minded: Closed-minded people don’t want their ideas challenged. They are typically frustrated that they can’t get the other person to agree with them instead of curious as to why the other person disagrees. They feel bad about getting something wrong and are more interested in being proven right than in asking questions and learning others’ perspectives. Open-minded people are more curious about why there is disagreement. They are not angry when someone disagrees. They understand that there is always the possibility that they might be wrong and that it’s worth the little bit of time it takes to consider the other person’s views in order to be sure they aren’t missing something or making a mistake. Closed-minded people are more likely to make statements than ask questions. While believability entitles you to make statements in certain circumstances, truly open-minded people, even the most believable people I know, always ask a lot of questions. Nonbelievable people often tell me that their statements are actually implicit questions, though they’re phrased as low-confidence statements. While that’s sometimes true, in my experience it’s more often not. Open-minded people genuinely believe they could be wrong; the questions that they ask are genuine. They also assess their relative believability to determine whether their primary role should be as a student, a teacher, or Closed-minded people focus much more on being understood than on understanding others. When people disagree, they tend to be quicker to assume that they aren’t being understood than to consider whether they’re the ones who are not understanding the other person’s perspective. Open-minded people always feel compelled to see things through others’ eyes. Closed-minded people say things like “I could be wrong but here’s my opinion.” This is a classic cue I hear all the time. It’s often a perfunctory gesture that allows people to hold their own opinion while convincing themselves that they are being open-minded. If your statement starts with “I could be wrong” or “I’m not believable,” you should probably follow it with a question and not an assertion. Open-minded people know when to make statements and when to ask questions. Closed-minded people block others from speaking. If it seems like someone isn’t leaving space for the other person in a conversation, it’s possible they are blocking. To get around blocking, enforce the “two-minute rule” I mentioned earlier. Open-minded people are always more interested in listening than in speaking; they encourage others to voice their views. Closed-minded people have trouble holding two thoughts simultaneously in their minds. They allow their own view to crowd out those of others. Open-minded people can take in the thoughts of others without losing their ability to think well, they can hold two or more conflicting concepts in their mind and go back and forth between them to assess their relative merits. Closed-minded people lack a deep sense of humility. Humility typically comes from an experience of crashing, which leads to an enlightened focus on knowing what one doesn’t know. Open-minded people approach everything with a deep-seated fear that they may be wrong. Once you can sort out open-minded from closed-minded people, you’ll find that you want to surround yourself with open-minded ones. Doing so will not only make your decision-making more effective but you’ll also learn a tremendous amount. A few good decision-makers working effectively together can significantly outperform a good decision maker working alone, and even the best decision maker can significantly improve his or her decision-making with the help of other excellent decision-makers. Understand how you can become radically open-minded. No matter how open-minded you are now, it is something you can learn. To practice open-mindedness:
From the very beginning, I felt that the people I worked with at Bridgewater were a part of my extended family. When they or members of their families got sick, I put them in touch with my personal doctor to make sure that they were well taken care of. I invited all of them to stay at my house in Vermont on weekends and loved it when they took me up on it. I celebrated their marriages and the births of their children with them and mourned the losses of their loved ones. But to be clear, this was no lovefest. We were tough on each other too, so we could all be as great as we could be. I learned that the more caring we gave each other, the tougher we could be on each other, and the tougher we were on each other, the better we performed and the more rewards there were for us to share. This cycle was self-reinforcing. I found that operating this way made the lows less low and the highs higher. It even made the bad times better than the good ones in some important ways. Think about some of your toughest experiences in life. I bet it is as true for you as it has been for me that going through them with people you cared about, who cared about you, and who were working as hard as you were for the same mission, was incredibly rewarding. As hard as they were, we look back on some of these challenging times as our finest moments. For most people, being part of a great community on a shared mission is even more rewarding than money. Numerous studies have shown there is little to no correlation between one’s happiness and the amount of money one accumulates, yet there is a strong correlation between one’s happiness and the quality of one’s relationships. I laid this out in a memo to Bridgewater in 1996: Bridgewater is not about plodding along at some kind of moderate standard, it is about working like hell to achieve a standard that is extraordinarily high, and then getting the satisfaction that comes along with that sort of super-achievement. Our overriding objective is excellence, or more precisely, constant improvement, a superb and constantly improving company in all respects. Conflict in the pursuit of excellence is a terrific thing. There should be no hierarchy based on age or seniority. Power should lie in the reasoning, not the position, of the individual. The best ideas win no matter who they come from. Criticism (by oneself and by others) is an essential ingredient in the improvement process, yet, if handled incorrectly, can be destructive. It should be handled objectively. There should be no hierarchy in the giving or receiving of criticism. Teamwork and team spirit are essential, including intolerance of substandard performance. This is referring to one’s recognition of the responsibilities one has to help the team achieve its common goals and the willingness to help others (work within a group) toward these common goals. Our fates are intertwined. One should know that others can be relied upon to help. As a corollary, substandard performance cannot be tolerated anywhere because it would hurt everyone. Long-term relationships are both intrinsically gratifying and efficient and should be intentionally built. Turnover requires re-training and therefore creates setbacks. Money is a byproduct of excellence, not a goal. Our overriding objective is excellence and constant improvement at Bridgewater. To be clear, it is not to make lots of money. The natural extension of this is not that you should be happy with little money. On the contrary, you should expect to make a lot. If we operate consistently with this philosophy, we should be productive and the company should do well financially. There is comparatively little age and seniority-based hierarchy. Each person at Bridgewater should act like an owner, responsible for operating in this way and for holding others accountable for operating in this way. A believability-weighted idea-meritocracy is the best system for making effective decisions. Unlike Lombardi, whose success depended on having his players follow his instructions, I needed my players to be independent thinkers who could bang around their different points of view and reach better conclusions than any one of us could come up with on our own. I needed to create an environment in which everyone had the right and the responsibility to make sense of things for themselves and to fight openly for what they think is best, and where the best thinking won out. I needed a real idea-meritocracy, not some theoretical version of one. That’s because an idea-meritocracy, i.e., a system that brings together smart, independent thinkers and has them productively disagree to come up with the best possible collective thinking and resolve their disagreements in a believability-weighted way, will outperform any other decision-making system.
We applied these ways of operating to the businesses of investing and managing. In the process of investing I developed a practical understanding of what makes businesses and economies succeed, and in the process of managing my company I had to develop a practical understanding of how to manage businesses well. And I liked that my understanding of these subjects could be objectively measured via our investment performance as well as our business performance. Because Principles is an evolving document, with new principles being added and old ones getting refined all the time, they will be changed. You have to work in a culture that suits you. That’s fundamental to your happiness and your effectiveness. You also must work in a culture that is effective in producing great outcomes, because if you don’t, you won’t get the psychic and material rewards that keep you motivated. In this section on culture I will share my thoughts on how to match your culture to your needs, and I will explain the type of culture that I wanted and that has worked so well for me: an idea-meritocracy. In Chapter One, I explain what an idea-meritocracy looks like, and explore why radical truth and radical transparency are essential for it to work well. Being radically truthful and radically transparent are probably the most difficult principles to internalize, because they are so different from what most people are used to. Because this way of being is frequently misunderstood, I tried especially hard to be crystal clear in conveying why we operate this way and how it works in practice. In Chapter Two, we will turn our attention to why and how to build a culture that fosters meaningful relationships. Besides being rewarding themselves, meaningful relationships enable the radical truth and transparency that allow us to hold each other accountable for producing excellence. I believe that great cultures, like great people, recognize that making mistakes is part of the process of learning, and that continuous learning is what allows an organization to evolve successfully over time. In Chapter Three, we will explore the principles for doing that well. Of course, an idea-meritocracy is based on the belief that pulling people’s thinking together and stress-testing it produces better outcomes than when people keep their disparate thoughts in their own heads. Chapter Four contains principles for “getting in sync” well. Knowing how to have thoughtful disagreements is key. Idea meritocracies carefully weigh the merits of its members’ opinions. Since many opinions are bad and virtually everyone is confident that theirs are good, the process of being able to sort through them well is important to understand. Since disagreements sometimes remain even after decisions are made, one also needs principles for resolving them that are clearly communicated, consistently adhered to, and universally recognized as fair. Make your Idea-meritocracy work in a way that suits you While all of what you read here may seem challenging and complicated in practice, if you believe as I do that there is no better way to make decisions than to have believable people open-mindedly and assertively surface, explore, and resolve their differences, then you will figure out what it takes to operate that way. If an idea-meritocracy doesn’t work well, the fault doesn’t lie in the concept; it lies in people not valuing it enough to make sure that it works. If you take nothing else away from this book, you owe it to yourself to see what it’s like to experience an idea-meritocracy. If it makes sense to you, I hope you will take the plunge. It won’t take long for you to understand what a radical difference it will make to your work and your relationships. To have an Idea-meritocracy you need to: put your honest thoughts on the table, have thoughtful disagreement and lastly, abide by agreed-upon ways of getting past disagreement Trust in Radical Truth and Radical Transparency Understanding what is true is essential for success, and being radically transparent about everything, including mistakes and weaknesses, helps create the understanding that leads to improvements. That’s not just a theory; we have put this into practice at Bridgewater for over forty years, so we know how it works. But like most things in life, being radically truthful and transparent has cons as well as pros. Being radically truthful and transparent with your colleagues and expecting your colleagues to be the same with you ensures that important issues are apparent instead of hidden. It also enforces good behavior and good thinking, because when you have to explain yourself, everyone can openly assess the merits of your logic. If you are handling things well, radical transparency will make that clear, and if you are handling things badly, radical transparency will make that clear as well, so it helps to maintain high standards.
Use evidence-based decision-making tools. These principles were designed to help you get control over your lower-level/animal you and put your better, higher-level decision-making brain in charge. What if you could unplug that lower part of your brain entirely and instead connect with a decision-making computer that gives you logically derived instructions, as we do with our investment systems? Suppose this computer-based decision-making machine has a much better track record than you because it captures more logic, processes more information more quickly, and makes decisions without being emotionally hijacked. Would you use it? In confronting the challenges I’ve faced in the course of my career I’ve created exactly such tools, and I am convinced that I would not have been nearly as successful without them. I have no doubt that in the years ahead such “machine-thinking” tools will continue to develop and that smart decision-makers will learn how to integrate them into their thinking. I urge you to learn about them and consider using them. Know when it’s best to stop fighting and have faith in your decision-making process. It’s important that you think independently and fight for what you believe in, but there comes a time when it’s wiser to stop fighting for your view and move on to accepting what believable others think is best. This can be extremely difficult. But it’s smarter and ultimately better for you to be open-minded and have faith that the consensus of believable others is better than whatever you think. If you can’t understand their view, you’re probably just blind to their way of thinking. If you continue doing what you think is best when all the evidence and believable people are against you, you’re being dangerously arrogant. The truth is that while most people can become radically open-minded, some can’t, even after they have repeatedly encountered lots of pain from betting that they were right when they were not. People who don’t learn radical open-mindedness don’t experience the metamorphosis that allows them to do much better. I myself had to have that humility beaten into me by my crashes, especially my big one in gaining open-mindedness doesn’t mean losing assertiveness. In fact, because it increases one’s odds of being right, it should increase one’s confidence. That has been true for me since my big crash, which is why I’ve been able to have more success with less risk. Becoming truly open-minded takes time. Like all real learning, doing this is largely a matter of habit; once you do it so many times it is almost instinctive, you’ll find it intolerable to be any other way. As noted earlier, this typically takes about eighteen months, which in the course of a lifetime is nothing. For me, there is really only one big choice to make in life: Are you willing to fight to find out what’s true? Do you deeply believe that finding out what is true is essential to your well-being? Do you have a genuine need to find out if you or others are doing something wrong that is standing in the way of achieving your goals? If your answer to any of these questions is no, accept that you will never live up to your potential. If, on the other hand, you are up for the challenge of becoming radically open-minded, the first step in doing so is to look at yourself objectively. One way to do this is by asking questions like “Would you rather I be open with my thoughts and questions or keep them to myself?”; “Are we going to try to convince each other that we are right or are we going to open-mindedly hear each other’s perspectives to try to figure out what’s true and what to do about it?”; or “Are you arguing with me or seeking to understand my perspective?” Psychologist and science journalist Daniel Goleman originally coined this term in Emotional Intelligence. Some of this may be a result of what is called the Dunning-Kruger effect, a cognitive bias in which low-ability individuals believe that they are in fact superior. Understand That People Are Wired Very Differently Because of the different ways that our brains are wired, we all experience reality in different ways and any single way is essentially distorted. This is something that we need to acknowledge and deal with. So if you want to know what is true and what to do about it, you must understand your own brain.
Pull all suspicious threads. It’s worth pulling all suspicious threads because: Small negative situations can be symptomatic of serious underlying problems; Resolving small differences of perception may prevent more serious divergence of views; and in trying to create a culture that values excellence, constantly reinforcing the need to point out and stare at problems, no matter how small, is essential (otherwise you risk setting an example of tolerating mediocrity). Prioritization can be a trap if it causes you to ignore the problems around you. Allowing small problems to go unnoticed and unaddressed creates the perception that it’s acceptable to tolerate such things. Imagine that all your little problems are small pieces of trash you’re stepping over to get to the other side of a room. Sure, what’s on the other side of the room may be very important, but it won’t hurt you to pick up the trash as you come to it, and by reinforcing the culture of excellence it will have positive second and third-order consequences that will reverberate across your whole organization. While you don’t need to pick up every piece, you should never lose sight of the fact that you’re stepping over the trash nor that it’s probably not as hard as you think to pick up a piece or two as you go on your way. Recognize that there are many ways to skin a cat. Your assessment of how Responsible Parties are doing their jobs should not be based on whether they’re doing it your way but whether they’re doing it in a good way. Be careful about expecting a person who achieves success one way to do it a different way. That’s like insisting that Babe Ruth improve his swing. Think like an owner, and expect the people you work with to do the same. It’s a basic reality that if you don’t experience the consequences of your actions, you’ll take less ownership of them. If you are an employee, and you get a paycheck for turning up and pleasing your boss, your mind-set will inevitably be trained to this cause-effect relationship. If you are a manager, make sure you structure incentives and penalties that encourage people to take full ownership of what they do and not just coast by. This includes straightforward things such as spending money like it’s their own and making sure their responsibilities aren’t neglected when they’re out of the office. When people recognize that their own well-being is directly connected to that of their community, the ownership relationship becomes reciprocal. Going on vacation doesn’t mean one can neglect one’s responsibilities. Thinking like an owner means making sure that your responsibilities are handled well regardless of what comes up. While you are away on vacation, it’s your responsibility to make sure nothing drops. You can do that via a combination of good planning and coordination before you go and staying on top of things while you are away. This needn’t take much time, it can be as little as an hour of good checking from afar and it doesn’t even have to be every day, so you can typically slip it in when it’s convenient. Force yourself and the people who work for you to do difficult things. It’s a basic law of nature: You must stretch yourself if you want to get strong. You and your people must act with each other like trainers in gyms in order to keep each other fit. Recognize and deal with key-man risk. Every key person should have at least one person who can replace him or her. It’s best to have those people designated as likely successors and to have them apprentice and help in doing those jobs. Don’t treat everyone the same, treat them appropriately. It’s often said that it is neither fair nor appropriate to treat people differently. But in order to treat people appropriately you must treat them differently. That is because people and their circumstances are different. If you were a tailor you wouldn’t give all of your customers the same size suit. It is, however, important to treat people according to the same set of rules. That’s why I’ve tried to flesh out Bridgewater’s principles in enough depth that differences are accounted for. For example, if someone has worked at Bridgewater for many years, that factors into how they are treated. Likewise, while I find all dishonesty intolerable, I don’t treat all acts of dishonesty and all people who are dishonest the same.
Though the group ultimately did get spun off, we continue to have wonderful relationships with the people in it. Not only did they cooperate fully throughout the transition, they still come to our Christmas and Fourth of July parties and remain a part of our extended family. Today, we have an award-winning back office because of the innovative things this change allowed us to do. Most importantly, since we were operating openly even while we hadn’t figured things out, the back office team had their confidence in our truthfulness and consideration for them reinforced, and they returned it in kind. For me, not telling people what’s really going on so as to protect them from the worries of life is like letting your kids grow into adulthood believing in the Tooth Fairy or Santa Claus. While concealing the truth might make people happier in the short run, it won’t make them smarter or more trusting in the long run. It’s a real asset that people know they can trust what we say. For that reason I believe that it’s almost always better to shoot straight, even when you don’t have all the answers or when there’s bad news to convey. As Winston Churchill said, “There is no worse course in leadership than to hold out false hopes soon to be swept away.” People need to face harsh and uncertain realities if they are going to learn how to deal with them, and you’ll learn a lot about the people around you by seeing how well they do. Realize that you have nothing to fear from knowing the truth. If you’re like most people, the idea of facing the unvarnished truth makes you anxious. To get over that, you need to understand intellectually why untruths are scarier than truths and then, through practice, get accustomed to living with them. If you’re sick, it’s natural to fear your doctor’s diagnosis, what if it’s cancer or some other deadly disease? As scary as the truth may turn out to be, you will be better off knowing it in the long run because it will allow you to seek the most appropriate treatment. The same holds for learning painful truths about your own strengths and weaknesses. Knowing and acting on the truth is what we call the “big deal” at Bridgewater. It’s important not to get hung up on all those emotion and ego-laden “little deals” that can distract you from the overall mission. Have integrity and demand it from others. Integrity comes from the Latin word integritas, meaning “one” or “whole.” People who are one way on the inside and another way on the outside, i.e., not “whole”, lack integrity; they have “duality” instead. While presenting your view as something other than it is can sometimes be easier in the moment (because you can avoid conflict, or embarrassment, or achieve some other short-term goal), the second and third-order effects of having integrity and avoiding duality are immense. People who are one way on the inside and another on the outside become conflicted and often lose touch with their own values. It’s difficult for them to be happy and almost impossible for them to be their best. Aligning what you say with what you think and what you think with what you feel will make you much happier and much more successful. Thinking solely about what’s accurate instead of how it is perceived pushes you to focus on the most important things. It helps you sort through people and places because you’ll be drawn to people and places that are open and honest. It’s also fairer to those around you: Making judgments about people so that they are tried and sentenced in your head, without asking for their perspective, is both unethical and unproductive. Having nothing to hide relieves stress and builds trust. Never say anything about someone that you wouldn’t say to them directly and don’t try people without accusing them to their faces. Criticism is welcomed and encouraged at Bridgewater, but there is never a good reason to bad-mouth people behind their backs. It is counterproductive and shows a serious lack of integrity, it doesn’t yield any beneficial change, and it subverts both the person being badmouthed and the environment as a whole. Next to being dishonest, it is the worst thing you can do in our community. Managers should not talk about people who work for them if they are not in the room. If someone is not present at a meeting where something relevant to them is discussed, we always make sure to send them a recording of the meeting and other relevant information.
Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don’t. By creating an environment in which it is okay to safely make mistakes so that people can learn from them, you’ll see rapid progress and fewer significant mistakes. This is especially true in organizations where creativity and independent thinking are important, as success will inevitably require the acceptance of failure as a part of the process. As Thomas Edison once said, “I have not failed. I’ve just found ten thousand ways that do not work.” Mistakes will cause you pain, but you shouldn’t try to shield yourself or others from it. Pain is a message that something is wrong and it’s an effective teacher that one shouldn’t do that wrong thing again. To deal with your own and others’ weaknesses well you must acknowledge them frankly and openly and work to find ways of preventing them from hurting you in the future. It’s at this point that many people say, “No thanks, this isn’t for me, I’d rather not have to deal with these things.” But this is against your and your organization’s best interests, and will keep you from achieving your goals. It seems to me that if you look back on yourself a year ago and aren’t shocked by how stupid you were, you haven’t learned much. Still, few people go out of their way to embrace their mistakes. It doesn’t have to be that way. Remember back in Life Principles, when I told the story about the time that Ross, then our head of trading, forgot to put in a trade for a client? The money just sat there in cash and by the time the mistake was discovered it had cost the client (actually Bridgewater, because we had to make good on it) a lot of money. It was terrible and I could easily have fired Ross to make the point that nothing less than perfection will be accepted. But that would have been counterproductive. I would have lost a good man and it would have only encouraged other employees to hide their mistakes, creating a culture that would not only be dishonest but crippled in its ability to learn and grow. If Ross hadn’t experienced that pain, he and Bridgewater would have been the worse for it. The point I made by not firing Ross was much more powerful than firing him would have been, I was demonstrating to him and others that it was okay to make mistakes and unacceptable not to learn from them. After the dust settled, Ross and I worked together to build an error log (we now call it the Issue Log), in which traders recorded all their mistakes and bad outcomes so we could track them and address them systematically. It has become one of the most powerful tools we have at Bridgewater. Our environment is one in which people understand that remarks such as “You handled that badly” are meant to be helpful rather than punitive. Of course, in managing others who make mistakes, it is important to know the difference between capable people who made mistakes and are self-reflective and open to learning from them, and incapable people, or capable people who aren’t able to embrace their mistakes and learn from them. Over time I’ve found that hiring self-reflective people like Ross is one of the most important things I can do. Finding this kind of person isn’t easy. I’ve often thought that parents and schools overemphasize the value of having the right answers all the time. It seems to me that the best students in school tend to be the worst at learning from their mistakes, because they have been conditioned to associate mistakes with failure instead of opportunity. This is a major impediment to their progress. Intelligent people who embrace their mistakes and weaknesses substantially outperform their peers who have the same abilities but bigger ego barriers. Recognize that mistakes are a natural part of the evolutionary process. If you don’t mind being wrong on the way to being right you’ll learn a lot, and increase your effectiveness. But if you can’t tolerate being wrong, you won’t grow, you’ll make yourself and everyone around you miserable, and your work environment will be marked by petty backbiting and malevolent barbs rather than by a healthy, honest search for truth. You must not let your need to be right be more important than your need to find out what’s true. Jeff Bezos described it well when he said, “You have to have a willingness to repeatedly fail. If you don’t have a willingness to fail, you’re going to have to be very careful not to invent.”
Don’t get stuck in disagreement, escalate or vote! By practicing open-mindedness and assertiveness, you should be able to resolve most disagreements. If not, and if your dispute is one-on-one, you should escalate to a mutually agreed-upon believable other. All things being equal, that should be someone higher in your reporting chain, such as your boss. When a group can’t reach an agreement, the person responsible for the meeting should take a believability-weighted vote. Once a decision is made, everyone should get behind it even though individuals may still disagree. A decision-making group in which those who don’t get what they want continue to fight rather than work for what the group has decided is destined to fail, you can see this happening all the time in companies, organizations, and even political systems and nations. I’m not saying that people should pretend they like the decision if they don’t, or that the matter in question can’t be revisited at a future date. What I am saying is that in order to be effective, all groups that work together have to operate with protocols that allow time for disagreements to be explored, but in which dissenting minority parties recognize that group cohesion supersedes their individual desires once they have been overruled. The group is more important than the individual; don’t behave in a way that undermines the chosen path. See things from the higher level. You are expected to go to the higher level and look down on yourself and others as part of a system. In other words, you must get out of your own head, consider your views as just some among many, and look down on the full array of points of view to assess them in an idea-meritocratic way rather than just in your own possessive way. Seeing things from the higher level isn’t just seeing other people’s point of view; it’s also being able to see every situation, yourself, and others in the situation as though you were looking down on them as an objective observer. If you can do this well, you will see the situation as “another one of those,” see it through everyone’s eyes, and have good mental maps or principles for deciding how to handle it. Almost all people initially find it difficult to get beyond seeing things through just their own eyes, so I’ve developed policies and tools such as the Coach (which connects situations to principles) that help people do this. With practice many people can learn to develop this perspective, though others never do. You need to know which type of person you and the people around you are. If you can’t do this well on your own, seek the help of others. Recognize that many people cannot see things from the higher level and distinguish those who can from those who can’t, and either get rid of those who can’t or have good guardrails in place to protect yourself and the organization against this inability. By the way, it is of course okay to continue to disagree on some things as long as you don’t keep fighting, thereby undermining the idea-meritocracy. If you continue to fight the idea-meritocracy, you must go. Never allow the idea-meritocracy to slip into anarchy. In an idea-meritocracy, there is bound to be more disagreement than in a typical organization, but when it’s taken to an extreme, arguing and nitpicking can undermine the idea-meritocracy’s effectiveness. At Bridgewater, I have encountered some people, especially junior people, who mistakenly think they are entitled to argue about whatever they want and with whomever they please. I have even seen people band together to threaten the idea-meritocracy, claiming that their right to do so comes from the principles. They misunderstand my principles and the boundaries within the organization. They must abide by the rules of the system, which provide paths for resolving disagreements, and they mustn’t threaten the system. Don’t allow lynch mobs or mob rule. Part of the purpose of having a believability-weighted system is to remove emotion from decision-making. Crowds get emotional and seek to grab control. That must be prevented. While all individuals have the right to have their own opinions, they do not have the right to render verdicts. Remember that if the idea-meritocracy comes into conflict with the well-being of the organization, it will inevitably suffer. That’s just a matter of practicality. As you know I believe that what’s good must work well, and that having the organization work well is of paramount importance.
Distinguish open-minded people from closed-minded people. Open-minded people seek to learn by asking questions; they realize how little they know in relation to what there is to know and recognize that they might be wrong; they are thrilled to be around people who know more than they do because it represents an opportunity to learn something. Closed-minded people always tell you what they know, even if they know hardly anything. They are typically uncomfortable being around those who know a lot more than they do. Don’t have anything to do with closed-minded people. Being open-minded is much more important than being bright or smart. No matter how much they know, closed-minded people will waste your time. If you must deal with them, recognize that there can be no helping them until they open their minds. Watch out for people who think it’s embarrassing not to know. They’re likely to be more concerned with appearances than actually achieving the goal; this can lead to ruin over time. Make sure that those in charge are open-minded about the questions and comments of others. The person responsible for a decision must be able to explain the thinking behind it openly and transparently so that everyone can understand and assess it. In the event of disagreement, an appeal should be made to either the decision maker’s boss or an agreed-upon, knowledgeable group of others, generally people more knowledgeable than and senior to the decision maker. Recognize that getting in sync is a two-way responsibility. In any conversation, there is a responsibility to express and a responsibility to listen. Misinterpretations and misunderstandings are always going to happen. Often, difficulty in communication is due to people having different ways of thinking (e.g., left-brained thinkers talking to right-brained thinkers). The parties involved should always consider the possibility that one or both of them misunderstood and do a back-and-forth so that they can get in sync. Very simple tricks, like repeating what you’re hearing someone say to make sure you’re actually getting it, can be invaluable. Start by assuming you’re either not communicating or listening well instead of blaming the other party. Learn from your miscommunications so they don’t happen again. Worry more about substance than style. This is not to say that some styles aren’t more effective than others with different people and in different circumstances, but I often hear people complaining about the style or tone of a criticism in order to deflect from its substance. If you think someone’s style is an issue, box it as a separate issue to get in sync on. Be reasonable and expect others to be reasonable. You have a responsibility to be reasonable and considerate when you are advocating for your point of view and should never let your “lower-level you” gain control, even if the other person loses his or her temper. Their bad behavior doesn’t justify yours. If either party to a disagreement is too emotional to be logical, the conversation should be deferred. Pausing a few hours or even a few days in cases where decisions do not have to be made immediately is sometimes the best approach. Making suggestions and questioning are not the same as criticizing, so don’t treat them as if they are. A person making suggestions may not have concluded that a mistake will be made, they could just be making doubly sure that the person they’re talking to has taken all the risks into consideration. Asking questions to make sure that someone hasn’t overlooked something isn’t the same thing as saying that he or she has overlooked it (“watch out for the ice” vs. “you’re being careless and not looking out for the ice”). Yet I often see people react to constructive questions as if they were accusations. That is a mistake. If it is your meeting to run, manage the conversation. There are many reasons why meetings go poorly, but frequently it is because of a lack of clarity about the topic or the level at which things are being discussed (e.g., the principle/machine level, the case-at-hand level, or the specific-fact level). Make it clear who is directing the meeting and whom it is meant to serve. Every meeting should be aimed at achieving someone’s goals; that person is the one responsible for the meeting and decides what they want to get out of it and how they will do so. Meetings without someone clearly responsible run a high risk of being directionless and unproductive.
In designing your organization, remember that the 5-Step Process is the path to success and that different people are good at different steps. Assign specific people to do each of these steps based on their natural inclinations. For example, the big-picture visionary should be responsible for goal setting, the taste tester should be assigned the job of identifying and not tolerating problems, the logical detective who doesn’t mind probing people should be the diagnoser, the imaginative designer should craft the plan to make the improvements, and the reliable taskmaster should make sure the plan gets executed. Of course, some people can do more than one of these things, generally people do two or three well. Virtually nobody can do them all well. A team should consist of people with all of these abilities and they should know who is responsible for which steps. Don’t build the organization to fit the people. Managers will often take the people who work in their organization as a given and try to make the organization work well with them. That’s backward. Instead, they should imagine the best organization and then make sure the right people are chosen for it. Jobs should be created based on the work that needs to be done, not what people want to do or which people are available. You can always search outside to find the people who click best for a particular role. First come up with the best workflow design, then sketch it out on an organizational chart, visualize how the parts interact, and specify what qualities are required for each job. Only after all that is done should you choose the people to fill the slots. Keep scale in mind. Your goals must be the right size to warrant the resources that you allocate to them. An organization might not be big enough to justify having both a sales and an analytics group, for example. Bridgewater successfully evolved from a one-cell organization, in which most people were involved in everything, to a multi-cellular organization because we retained our ability to focus efficiently as we grew. Temporarily sharing or rotating resources is fine and is not the same as a merging of responsibilities. On the other hand, the efficiency of an organization decreases as the number of people and/or its complexity increases, so keep things as simple as possible. And the larger the organization, the more important are information technology management and cross-departmental communication. Organize departments and sub-departments around the most logical groupings based on “gravitational pull.” Some groups naturally gravitate toward one another. That gravitational pull might be based on common goals, shared abilities and skills, workflow, physical location, and so forth. Imposing your own structure without acknowledging these magnetic pulls will likely result in inefficiency. Make departments as self-sufficient as possible so that they have control over the resources they need to achieve their goals. We do this because we don’t want to create a bureaucracy that forces departments to requisition resources from a pool that lacks the focus to do the job. Ensure that the ratios of senior managers to junior managers and of junior managers to their reports are limited to preserve quality communication and mutual understanding. Generally, the ratio should not be more than 1:10, and preferably closer to 1:5. Of course, the appropriate ratio will vary depending on how many people your direct reports have reporting to them, the complexity of the jobs they’re doing, and a manager’s ability to handle several people or projects at once. The number of layers from top to bottom and the ratio of managers to their direct reports will limit the size of an effective organization. Consider succession and training in your design. This is a subject I wish I had thought about much earlier in my career. To ensure that your organization continues to deliver results, you need to build a perpetual motion machine that can work well without you. This involves more than the mechanics of your own “stepping out,” but the selection and training and governance of the new leaders who “step up,” and most importantly, the preservation of the culture and its values. The best approach I’ve seen for doing this is what companies and organizations like GE, 3G, and the Chinese Politburo do, which is to build a pyramid-like “succession pipeline” in which the next generation of leaders is exposed to the thinking and decision-making of the current leaders so they can both learn and be tested.
Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do. Just worry about making the best decisions possible, recognizing that no matter what you do, most everyone will think you’re doing something, or many things, wrong. It is human nature for people to want you to believe their own opinions and to get angry at you if you don’t, even when they have no reason to believe that their opinions are good. So, if you’re leading well, you shouldn’t be surprised if people disagree with you. The important thing is for you to be logical and objective in assessing your probabilities of being right. It is not illogical or arrogant to believe that you know better than the average person, so long as you are appropriately open-minded. In fact, it is not logical to believe that what the average person thinks is better than what you and the most insightful people around you think, because you have earned your way into your higher-than-average position and you and those insightful people are more informed than the average person. If the opposite were true, then you and the average man shouldn’t have your respective jobs. In other words, if you don’t have better insights than them, you shouldn’t be a leader, and if you do have better insights than them, don’t worry if you are doing unpopular things. So how should you deal with your people? Your choices are either to ignore them (which will lead to resentment and your ignorance of what they are thinking), blindly do what they want (which wouldn’t be a good idea), or encourage them to bring their disagreements to the surface and work through them so openly and reasonably that everyone will recognize the relative merits of your thinking. Have the open disagreement and be happy to either win or lose the thought battles, as long as the best ideas win out. I believe that an idea-meritocracy will not only produce better results than other systems but will also ensure more alignment behind appropriate yet unpopular decisions. Don’t give orders and try to be followed; try to be understood and to understand others by getting in sync. If you want to be followed, either for egotistical reasons or because you believe it more expedient to operate that way, you will pay a heavy price in the long run. When you are the only one thinking, the results will suffer. Authoritarian managers don’t develop their subordinates, which means those who report to them stay dependent. This hurts everyone in the long run. If you give too many orders, people will likely resent them, and when you aren’t looking, defy them. The greatest influence you can have over intelligent people, and the greatest influence they will have on you, comes from constantly getting in sync about what is true and what is best so that you all want the same things. Hold yourself and your people accountable and appreciate them for holding you accountable. Holding people accountable means understanding them and their circumstances well enough to assess whether they can and should do some things differently, getting in sync with them about that, and, if they can’t adequately do what is required, removing them from their jobs. It is not micromanaging them, nor is it expecting them to be perfect (holding particularly overloaded people accountable for doing everything excellently is often impractical, not to mention unfair). But people can resent being held accountable, and you don’t want to have to tell them what to do all the time. Reason with them so that they understand the value of what you’re doing, but never let them off the hook. If you’ve agreed with someone that something is supposed to go a certain way, make sure it goes that way, unless you get in sync about doing it differently. People will often subconsciously gravitate toward activities they like rather than what’s required. If they lose sight of their priorities, you need to redirect them. This is part of why it’s important to get frequent updates from people about their progress. Distinguish between a failure in which someone broke their “contract” and a failure in which there was no contract to begin with. If you didn’t make an expectation clear, you can’t hold people accountable for it not being fulfilled. Don’t assume that something was implicitly understood. Common sense isn’t actually all that common, be explicit. If responsibilities keep falling between the cracks, consider editing the design of your machine.
As with animals, many of our decision-making drivers are below the surface. An animal doesn’t “decide” to fly or hunt or sleep or fight in the way that we go about making many of our own choices of what to do, it simply follows the instructions that come from the subconscious parts of its brain. These same sorts of instructions come to us from the same parts of our brains, sometimes for good evolutionary reasons and sometimes to our detriment. Our subconscious fears and desires drive our motivations and actions through emotions such as love, fear, and inspiration. It’s physiological. Love, for example, is a cocktail of chemicals (such as oxytocin) secreted by the pituitary gland. While I had always assumed that logical conversation is the best way for people to get at what is true, armed with this new knowledge about the brain, I came to understand that there are large parts of our brains that don’t do what is logical. For example, I learned that when people refer to their “feelings”, such as saying “I feel that you were unfair with me”, they are typically referring to messages that originate in the emotional, subconscious parts of their brains. I also came to understand that while some subconscious parts of our brains are dangerously animalistic, others are smarter and quicker than our conscious minds. Our greatest moments of inspiration often “pop” up from our subconscious. We experience these creative breakthroughs when we are relaxed and not trying to access the part of the brain in which they reside, which is generally the neocortex. When you say, “I just thought of something,” you noticed your subconscious mind telling your conscious mind something. With training, it’s possible to open this stream of communication. Many people only see the conscious mind and aren’t aware of the benefits of connecting it to the subconscious. They believe that the way to accomplish more is to cram more into the conscious mind and make it work harder, but this is often counterproductive. While it may seem counterintuitive, clearing your head can be the best way to make progress. Knowing this, I now understand why creativity comes to me when I relax (like when I’m in the shower) and how meditation helps open this connection. Because it is physiological, I can actually feel the creative thoughts coming from elsewhere and flowing into my conscious mind. It’s a kick to understand how that works. But a note of caution is in order too: When thoughts and instructions come to me from my subconscious, rather than acting on them immediately, I have gotten into the habit of examining them with my conscious, logical mind. I have found that in addition to helping me figure out which thoughts are valid and why I am reacting to them as I do, doing this opens further communication between my conscious and subconscious minds. It’s helpful to write down the results of this process. In fact that’s how my Principles came about. If you take nothing else away from this, be aware of your subconscious, of how it can both harm you and help you, and how by consciously reflecting on what comes out of it, perhaps with the help of others, you can become happier and more effective. Know that the most constant struggle is between feeling and thinking. There are no greater battles than those between our feelings (most importantly controlled by our amygdala, which operates subconsciously) and our rational thinking (most importantly controlled by our prefrontal cortex, which operates consciously). If you understand how those battles occur you will understand why it is so important to reconcile what you get from your subconscious with what you get from your conscious mind.
Escalate when you can’t adequately handle your responsibilities and make sure that the people who work for you are proactive about doing the same. Escalating means saying you don’t believe you can successfully handle a situation and that you are passing the Responsible Party job to someone else. The person you are escalating to, the person to whom you report, can then decide whether to coach you through it, take control themselves, have someone else handle it, or do something else. It’s critical that escalation not be seen as a failure but as a responsibility. All Responsible Parties will eventually face tests that they don’t know whether they can handle; what’s important is raising their concerns so their boss knows about the risks and both the boss and the escalating responsible-parties can get in sync about what to do about it. There is no greater failure than to fail to escalate a responsibility you cannot handle. Make sure your people are proactive; demand that they speak up when they can’t meet agreed-upon deliverables or deadlines. Such communication is essential to get in sync both on the case at hand and on what the person handling it is like.
Approaching things in this way has helped me a lot. For example, with the bond systemization project I mentioned earlier, having this new perspective allowed us to better see the gaps between what we had and what we needed. While Bob was a great intellectual partner to me in understanding the big-picture problem we wanted to solve, he was much weaker at visualizing the process required to get us from where we were to the solution. He also wasn’t surrounding himself with the right people. He tended to want to work with people who were like him, so his main deputy on the project was a great sparring partner for mapping out big ideas on a whiteboard but a lousy one for fleshing out the who, what, and when needed to bring those ideas to life. This deputy tested as a “Flexor,” meaning that he was great at going in whatever direction Bob wanted to but lacked the clear, independent view needed to keep Bob on track. After a few rounds of not making progress, we used our new tools for understanding people and acted on them, pushing Bob to transition to a new deputy who was especially skilled at navigating the levels between the big-picture ideas and the discrete, smaller projects required to bring them about. Comparing the new deputy’s Baseball Card to the original deputy’s, she excelled in independent and systematic thinking, which were essential for having a clear picture of what to do with Bob’s big ideas. This new deputy brought on other layers of support, including a project manager who was less engaged with the concepts and much more focused on the details of specific tasks and deadlines. When we looked at the new team members’ Baseball Cards, we could quickly see them lighting up in some of the areas around being planful, concrete, and driving things to completion, which were areas of weakness for Bob. With this new team in place, things really started to hum. It was only by looking hard at the complete “Lego set” required to achieve our goal, and then going out and finding the missing pieces, that we were able to do it. Bond systemization is just one of countless projects that have benefited from our frank and open approach to understanding what people are like. And to be clear, I have just scratched the surface of what there is to know about mental wiring. Lots of data show that relationships are the greatest reward, that they’re more important to your health and happiness than anything else. For example, as Robert Waldinger, director of Harvard’s seventy-five-year Grant and Glueck study of adult males from a variety of socioeconomic backgrounds, puts it, “You could have all the money you’ve ever wanted, a successful career, and be in good physical health, but without loving relationships, you won’t be happy. The good life is built with good relationships.” A good book on this is A Whole New Mind by Daniel H. Pink, and a good article on the science of this is “A Wandering Mind Heads Straight Toward Insight” by Robert Lee Hotz from The Wall Street Journal. While many parts of the brain come in two halves, it’s only the more recently developed cortex, which accounts for three-quarters of the brain, that has been shown to have functional differences between the right and left sides. That’s a big question. Entire specialties are dedicated to this question alone, and no one answer is authoritative, certainly not mine. However, because knowing what can change is important for people trying to manage themselves and others, I have looked fairly deeply into the issue of brain plasticity. What I learned coincided with my own experiences, and I will pass that along to you. A brain-imaging study by Harvard-affiliated researchers at Massachusetts General Hospital found physical changes in the brain after an eight-week meditation course. Researchers identified increased activity in parts of the brain associated with learning, memory, self-awareness, compassion, and introspection, as well as decreased activity in the amygdala. This test is helpful for seeing how people navigate levels and which levels they naturally go to. On the MBTI scale, this continuum is described as “Judging” vs. “Perceiving” though I prefer to use “Planning” as judging has other connotations. In MBTI language, judging does not mean judgmental and perceiving does not mean perceptive. Learn How to Make Decisions Effectively
In the end, accuracy and kindness are the same thing. What might seem kind but isn’t accurate is harmful to the person and often to others in the organization as well. Put your compliments and criticisms in perspective. It helps to clarify whether the weakness or mistake under discussion is indicative of a trainee’s total evaluation. One day I told one of our new research people what a good job I thought he was doing and how strong his thinking was. It was a very positive initial evaluation. A few days later I heard him chatting away at length about stuff that wasn’t related to work, so I warned him about the cost to his and our development if he regularly wasted time. Afterward I learned that he thought he was on the brink of being fired. My comment about his need for focus had nothing to do with my overall evaluation. Had I explained myself better when we sat down that second time, he could have put my comment into perspective. Think about accuracy, not implications. It’s often the case that someone receiving critical feedback gets preoccupied with the implications of that feedback instead of whether it’s true. This is a mistake. As I’ll explain later, conflating the “what is” with the “what to do about it” typically leads to bad decision-making. Help others through this by giving feedback in a way that makes it clear that you’re just trying to understand what’s true. Figuring out what to do about it is a separate discussion. Make accurate assessments. People are your most important resource and truth is the foundation of excellence, so make your personnel evaluations as precise and accurate as possible. This takes time and considerable back-and-forth. Your assessment of how Responsible Parties are performing should be based not on whether they’re doing it your way but on whether they’re doing it in a good way. Speak frankly, listen with an open mind, consider the views of other believable and honest people, and try to get in sync about what’s going on with the person and why. Remember not to be overconfident in your assessments, as it’s possible you are wrong. Learn from success as well as from failure. Radical truth doesn’t require you to be negative all the time. Point out examples of jobs done well and the causes of their success. This reinforces the actions that led to the results and creates role models for those who are learning. Know that most everyone thinks that what they did, and what they are doing, is much more important than it really is. If you ask everybody in an organization what percentage of the organization’s success they’re personally responsible for, you’ll wind up with a total of about 300 percent. That’s just the reality, and it shows why you must be precise in attributing specific results to specific people’s actions. Otherwise, you’ll never know who is responsible for what, and even worse, you may make the mistake of believing people who wrongly claim to be behind great accomplishments. Recognize that tough love is both the hardest and the most important type of love to give (because it is so rarely welcomed). The greatest gift you can give someone is the power to be successful. Giving people the opportunity to struggle rather than giving them the things they are struggling for will make them stronger. Compliments are easy to give but they don’t help people stretch. Pointing out someone’s mistakes and weaknesses (so they learn what they need to deal with) is harder and less appreciated, but much more valuable in the long run. Though new employees will come to appreciate what you are doing, it is typically difficult for them to understand it at first; to be effective, you must clearly and repeatedly explain the logic and the caring behind it. Recognize that while most people prefer compliments, accurate criticism is more valuable. You’ve heard the expression “no pain no gain.” Psychologists have shown that the most powerful personal transformations come from experiencing the pain from mistakes that a person never wants to have again, known as “hitting bottom.” So don’t be hesitant to give people those experiences or have them yourself. While it is important to be clear to people about what they are doing well, it is even more important to point out their weaknesses and have them reflect on them. Problems require more time than things that are going well. They must be identified and understood and addressed, while things that are running smoothly require less attention. Instead of celebrating how great we are, we focus on where we need to improve, which is how we got to be so great.
Of course, given our brain’s limited capacity and processing speed, it could take us forever to achieve a rich understanding of all the variables that go into evolution. Is all the simplifying and understanding that we employ in our expert systems truly required? Maybe not. There is certainly a risk that changes not in the tested data might still occur. But one might argue that if our data-mining-based formulas seem able to account for the evolution of all species through all time, then the risks of relying on them for just the next ten, twenty, or fifty years is relatively low compared to the benefits of having a formula that appears to work but is not fully understandable (and that, at the very least, might prove useful in helping scientists cure genetic diseases). In fact, we may be too hung up on understanding; conscious thinking is only one part of understanding. Maybe it’s enough that we derive a formula for change and use it to anticipate what is yet to come. I myself find the excitement, lower risk, and educational value of achieving a deep understanding of cause-effect relationships much more appealing than a reliance on algorithms I don’t understand, so I am drawn to that path. But is it my lower-level preferences and habits that are pulling me in this direction or is it my logic and reason? I’m not sure. I look forward to probing the best minds in artificial intelligence on this (and having them probe me). Most likely, our competitive natures will compel us to place bigger and bigger bets on relationships computers find that are beyond our understanding. Some of those bets will pay off, while others will backfire. I suspect that AI will lead to incredibly fast and remarkable advances, but I also fear that it could lead to our demise. We are headed for an exciting and perilous new world. That’s our reality. And as always, I believe that we are much better off preparing to deal with it than wishing it weren’t true. In order to have the best life possible, you have to: know what the best decisions are and have the courage to make them. In Life Principles, I’ve explained some principles that helped me do both of these things. I believe that because the same kinds of things happen over and over again, a relatively few well-thought-out principles will allow you to deal with just about anything that reality throws at you. Where you get these principles from doesn’t matter as much as having them and using them consistently, and that you never stop refining and improving them. To acquire principles that work, it’s essential that you embrace reality and deal with it well. Don’t fall into the common trap of wishing that reality worked differently than it does or that your own realities were different. Instead, embrace your realities and deal with them effectively. After all, making the most of your circumstances is what life is all about. This includes being transparent with your thoughts and open-mindedly accepting the feedback of others. Doing so will dramatically increase your learning. Along your journey you will inevitably experience painful failures. It is important to realize that they can either be the impetus that fuels your personal evolution or they can ruin you, depending on how you react to them. I believe that evolution is the greatest force in the universe and that we all evolve in basically the same way. Conceptually, it looks like a series of loops that either lead upward toward constant improvement or remain flat or even trend downward toward ruin. You will determine what your own loops look like. Your evolutionary process can be described as a 5-Step Process for getting what you want. It consists of setting goals, identifying and not tolerating problems, diagnosing problems, coming up with designs to get around them, and then doing the tasks required. The important thing to remember is that no one can do all the steps well, but that it’s possible to rely on others to help. Different people with different abilities working well together create the most powerful machines to produce achievements. If you’re willing to confront reality, accept the pain that comes with doing so, and follow the 5-Step Process to drive yourself toward your goals, you’re on the path to success. Yet most people fail to do this because they hold on to bad opinions that could easily be rectified by going above themselves to objectively look down at their situation and weigh what they and others think about it. It’s for that reason I believe you must be radically open-minded.
Almost nothing can stop you from succeeding if you have both flexibility and self-accountability. Flexibility is what allows you to accept what reality (or knowledgeable people) teaches you; self-accountability is essential because if you really believe that failing to achieve a goal is your personal failure, you will see your failing to achieve it as indicative that you haven’t been creative or flexible or determined enough to do what it takes. And you will be that much more motivated to find the way. Knowing how to deal well with your setbacks is as important as knowing how to move forward. Sometimes you know that you are going over a waterfall and there is no way to avoid it. Life will throw you such challenges, some of which will seem devastating at the time. In bad times, your goal might be to keep what you have, to minimize your rate of loss, or simply to deal with a loss that is irrevocable. Your mission is to always make the best possible choices, knowing that you will be rewarded if you do. Identify and don’t tolerate problems. View painful problems as potential improvements that are screaming at you. Though it won’t feel that way at first, each and every problem you encounter is an opportunity; for that reason, it is essential that you bring them to the surface. Most people don’t like to do this, especially if it exposes their own weaknesses or the weaknesses of someone they care about, but successful people know they have to. Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at. Thinking about problems that are difficult to solve may make you anxious, but not thinking about them (and hence not dealing with them) should make you more anxious still. When a problem stems from your own lack of talent or skill, most people feel shame. Get over it. I cannot emphasize this enough: Acknowledging your weaknesses is not the same as surrendering to them. It’s the first step toward overcoming them. The pains you are feeling are “growing pains” that will test your character and reward you as you push through them. Be specific in identifying your problems. You need to be precise, because different problems have different solutions. If a problem is due to inadequate skill, additional training may be called for; if it arises from an innate weakness, you may need to seek assistance from someone else or change the role you play. In other words, if you’re bad at accounting, hire an accountant. If a problem stems from someone else’s weaknesses, replace them with someone who is strong where it’s needed. That’s just the way it is. Don’t mistake a cause of a problem with the real problem. “I can’t get enough sleep” is not a problem; it is a potential cause (or perhaps the result) of a problem. To clarify your thinking, try to identify the bad outcome first; e.g., “I am performing poorly in my job.” Not sleeping enough may be the cause of that problem, or the cause may be something else, but in order to determine that, you need to know exactly what the problem is. Distinguish big problems from small ones. You only have so much time and energy; make sure you are investing them in exploring the problems that, if fixed, will yield you the biggest returns. But at the same time, make sure you spend enough time with the small problems to make sure they’re not symptoms of larger ones. Once you identify a problem, don’t tolerate it. Tolerating a problem has the same consequences as failing to identify it. Whether you tolerate it because you believe it cannot be solved, because you don’t care enough to solve it, or because you can’t muster enough of whatever it takes to solve it, if you don’t have the will to succeed, then your situation is hopeless. You need to develop a fierce intolerance of badness of any kind, regardless of its severity. Diagnose problems to get at their root causes. Focus on the “what is” before deciding “what to do about it.” It is a common mistake to move in a nanosecond from identifying a tough problem to proposing a solution for it. Strategic thinking requires both diagnosis and design. A good diagnosis typically takes between fifteen minutes and an hour, depending on how well it’s done and how complex the issue is. It involves speaking with the relevant people and looking at the evidence together to determine the root causes. Like principles, root causes manifest themselves over and over again in seemingly different situations. Finding them and dealing with them pays dividends again and again.
For me personally, I now find it thrilling to embrace reality, to look down on myself through nature’s perspective, and to be an infinitesimally small part of the whole. My instinctual and intellectual goal is simply to evolve and contribute to evolution in some tiny way while I’m here and while I am what I am. At the same time, the things I love most, my work and my relationships, are what motivate me. So, I find how reality and nature work, including how I and everything will decompose and recompose, beautiful, though emotionally I find the separation from those I care about difficult to appreciate. Understand nature’s practical lessons. I have found understanding how nature and evolution work helpful in a number of ways. Most importantly, it has helped me deal with my realities more effectively and make difficult choices. When I began to look at reality through the perspective of figuring out how it really works, instead of thinking things should be different, I realized that most everything that at first seemed “bad” to me, like rainy days, weaknesses, and even death, was because I held preconceived notions of what I personally wanted. With time, I learned that my initial reaction was because I hadn’t put whatever I was reacting to in the context of the fact that reality is built to optimize for the whole rather than for me. Maximize your evolution. Earlier, I mentioned that the unique abilities of thinking logically, abstractly, and from a higher level are carried out in structures located in the neocortex. These parts of the brain are more developed in humans and allow us to reflect on ourselves and direct our own evolution. Because we are capable of conscious, memory-based learning, we can evolve further and faster than any other species, changing not just across generations but within our own lifetimes. This constant drive toward learning and improvement makes getting better innately enjoyable and getting better fast exhilarating. Though most people think that they are striving to get the things (toys, bigger houses, money, status, etc.) that will make them happy, for most people those things don’t supply anywhere near the long-term satisfaction that getting better at something does. Once we get the things we are striving for, we rarely remain satisfied with them. The things are just the bait. Chasing after them forces us to evolve, and it is the evolution and not the rewards themselves that matters to us and to those around us. This means that for most people success is struggling and evolving as effectively as possible, i.e., learning rapidly about oneself and one’s environment, and then changing to improve. It is natural that it should be this way because of the law of diminishing returns. Consider what acquiring money is like. People who earn so much that they derive little or no marginal gains from it will experience negative consequences, as with any other form of excess, like gluttony. If they are intellectually healthy, they will begin seeking something new or seeking new depths in something old, and they will get stronger in the process. As Freud put it, “Love and work are the cornerstones of our humanness.” The work doesn’t necessarily have to be a job, though I believe it’s generally better if it is a job. It can be any kind of long-term challenge that leads to personal improvement. As you might have guessed, I believe that the need to have meaningful work is connected to man’s innate desire to improve. And relationships are the natural connections to others that make us relevant to each other and to society more broadly. Remember “no pain, no gain.” Realizing that we innately want to evolve, and that the other stuff we are going after, while nice, won’t sustain our happiness, has helped me focus on my goals of evolving and contributing to evolution in my own infinitely small way. While we don’t like pain, everything that nature made has a purpose, so nature gave us pain for a purpose. So what is its purpose? It alerts us and helps direct us. It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful. As Carl Jung put it, “Man needs difficulties. They are necessary for health.” Yet most people instinctually avoid pain. This is true whether we are talking about building the body (e.g., weight lifting) or the mind (e.g., frustration, mental struggle, embarrassment, shame), and especially true when people confront the harsh reality of their own imperfections. Pain + Reflection = Progress.
As I said at the outset, my goal is to pass along the principles that worked well for me; what you do with them is up to you. I of course hope that they will help you visualize your own audacious goals, navigate through your painful mistakes, have quality reflections, and come up with good principles of your own that you will systematically follow to produce outcomes that vastly exceed your expectations. I hope that they will help you do these things both individually and when working with others. And, since your journey and evolution will certainly be a struggle, I hope that these principles will help you struggle and evolve well. Perhaps they will even inspire you and others to put your principles in writing and collectively figure out what’s best in an idea-meritocratic way. If I could tilt the world even one degree more in that direction, that would thrill me. Along these lines, there is more to come. Because I know that having tools and protocols is necessary to helping people convert what they want to do into actually doing it, I will soon be making the ones we’ve created available to you. I feel I have now done the best I can to pass along my Life and Work Principles. Of course, we aren’t done with our struggles until we die. Since my latest struggle has been to pass along whatever I have that has been of value, I feel a certain sense of relief to have gotten these principles out to you, and a sense of contentment as I end this book and turn my attention to passing along my economic and investment principles.
The individual’s incentives must be aligned with the group’s goals. To give you a quick example of nature creating incentives that lead to individuals pursuing their own interests that result in the advancement of the whole, look at sex and natural selection. Nature gave us one hell of an incentive to have sex in the form of the great pleasure it provides, even though the purpose of having sex is to contribute to the advancement of the DNA. That way, we individually get what we want while contributing to the evolution of the whole. Reality is optimizing for the whole, not for you. Contribute to the whole and you will likely be rewarded. Natural selection leads to better qualities being retained and passed along (e.g., in better genes, better abilities to nurture others, better products, etc.). The result is a constant cycle of improvement for the whole. Adaptation through rapid trial and error is invaluable. Natural selection’s trial-and-error process allows improvement without anyone understanding or guiding it. The same can apply to how we learn. There are at least three kinds of learning that foster evolution: memory-based learning (storing the information that comes in through one’s conscious mind so that we can recall it later); subconscious learning (the knowledge we take away from our experiences that never enters our conscious minds, though it affects our decision-making); and “learning” that occurs without thinking at all, such as the changes in DNA that encode a species’ adaptations. I used to think that memory-based, conscious learning was the most powerful, but I’ve since come to understand that it produces less rapid progress than experimentation and adaptation. To give you an example of how nature improves without thinking, just look at the struggle that mankind (with all its thinking) has experienced in trying to outsmart viruses (which don’t even have brains). Viruses are like brilliant chess opponents. By evolving quickly (combining different genetic material across different strains), they keep the smartest minds in the global health community busy thinking up countermoves to hold them off. Understanding that is especially helpful in an era when computers can run large numbers of simulations replicating the evolutionary process to help us see what works and what doesn’t. I will describe a process that has helped me, and I believe can help you, evolve quickly. But first I want to emphasize how important your perspective is in trying to decide what is important to you and what to go after. Realize that you are simultaneously everything and nothing, and decide what you want to be. It is a great paradox that individually we are simultaneously everything and nothing. Through our own eyes, we are everything, e.g., when we die, the whole world disappears. So to most people (and to other species) dying is the worst thing possible, and it is of paramount importance that we have the best life possible. However, when we look down on ourselves through the eyes of nature we are of absolutely no significance. It is a reality that each one of us is only one of about seven billion of our species alive today and that our species is only one of about ten million species on our planet. Earth is just one of about 100 billion planets in our galaxy, which is just one of about two trillion galaxies in the universe. And our lifetimes are only about 1/3,000 of humanity’s existence, which itself is only 1/20,000 of the Earth’s existence. In other words, we are unbelievably tiny and short-lived and no matter what we accomplish, our impact will be insignificant. At the same time, we instinctually want to matter and to evolve, and we can matter a tiny bit, and it’s all those tiny bits that add up to drive the evolution of the universe. The question is how we matter and evolve. Do we matter to others (who also don’t matter in the grand scope of things) or in some greater sense that we will never actually achieve? Or does it not matter if we matter so we should forget about the question and just enjoy our lives while they last? What you will be will depend on the perspective you have. Where you go in life will depend on how you see things and who and what you feel connected to (your family, your community, your country, mankind, the whole ecosystem, everything). You will have to decide to what extent you will put the interests of others above your own, and which others you will choose to do so for. That’s because you will regularly encounter situations that will force you to make such choices. While such decisions might seem too erudite for your taste, you will make them either consciously or subliminally, and they will be very important.
Use transparency to help enforce justice. When everyone can follow the discussion leading up to a decision, either in real time in person or via taped records and email threads, justice is more likely to prevail. Everyone is held accountable for their thinking and anyone can weigh in on who should do what according to shared principles. Absent such a transparent process, decisions would be settled behind closed doors by those who have the power to do whatever they want. With transparency, everyone is held to the same high standards. Share the things that are hardest to share. While it might be tempting to limit transparency to the things that can’t hurt you, it is especially important to share the things that are most difficult to share, because if you don’t share them you will lose the trust and partnership of the people you are not sharing with. So, when faced with the decision to share the hardest things, the question should not be whether to share but how. The following principles will help you do this well. Keep exceptions to radical transparency very rare. While I would like virtually total transparency and wish that everyone would handle the information they have access to responsibly to work out what’s true and what to do about it, I realize that’s an ideal to be approached but never fully achieved. There are exceptions to every rule, and in very rare cases, it is better not to be radically transparent. In those unusual cases, you will need to figure out a way that preserves the culture of radical transparency without exposing you and those you care about to undue risks. When weighing an exception, approach it as an expected value calculation, taking into consideration the second and third-order consequences. Ask yourself whether the costs of making the case transparent and managing the risks of that transparency outweigh the benefits. In the vast majority of cases, they don’t. I’ve found that the most common reasons to limit broad transparency are: Where the information is of a private, personal, or confidential nature and doesn’t meaningfully impact the community at large. Where sharing and managing such information puts the long-term interests of the Bridgewater community, its clients, and our ability to uphold our principles at risk (for instance, our proprietary investment logic or a legal dispute). Where the value of sharing the information broadly with the community is very low and the distraction it would cause would be significant (compensation, for instance). What I’m saying is that I believe one should push the limits of being transparent while remaining prudent. Because we tape virtually everything, including our mistakes and weaknesses, for everyone to see, we are a target-rich environment for media that thrives on sensationalistic or critical gossip and can find ways of having information leaked to them. In one case when we faced the problem of having information leaked to the press that was intentionally distorted and hurt our recruiting efforts, we were forced to institute some controls on ultrasensitive information, so that only a significant number of ultratrustworthy people received it in real time, and it was distributed to others after a delay. The information was the sort that, in a typical company, would be shared with just a handful but at Bridgewater was shared with nearly a hundred trusted people. In other words, while our radical transparency in that case wasn’t total, I pushed its limits in a practical way. It served us well because the people who most needed the transparency got it right away and most everyone understood that the commitment to being transparent remained very much intact, even in challenging circumstances. People know that my intent is to always push the limits of trying to be transparent and that the only things that would prevent me from doing that will be the interests of the company and that I will tell them if I can’t be transparent and why. It is in our culture to be that way and that fosters trust, even when the transparency is less than we would like it to be. Make sure those who are given radical transparency recognize their responsibilities to handle it well and to weigh things intelligently.
Involve the person who is the point of the pyramid when encountering cross-departmental or cross-sub-departmental issues. Imagine an organizational chart as a pyramid that consists of numerous pyramids. When issues involve parties not in the same part of the pyramid, it is generally desirable to involve the person who is at the point of the pyramid, and thus has the perspective and knowledge to weigh the trade-offs and make informed decisions. Don’t do work for people in another department or grab people from another department to do work for you unless you speak to the person responsible for overseeing the other department. If there is a dispute about this, it needs to be resolved at the point of the pyramid. Watch out for “department slip.” This happens when a support department mistakes its responsibility to provide support with a mandate to determine how the thing they are supporting should be done. An example of this sort of mistake would be if the facilities group thought it should determine what facilities we should have. While support departments should know the goals of the people they’re supporting and provide feedback regarding possible choices, they are not the ones to determine the vision. Create guardrails when needed, and remember it’s better not to guardrail at all. Even when you find people who are great clicks for your design, there will be times when you’ll want to build guardrails around them. No one is perfect, everyone has strengths and weaknesses, and as hard as you look, you won’t always be able to find everything you want in one person. So look down on your machine and the people you choose for your roles, and think about where you might need to supplement your design by adding people or processes to ensure that each job is done excellently. Remember, guardrailing is meant to help people who can by and large do their jobs well, it’s intended to help good people perform better, not to help failing people reach the bar. If you’re trying to guardrail someone who is missing the core abilities required for their job, you should probably just fire them and look for someone else who will be a better click. A good guardrail typically takes the form of a team member whose strengths compensate for the weaknesses of the team member who needs to be guardrailed. A good guardrailing relationship should be firm without being overly rigid. Ideally, it should work like two people dancing, they’re literally pushing against each other, but with a lot of mutual give-and-take. Of course, having someone in a job who needs to be guardrailed is not as good as having someone in a job who will naturally do the right things. Strive for that. Don’t expect people to recognize and compensate for their own blind spots. I constantly see people form wrong opinions and make bad decisions, even though they’ve made the same kinds of mistakes before, and even though they know that doing so is illogical and harmful. I used to think that they would avoid these pitfalls when they became aware of their blind spots, but typically that’s not the case. Only very rarely do I hear someone recuse himself from offering an opinion because they aren’t capable of forming a good one in a particular area. Don’t bet on people to save themselves; proactively guardrail them or, better yet, put them in roles in which it’s impossible for them to make the types of decisions they shouldn’t make. Consider the clover-leaf design. In situations where you’re unable to identify one excellent Responsible Party for a role (which is always best), find two or three believable people who care deeply about producing excellent results and are willing to argue with each other and escalate their disagreements if necessary. Then set up a design in which they check and balance each other. Though it’s not optimal, such a system will have a high probability of effectively sorting the issues you need to examine and resolve. Keep your strategic vision the same while making appropriate tactical changes as circumstances dictate. Bridgewater’s values and strategic goals have been the same since the beginning (to produce excellent results, meaningful work, and meaningful relationships through radical truth and transparency) but its people, systems, and tools have changed over forty-plus years as we have grown from a one-person company to a 1,500-person organization, and they can continue to change while maintaining values and strategic goals as newer generations replace older ones. That can happen for organizations in much the same way as it happens for families and communities. To help nurture that, it is desirable to reinforce the traditions and reasons for them, as well as to make sure the values and strategic goals are imbued in the successive leaders and the population as a whole.
Great decision-makers don’t remember all of these steps in a rote way and carry them out mechanically, yet they do follow them. That’s because through time and experience they’ve learned to do most of them reflexively, just as a baseball player catches a fly ball without thinking about how he’s going to do it. If they had to call each of the principles up from their memory and then run them through their slow conscious minds, they couldn’t possibly handle all the things that are coming at them well. But there are a couple of things that they do carry out consciously and you should do them too. Simplify! Get rid of irrelevant details so that the essential things and the relationships between them stand out. As the saying goes, “Any damn fool can make it complex. It takes a genius to make it simple.” Think of Picasso. He could paint beautiful representational paintings from an early age, but he continually pared down and simplified as his career progressed. Not everyone has a mind that works that way, but just because you can’t do something naturally doesn’t mean you can’t do it, you just have to have creativity and determination. If necessary, you can seek the help of others. Use principles. Using principles is a way of both simplifying and improving your decision-making. While it might seem obvious to you by now, it’s worth repeating that realizing that almost all “cases at hand” are just “another one of those,” identifying which “one of those” it is, and then applying well-thought-out principles for dealing with it. This will allow you to massively reduce the number of decisions you have to make (I estimate by a factor of something like 100,000) and will lead you to make much better ones. The key to doing this well is to: Slow down your thinking so you can note the criteria you are using to make your decision. Write the criteria down as a principle. Think about those criteria when you have an outcome to assess, and refine them before the next “one of those” comes along. Identifying which “one of those” each thing is is like identifying which species an animal is. Doing that for each thing and then matching it up with the appropriate principles will become like playing a game, so it will be fun as well as helpful. Of course it can also be challenging. Many “cases at hand,” as I call them, are hybrids. When a case at hand contains a few “another ones of those,” one must weigh different principles against each other, using mental maps of how the different types of things I encounter should be handled. To help people do that, I created a tool called a Coach, which is explained in the Appendix. You can use your own principles, or you can use others’; you just want to use the best ones possible well. If you think that way constantly, you will become an excellent principled thinker. Believability weight your decision-making I have found triangulating with highly believable people who are willing to have thoughtful disagreements has never failed to enhance my learning and sharpen the quality of my decision-making. It typically leads me to make better decisions than I could have otherwise, and it typically provides me with thrilling learning. I urge you to do it. To do it well, be sure to avoid the common perils of valuing your own believability more than is logical and not distinguishing between who is more or less credible. In case of a disagreement with others, start by seeing if you can agree on the principles that should be used to make that decision. This discussion should include exploring the merits of the reasoning behind the different principles. If you agree on them, apply them to the case at hand and you’ll arrive at a conclusion everyone agrees on. If you disagree on the principles, try to work through your disagreement based on your respective believabilities. I will explain how we do this in more detail in Work Principles. This sort of principled and believability-weighted decision-making is fascinating and leads to much different and much better decision-making than is typical. For example, imagine if we used this approach to choose the president. It would be fascinating to see which principles we would come up with both for determining what makes a good president as well as for deciding who is most believable in making such determinations. Would we wind up with something like one person one vote, or something different? And if different, in what ways? It certainly would lead to very different outcomes. During the next election, let’s do this in parallel with our ordinary electoral process so we can see the difference.
Achieve completion in conversations. The main purpose of discussion is to achieve completion and get in sync, which leads to decisions and/or actions. Conversations that fail to reach completion are a waste of time. When there is an exchange of ideas, it is important to end it by stating the conclusions. If there is agreement, say it; if not, say that. Where further action has been decided, get those tasks on a to-do list, assign people to do them, and specify due dates. Write down your conclusions, working theories, and to-do’s in places that will lead to their being used as foundations for continued progress. To make sure this happens, assign someone to make sure notes are taken and follow-through occurs. There is no reason to get angry because you still disagree. People can have a wonderful relationship and disagree about some things; you don’t have to agree on everything. Leverage your communication. While open communication is very important, the challenge is to do it in a time-efficient way, you can’t have individual conversations with everyone. It is helpful to identify easy ways of sharing, like open emails posted on an FAQ board or sending around videotapes or audio recordings of key meetings. (I call such approaches “leverage.”) The challenges become greater the higher you go in the reporting hierarchy because the number of people affected by your actions and who also have opinions and/or questions grows so large. In such cases, you will need even greater leverage and prioritization (for example by having some of the questions answered by a well-equipped party who works for you or by asking people to prioritize their questions by urgency or importance). Great collaboration feels like playing jazz. In jazz, there’s no script: You have to figure things out as you go along. Sometimes you need to sit back and let others drive things; other times, you blare it out yourself. To do the right thing at the right moment you need to really listen to the people you’re playing with so that you can understand where they’re going. All great creative collaboration should feel the same way. Combining your different skills like different instruments, improvising creatively, and at the same time subordinating yourself to the goals of the group leads to playing great music together. But it’s important to keep in mind what number of collaborators will play well together: A talented duo can improvise beautifully, as can a trio or quartet. But gather ten musicians and no matter how talented they are, it’s probably going to be too many unless they’re carefully orchestrated. 1+1=3. Two people who collaborate well will be about three times as effective as each of them operating independently, because each will see what the other might miss, plus they can leverage each other’s strengths while holding each other accountable to higher standards. 3 to 5 is more than 20. Three to five smart, conceptual people seeking the right answers in an open-minded way will generally lead to the best answers. It may be tempting to convene a larger group, but having too many people collaborate is counterproductive, even if the members of the larger group are smart and talented. The symbiotic advantages of adding people to a group grow incrementally (2+1=4.25) up to a point; beyond that, adding people actually subtracts from effectiveness. That is because the marginal benefits diminish as the group gets larger (two or three people might be able to cover most of the important perspectives, so adding more people doesn’t bring much more) and 2) larger group interactions are less efficient than smaller ones. Of course, what’s best in practice depends on the quality of the people and the differences of the perspectives that they bring and how well the group is managed. When you have alignment, cherish it. While there is nobody in the world who will share your point of view on everything, there are people who will share your most important values and the ways in which you choose to live them out. Make sure you end up with those people. If you find you can’t reconcile major differences, especially in values, consider whether the relationship is worth preserving. There are all kinds of different people in the world, many of whom value different kinds of things. If you find you can’t get in sync with someone on shared values, you should consider whether that person is worth keeping in your life. A lack of common values will lead to a lot of pain and other harmful consequences and may ultimately drive you apart. It might be better to head all that off as soon as you see it coming. Believability Weight Your Decision-making
You should be able to delegate the details. If you keep getting bogged down in details, you either have a problem with managing or training, or you have the wrong people doing the job. The real sign of a master manager is that he doesn’t have to do practically anything. Managers should view the need to get involved in the nitty-gritty as a bad sign. At the same time, there’s danger in thinking you’re delegating details when you’re actually being too distant from what’s important and essentially are not managing. Great managers know the difference. They strive to hire, train, and oversee in a way in which others can superbly handle as much as possible on their own. Know what your people are like and what makes them tick, because your people are your most important resource. Develop a full profile of each person’s values, abilities, and skills. These qualities are the real drivers of behavior, so knowing them in detail will tell you which jobs a person can and cannot do well, which ones they should avoid, and how the person should be trained. These profiles should change as the people change. If you don’t know your people well, you don’t know what you can expect from them. You’re flying blind and you have no one to blame but yourself if you don’t get the outcomes you’re expecting. Regularly take the temperature of each person who is important to you and to the organization. Probe your key people and urge them to bring up anything that might be bothering them. These problems might be ones you are unaware of, or they may be misunderstood by the person raising them. Whatever the case, it is essential that they be brought out into the open. Learn how much confidence to have in your people, don’t assume it. No manager should delegate responsibilities to people they don’t know well. It takes time to learn about people and how much confidence you can vest in them. Sometimes new people are offended when their managers don’t have confidence in how they are carrying out their responsibilities. They think it’s a criticism of their abilities when it’s simply a matter of the manager being realistic about the fact that he or she hasn’t had enough time or direct experience with them to form a point of view. Vary your involvement based on your confidence. Management largely consists of scanning and probing everything you are responsible for to identify suspicious signs. Based on what you see, you should vary your degree of digging, doing more for people and areas that look suspicious, and less where what you see instills confidence. At Bridgewater a host of tools (Issue Logs, metrics, daily updates, checklists) produce objective performance-related data. Managers should review and spot-check them regularly. Clearly assign responsibilities. Eliminate any confusion about expectations and ensure that people view their failures to complete their tasks and achieve their goals as personal failures. The most important person on a team is the one who is given the overall responsibility for accomplishing the mission. This person must have both the vision to see what should be done and the discipline to make sure it’s accomplished. Remember who has what responsibilities. While that might sound obvious, people often fail to stick to their own responsibilities. Even senior people in organizations sometimes act like young kids just learning to play soccer, running after the ball in an effort to help but forgetting what position they are supposed to play. This can undermine rather than improve performance. So make sure that people remember how the team is supposed to work and play their positions well. Watch out for “job slip.” Job slip is when a job changes without being explicitly thought through and agreed to, generally because of changing circumstances or a temporary necessity. Job slip often leads to the wrong people handling the wrong responsibilities and confusion over who is supposed to do what. Probe deep and hard to learn what you can expect from your machine. Constantly probe the people who report to you while making sure they understand that it’s good for them and everyone else to surface their problems and mistakes. Doing so is required to make sure you’re getting what you want, even from people who are doing their jobs well (though they can be given a bit more leeway). Probing shouldn’t just come from the top down. The people who work for you should constantly challenge you, so that you can become as good as you can be. In doing so, they will understand that they are just as responsible for finding solutions as you are. It’s much easier for people to remain spectators than to become players. Forcing them onto the field strengthens the whole team.
A great organization has both great people and a great culture. Companies that get progressively better over time have both. Nothing is more important or more difficult than to get the culture and people right. Great people have both great character and great capabilities. By great character, I mean they are radically truthful, radically transparent, and deeply committed to the mission of the organization. By great capabilities, I mean they have the abilities and skills to do their jobs excellently. People who have one without the other are dangerous and should be removed from the organization. People who have both are rare and should be treasured. Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven’t been built before. Doing that sustains their evolution. In our case, we do that by having an idea-meritocracy that strives for meaningful work and meaningful relationships through radical truth and radical transparency. By meaningful work, I mean work that people are excited to get their heads into, and by meaningful relationships, I mean those in which there is genuine caring for each other (like an extended family). I find that these reinforce each other and that being radically truthful and radically transparent with each other makes both the work and the relationships go better. By constantly looking down on the machine, its managers can objectively compare the outcomes it produces with their goals. If those outcomes are consistent with those goals, then the machine is working effectively; if the outcomes are inconsistent with the goals, then something is wrong with either the design of the machine or the people who are a part of it, and the problem needs to be diagnosed so the machine can be modified. As laid out in Chapter Two of Life Principles, this ideally happens in a 5-Step Process: having clear goals, identifying the problems preventing the goals from being achieved, diagnosing what parts of the machine (i.e., which people or which designs) are not working well, designing changes, and doing what is needed. This is the fastest and most efficient way for an organization improve. A manager’s ability to recognize when outcomes are inconsistent with goals and then modify designs and assemble people to rectify them makes all the difference in the world. The more often and more effectively a manager does this, the steeper the upward trajectory. As I explained in Life Principles, this is what I believe evolution looks like for all organisms and organizations. Having a culture and people that will evolve in this way is critical because the world changes quickly and in ways that can’t possibly be anticipated. I’m sure you can think of a number of companies that failed to identify and address their problems on time and ended up in a terminal decline (see: BlackBerry and Palm) and a rare few that have consistently looped well. Most don’t. For example, only six of the companies that forty years ago made up the Dow Jones, which is about when Bridgewater got started, are still in the Dow today. Many of them, American Can, American Tobacco, Bethlehem Steel, General Foods, Inco, F. W. Woolworth, don’t even exist; some (Sears Roebuck, Johns-Manville, Eastman Kodak) are so different as to be almost unrecognizable. And many of the standouts on the list today, Apple, Cisco, were yet to be founded. The rare few that have been able to evolve well over the decades have been successful at that evolutionary/looping process, which also is the process that has made Bridgewater progressively more successful for forty years. That is the process I want to pass along to you. As I mentioned earlier, nothing is more important or more difficult than to get the culture and the people right. Whatever successes we’ve had at Bridgewater were the result of doing that well, and whatever failures were due to our not doing it adequately. That might seem odd because, as a global macroeconomic investor, one might think that, above all else, I had to get the economics and investments right, which is true. But to do that, I needed to get the people and culture right first. And, to inspire me to do what I did, I needed to have meaningful work and meaningful relationships. As the entrepreneur/builder of Bridgewater, I naturally shaped the organization to be consistent with my values and principles. I went after what I wanted most, in the way that seemed most natural to me with the people I chose to be with, and we and Bridgewater evolved together.
Bridgewater’s roughly 1,500 employees do many different things, some strive to understand the global markets; others develop technologies; still others serve clients, manage health insurance and other benefits for employees, provide legal guidance, manage IT and facilities, and so on. All these activities require different types of people to work together in ways that harvest the best ideas and throw away the worst. Organizing people to complement their strengths and compensate for their weaknesses is like conducting an orchestra. It can be magnificent if done well and terrible if done poorly. While “know thyself” and “to thine own self be true” are fundamental tenets I had heard long before I began looking into the brain, I had no idea how to go about getting that knowledge or how to act on it until we made these discoveries about how people think differently. The better we know ourselves, the better we can recognize both what can be changed and how to change it, and what can’t be changed and what we can do about that. So no matter what you set out to do, whether on your own, as a member of an organization, or as its director, you need to understand how you and other people are wired. Understand the power that comes from knowing how you and others are wired. As I related in the first part of this book, my first breakthrough in understanding how people think differently occurred when I was a young father and had my kids tested by Dr. Sue Quinlan. I found the results remarkable, because she not only confirmed my own observations of the ways that their minds were working at the time but also predicted how they would develop in the future. For example, one of my kids was struggling with arithmetic. Because he tested well in mathematical reasoning, she correctly told him that if he pushed through the boredom of rote memorization required in elementary school, he would love the higher-level concepts he would be exposed to when he got older. These insights opened my eyes to new possibilities. I turned to her and others years later when I was trying to figure out the different thinking styles of my employees and colleagues. At first, the experts gave me both bad and good advice. Many seemed as if they were more interested in making people feel good (or not feel bad) than they were at getting at the truth. Even more startling, I found that most psychologists didn’t know much about neuroscience and most neuroscientists didn’t know much about psychology, and both were reluctant to connect the physiological differences in people’s brains to the differences in their aptitudes and behaviors. But eventually I found Dr. Bob Eichinger, who opened the world of psychometric testing to me. Using Myers-Briggs and other assessments, we evolved a much clearer and more data-driven way of understanding our different types of thinking. Our differences weren’t a product of poor communication; it was the other way around. Our different ways of thinking led to our poor communications. From conversations with experts and my own observations, I learned that many of our mental differences are physiological. Just as our physical attributes determine the limits of what we are able to do physically, some people are tall and others are short, some muscular and others weak, our brains are innately different in ways that set the parameters of what we are able to do mentally. As with our bodies, some parts of our brains cannot be materially affected by external experience (in the same way that your skeleton isn’t changed much through working out), while other parts can be strengthened through exercise.
Make your metrics clear and impartial. To help you build your perpetual motion machine, have a clear set of rules and a clear set of metrics to track how people are performing against those rules, and predetermined consequences that are determined formulaically based on the output of those metrics. The more clear-cut the rules are, the less arguing there will be about whether someone did something wrong. For example, we have rules about how employees can manage their own investments in a way that doesn’t conflict with how we manage money for clients. Because these rules are clear-cut, there’s no room for argument when a breach occurs. Having metrics that allow everyone to see everyone else’s track record will make evaluation more objective and fair. People will do the things that will get them higher grades and will argue less about them. Of course, since most people have a number of things to do that are of different importance, different metrics have to be used and weighted appropriately. The more data you collect, the more immediate and precise the feedback will be. That is one of the reasons I created the Dot Collector tool to work as it does (providing lots of immediate feedback); people often use the feedback that they get during a meeting to course-correct in the meeting in real time. Once you have your metrics, you can tie them to an algorithm that spits out consequences. They can be as simple as saying that for every time you do X you will earn Y amount of money (or bonus points), or it can be more complex (for example, tying the weighted mix of metrics grades to various algorithms that provide the estimated compensation or bonus points). While this process will never be exact, it will still be good in even its crudest form, and over time it will evolve to be terrific. Even when flawed, the formulaic output can be used with discretion to provide a more precise evaluation and compensation; over time it will evolve into a wonderful machine that will do much of your managing better than you could do it on your own. Encourage people to be objectively reflective about their performance. Being able to see yourself from a higher level is essential for personal evolution and achieving your goals. So you and the people who report to you should be looking at the evidence of their performance together; for this to go well, you need lots and lots of evidence and an objective point of view. If required, use agreed-upon others to triangulate the picture the evidence presents. Look at the whole picture. In reviewing someone, the goal is to see the patterns and to understand the whole picture. No one can be successful in every way (if they are extremely meticulous, for example, they might not be able to be fast, and vice versa). Assessments made in reviews must be concrete; they’re not about what people should be like but what they are like.
There is no avoiding pain, especially if you’re going after ambitious goals. Believe it or not, you are lucky to feel that kind of pain if you approach it correctly, because it is a signal that you need to find solutions so you can progress. If you can develop a reflexive reaction to psychic pain that causes you to reflect on it rather than avoid it, it will lead to your rapid learning/evolving. After seeing how much more effective it is to face the painful realities that are caused by your problems, mistakes, and weaknesses, I believe you won’t want to operate any other way. It’s just a matter of getting in the habit of doing it. Most people have a tough time reflecting when they are in pain and they pay attention to other things when the pain passes, so they miss out on the reflections that provide the lessons. If you can reflect well while you’re in pain (which is probably too much to ask), great. But if you can remember to reflect after it passes, that’s valuable too. (I created a Pain Button app to help people do this, which I describe in the appendix.) The challenges you face will test and strengthen you. If you’re not failing, you’re not pushing your limits, and if you’re not pushing your limits, you’re not maximizing your potential. Though this process of pushing your limits, of sometimes failing and sometimes breaking through, and deriving benefits from both your failures and your successes, is not for everyone, if it is for you, it can be so thrilling that it becomes addictive. Life will inevitably bring you such moments, and it’ll be up to you to decide whether you want to go back for more. If you choose to push through this often painful process of personal evolution, you will naturally “ascend” to higher and higher levels. As you climb above the blizzard of things that surrounds you, you will realize that they seem bigger than they really are when you are seeing them up close; that most things in life are just “another one of those.” The higher you ascend, the more effective you become at working with reality to shape outcomes toward your goals. What once seemed impossibly complex becomes simple. Go to the pain rather than avoid it. If you don’t let up on yourself and instead become comfortable always operating with some level of pain, you will evolve at a faster pace. That’s just the way it is. Every time you confront something painful, you are at a potentially important juncture in your life, you have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion. The irony is that if you choose the healthy route, the pain will soon turn into pleasure. The pain is the signal! Like switching from not exercising to exercising, developing the habit of embracing the pain and learning from it will “get you to the other side.” By “getting to the other side,” I mean that you will become hooked on: Identifying, accepting, and learning how to deal with your weaknesses. Preferring that the people around you be honest with you rather than keep their negative thoughts about you to themselves, and being yourself rather than having to pretend to be strong where you are weak. Embrace tough love. In my own life, what I want to give to people, most importantly to people I love, is the power to deal with reality to get what they want. In pursuit of my goal to give them strength, I will often deny them what they “want” because that will give them the opportunity to struggle so that they can develop the strength to get what they want on their own. This can be difficult for people emotionally, even if they understand intellectually that having difficulties is the exercise they need to grow strong and that just giving them what they want will weaken them and ultimately lead to them needing more help. Of course most people would prefer not to have weaknesses. Our upbringings and our experiences in the world have conditioned us to be embarrassed by our weaknesses and hide them. But people are happiest when they can be themselves. If you can be open with your weaknesses it will make you freer and will help you deal with them better. I urge you to not be embarrassed about your problems, recognizing that everyone has them. Bringing them to the surface will help you break your bad habits and develop good ones, and you will acquire real strengths and justifiable optimism.
Regularly use pain as your guide toward quality reflection. Mental pain often comes from being too attached to an idea when a person or an event comes along to challenge it. This is especially true when what is being pointed out to you involves a weakness on your part. This kind of mental pain is a clue that you are potentially wrong and that you need to think about the question in a quality way. To do this, first calm yourself down. This can be difficult: You will probably feel your amygdala kicking in through a tightening in your head, tension in your body, or an emerging sense of annoyance, anger, or irritability. Note these feelings when they arise in you. By being aware of such signals of closed-mindedness, you can use them as cues to control your behavior and guide yourself toward open-mindedness. Doing this regularly will strengthen your ability to keep your “higher-level you” in control. The more you do it, the stronger you will become. Make being open-minded a habit. The life that you will live is most simply the result of habits you develop. If you consistently use feelings of anger/frustration as cues to calm down, slow down, and approach the subject at hand thoughtfully, over time you’ll experience negative emotions much less frequently and go directly to the open-minded practices I just described. Of course, this can be very hard for people to do in the moment because your “lower-level you” emotions are so powerful. The good news is that these “amygdala hijackings” don’t last long so even if you’re having trouble controlling yourself in the moment, you can also allow a little time to pass to give your higher-level you space to reflect in a quality way. Have others whom you respect help you too. Get to know your blind spots. When you are closed-minded and form an opinion in an area where you have a blind spot, it can be deadly. So take some time to record the circumstances in which you’ve consistently made bad decisions because you failed to see what others saw. Ask others, especially those who’ve seen what you’ve missed, to help you with this. Write a list, tack it up on the wall, and stare at it. If ever you find yourself about to make a decision (especially a big decision) in one of these areas without consulting others, understand that you’re taking a big risk and that it would be illogical to expect that you’ll get the results you think you will. If a number of different believable people say you are doing something wrong and you are the only one who doesn’t see it that way, assume that you are probably biased. Be objective! While it is possible that you are right and they are wrong, you should switch from a fighting mode to an “asking questions” mode, compare your believability with theirs, and if necessary agree to bring in a neutral party you all respect to break the deadlock. Meditate. I practice Transcendental Meditation and believe that it has enhanced my open-mindedness, higher-level perspective, equanimity, and creativity. It helps slow things down so that I can act calmly even in the face of chaos, just like a ninja in a street fight. I’m not saying that you have to meditate in order to develop this perspective; I’m just passing along that it has helped me and many other people and I recommend that you seriously consider exploring it. Be evidence-based and encourage others to be the same. Most people do not look thoughtfully at the facts and draw their conclusions by objectively weighing the evidence. Instead, they make their decisions based on what their deep-seated subconscious mind wants and then they filter the evidence to make it consistent with those desires. It is possible to become aware of this subconscious process happening and to catch yourself, or to allow others to catch you going down this path. When you’re approaching a decision, ask yourself: Can you point to clear facts (i.e., facts believable people wouldn’t dispute) leading to your view? If not, chances are you’re not being evidence-based. Do everything in your power to help others also be open-minded. Being calm and reasonable in how you present your view will help prevent the “flight-or-fight” animal/amygdala reaction in others. Be reasonable and expect others to be reasonable. Ask them to point to the evidence that supports their point of view. Remember, it is not an argument; it is an open exploration of what’s true. Demonstrating that you are taking in what they are telling you can be helpful.
Here are the forces behind Bridgewater’s self-reinforcing evolutionary spiral: We went from one independent thinker who wanted to achieve audacious goals to a group of independent thinkers who wanted to achieve audacious goals. To enable these independent thinkers to have effective collective decision-making, we created an idea-meritocracy based on principles that ensured we would be radically honest and transparent with each other, have thoughtful disagreements, and have idea-meritocratic ways of getting past our disagreements to make decisions. We recorded these decision-making principles on paper and later encoded them into computers and made our decisions based on them. This produced our successes and failures, which produced more learnings, which were written into more principles that were systemized and acted upon. This process resulted in excellent work and excellent relationships that led us to having well-rewarded and happy employees and clients. That led us to be able to bring in more audacious independent thinkers with more audacious goals to strengthen this self-reinforcing upward spiral. We did that over and over again, which produced the evolutionary looping behind Bridgewater’s forty-plus years of success. This really works! You don’t have to take my word for it. There are two ways you can evaluate the likelihood that this approach and the principles that follow from it are as powerful as I believe they are. You can look at the results they produced and look at the logic behind them. As for the results, our track record speaks for itself. We consistently got better over forty years, going from my two-bedroom apartment to becoming the fifth most important private company in the U.S., according to Fortune, and the world’s largest hedge fund, making more total money for our clients than any other hedge fund in history. We have received over one hundred industry awards and I’ve earned three lifetime achievement awards, not to mention remarkable financial and psychological rewards and most importantly, amazing relationships. But even more important than these results is the underlying cause-effect logic behind these principles, which came before the results. Over forty years ago, this way of being was a controversial, untested theory that nevertheless seemed logical to me. There’s no doubt that our approach is very different. Some people have even described Bridgewater as a cult. The truth is that Bridgewater succeeds because it is the opposite of a cult. The essential difference between a culture of people with shared values (which is a great thing) and a cult (which is a terrible thing) is the extent to which there is independent thinking. Cults demand unquestioning obedience. Thinking for yourself and challenging each other’s ideas is anti-cult behavior, and that is the essence of what we do at Bridgewater. Some people say that our approach is crazy, but think about it: Which approach do you think is crazy and which one is sensible? One where people are truthful and transparent, or one in which most people keep their real thoughts hidden? One where problems, mistakes, weaknesses, and disagreements are brought to the surface and thoughtfully discussed, or one in which they are not forthrightly brought to the surface and discussed? One in which the right to criticize is nonhierarchical, or one in which it primarily comes from the top down? One in which objective pictures of what people are like are derived through lots of data and broad triangulations of people, or one in which evaluations of people are more arbitrary? One in which the organization pursues very high standards for achieving both meaningful work and meaningful relationships, or one in which work quality and relationship quality are not equally valued and/or the standards aren’t as high? Which kind of organization do you think will enable better development for the people who work there, foster deeper relationships between them, and produce better results? Which approach would you prefer to see the leaders and organizations that you deal with follow? Which way of being would you prefer the people who run our government to follow? My bet is that after reading this book, you will agree that our way of operating is far more sensible than conventional ways of operating. But remember that my most fundamental principle is that you have to think for yourself.
Brain plasticity is what allows your brain to change its “softwiring.” For a long time, scientists believed that after a certain critical period in childhood, most of our brain’s neurological connections were fixed and highly unlikely to change. But recent research has suggested that a wide variety of practices, from physical exercise to studying to meditation, can lead to physical and physiological changes in our brains that affect our abilities to think and form memories. In a study of Buddhist monks who had practiced more than ten thousand hours of meditation, researchers at the University of Wisconsin measured significantly higher levels of gamma waves in their brains; these waves are associated with perception and problem solving. That doesn’t mean the brain is infinitely flexible. If you have a preference for a certain way of thinking, you might be able to train yourself to operate another way and find that easier to do over time, but you’re very unlikely to change your underlying preference. Likewise, you may be able to train yourself to be more creative, but if you’re not naturally creative, there’s likely a limit to what you can do. That is simply reality, so we all might as well accept it and learn how to deal with it. There are coping techniques that we can use, for example, the creative, disorganized person who is likely to lose track of time can develop the habit of using alarms; the person who isn’t good at some type of thinking can train himself to rely on the thinking of others who are better at it. The best way to change is through doing mental exercises. As with physical exercise, this can be painful unless you enlist the habit loop discussed earlier to connect the rewards to the actions, “rewiring” your brain to love learning and beneficial change. Remember that accepting your weaknesses is contrary to the instincts of those parts of your brain that want to hold on to the illusion that you are perfect. Doing the things that will reduce your instinctual defensiveness takes practice, and requires operating in an environment that reinforces open-mindedness. As you’ll see when we get into Work Principles, I’ve developed a number of tools and techniques that help overcome that resistance, individually and across organizations. Instead of expecting yourself or others to change, I’ve found that it’s often most effective to acknowledge one’s weaknesses and create explicit guardrails against them. This is typically a faster and higher-probability path to success. Find out what you and others are like. Because of the biases with which we are wired, our self-assessments (and our assessments of others) tend to be highly inaccurate. Psychometric assessments are much more reliable. They are important in helping explore how people think during the hiring process and throughout employment. Though psychometric assessments cannot fully replace speaking with people and looking at their backgrounds and histories, they are far more powerful than traditional interviewing and screening methods. If I had to choose between just the assessments or just traditional job interviews to get at what people are like, I would choose the assessments. Fortunately, we don’t have to make that choice. The four main assessments we use are the Myers-Briggs Type Indicator, the Workplace Personality Inventory, the Team Dimensions Profile, and Stratified Systems Theory. But we are constantly experimenting (for example, with the Big Five) so our mix will certainly change. Whatever the mix, they all convey people’s preferences for thinking and action. They also provide us with new attributes and terminologies that clarify and amplify those we had identified on our own. I will describe a few of them below. These descriptions are based on my own experiences and learnings, which are in many ways different from the official descriptions used by the assessment companies. Introversion vs. extroversion. Introverts focus on the inner world and get their energy from ideas, memories, and experiences while extroverts are externally focused and get their energy from being with people. Introversion and extroversion are also linked to differences in communication styles. If you have a friend who loves to “talk out” ideas (and even has trouble thinking through something if there isn’t someone around to work it through with), he or she is likely an extrovert. Introverts will usually find such conversations painful, preferring to think privately and share only after they’ve worked things out on their own. I’ve found that it is important to help each communicate in the way that they feel most comfortable. For example, introverts often prefer communicating in writing (such as email) rather than speaking in group settings and tend to be less open with their critical thoughts.
Make sure your people have character and are capable. The person who is capable but doesn’t have good character is generally destructive, because he or she has the cleverness to do you harm and will certainly erode the culture. In my opinion, most organizations overvalue the abilities piece and undervalue the character piece because of a shortsighted focus on getting the job done. In doing so, they lose the power of the great relationships that will take them through both good and bad times. Don’t get me wrong, I’m not saying that you should compromise capabilities for character. The person with good character and poor abilities also creates problems. While likeable, he or she won’t get the job done and is painfully difficult to fire because doing so feels like shooting the loyal dog you can’t afford to keep anymore, but he must go. Ultimately, what you need in the people you work with are excellent character and excellent capabilities, which is why it’s so hard to find great people. Don’t hire people just to fit the first job they will do; hire people you want to share your life with. Turnover is costly and inefficient because of the time it takes for people to get to know each other and the organization. Both the people you work with and the company itself will evolve in ways you can’t anticipate. So hire the kind of people you want to share a long-term mission with. You will always have uses for great people. Look for people who have lots of great questions. Smart people are the ones who ask the most thoughtful questions, as opposed to thinking they have all the answers. Great questions are a much better indicator of future success than great answers. Show candidates your warts. Show your job prospects the real picture, especially the bad stuff. Also show them the principles in action, including the most difficult aspects. That way you will stress-test their willingness to endure the real challenges. Play jazz with people with whom you are compatible but who will also challenge you. You need people who share your tastes and style but who can also push and challenge each other. The best teams, whether in music, in sports, or in business, do all those things at the same time. When considering compensation, provide both stability and opportunity. Pay people enough so that they’re not under financial stress, but not so much that they become fat and happy. You want your people to be motivated to perform so they can realize their dreams. You don’t want people to accept a job for the security of making a lot more money, you want them to come for the opportunity to earn it through hard and creative work. Pay for the person, not the job. Look at what people in comparable jobs with comparable experience and credentials make, add some small premium over that, and build in bonuses or other incentives so they will be motivated to knock the cover off the ball. Never pay based on the job title alone. Have performance metrics tied at least loosely to compensation. While you will never fully capture all the aspects that make for a great work relationship in metrics, you should be able to establish many of them. Tying performance metrics to compensation will help crystallize your understanding of your deal with people, provide good ongoing feedback, and influence how the person behaves on an ongoing basis. Pay north of fair. By being generous or at least a little north of fair with others I have enhanced both our work and our relationships and most people have responded in kind. As a result, we have gained something even more special than money in the form of mutual caring, respect, and commitment. Focus more on making the pie bigger than on exactly how to slice it so that you or anyone else gets the biggest piece. The best negotiations are the ones with someone in which I say, “You should take more,” and they argue back, “No you should take more!” People who operate this way with each other make the relationship better and the pie bigger, and both benefit in the long run.
Be clear on whether you are arguing or seeking to understand, and think about which is most appropriate based on your and others’ believability. If both parties are peers, it’s appropriate to argue. But if one person is clearly more knowledgeable than the other, it is preferable for the less knowledgeable person to approach the more knowledgeable one as a student and for the more knowledgeable one to act as a teacher. Doing this well requires you to understand the concept of believability. I define believable people as those who have repeatedly and successfully accomplished the thing in question, who have a strong track record with at least three successes, and have great explanations of their approach when probed. If you have a different view than someone who is believable on the topic at hand, or at least more believable than you are (if, say, you are in a discussion with your doctor about your health), you should make it clear that you are asking questions because you are seeking to understand their perspective. Conversely, if you are clearly the more believable person, you might politely remind the other of that and suggest that they ask you questions. All these strategies come together in two practices that, if you seek to become radically open-minded, you must master. Appreciate the art of thoughtful disagreement. When two people believe opposite things, chances are that one of them is wrong. It pays to find out if that someone is you. That’s why I believe you must appreciate and develop the art of thoughtful disagreement. In thoughtful disagreement, your goal is not to convince the other party that you are right, it is to find out which view is true and decide what to do about it. In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives. Exchanges in which you really see what the other person is seeing and they really see what you are seeing, with both your “higher-level yous” trying to get to the truth, are immensely helpful and a giant source of untapped potential. To do this well, approach the conversation in a way that conveys that you’re just trying to understand. Use questions rather than make statements. Conduct the discussion in a calm and dispassionate manner, and encourage the other person to do that as well. Remember, you are not arguing; you are openly exploring what’s true. Be reasonable and expect others to be reasonable. If you’re calm, collegial, and respectful you will do a lot better than if you are not. You’ll get better at this with practice. To me, it’s pointless when people get angry with each other when they disagree because most disagreements aren’t threats as much as opportunities for learning. People who change their minds because they learned something are the winners, whereas those who stubbornly refuse to learn are the losers. That doesn’t mean that you should blindly accept others’ conclusions. You should be what I call open-minded and assertive at the same time, you should hold and explore conflicting possibilities in your mind while moving fluidly toward whatever is likely to be true based on what you learn. Some people can do this easily while others can’t. A good exercise to make sure that you are doing this well is to describe back to the person you are disagreeing with their own perspective. If they agree that you’ve got it, then you’re in good shape. I also recommend that both parties observe a “two-minute rule” in which neither interrupts the other, so they both have time to get all their thoughts out. Some people worry that operating this way is time consuming. Working through disagreements does take time but it’s just about the best way you can spend it. What’s important is that you prioritize what you spend time on and who you spend it with. There are lots of people who will disagree with you, and it would be unproductive to consider all their views. It doesn’t pay to be open-minded with everyone. Instead, spend your time exploring ideas with the most believable people you have access to. If you find you’re at an impasse, agree on a person you both respect and enlist them to help moderate the discussion. What’s really counterproductive is spinning in your own head about what’s going on, which most people are prone to do, or wasting time disagreeing past the point of diminishing returns. When that happens, move on to a more productive way of getting to a mutual understanding, which isn’t necessarily the same thing as agreement. For example, you might agree to disagree.
This was driven home to me by my son Paul’s three-year struggle with bipolar disorder. As terrifying and frustrating as his behavior was, I came to realize that it was due to his brain’s chemistry (specifically, its secreting serotonin and dopamine in spurts and sputters). As I went through that terrible journey with him, I experienced the frustration and anger of trying to reason with someone who wasn’t thinking well. I constantly had to remind myself that there was no basis for my anger because his distorted logic was a product of his physiology, and I saw for myself how the doctors who approached it that way brought him to a state of crystal clarity. The experience not only taught me a lot about how brains work but why creative genius often exists at the edge of insanity. Many highly productive and creative people have suffered from bipolar disorder, among them Ernest Hemingway, Beethoven, Tchaikovsky, Vincent van Gogh, Jackson Pollock, Virginia Woolf, Winston Churchill, and the psychologist Kay Redfield Jamison (who has written frankly about her own experiences with the disease in her book An Unquiet Mind). I learned that we are all different because of the different ways that the machine that is our brain works, and that nearly one in five Americans are clinically mentally ill in one way or another. Once I understood that it’s all physiological, many things became clearer to me. While I used to get angry and frustrated at people because of the choices they made, I came to realize that they weren’t intentionally acting in a way that seemed counterproductive; they were just living out things as they saw them, based on how their brains worked. I also realized that as off-base as they seemed to me, they saw me the same way. The only sensible way of behaving with each other was to look down upon ourselves with mutual understanding so we could make objective sense of things. Not only did this make our disagreements less frustrating, it also allowed us to maximize our effectiveness. Everyone is like a Lego set of attributes, with each piece reflecting the workings of a different part of their brain. All these pieces come together to determine what each person is like, and if you know what a person is like, you’ll have a pretty good idea of what you can expect from them. We are born with attributes that can both help us and hurt us, depending on their application. Most attributes are a double-edged sword that bring potential benefits and potential harm. The more extreme the attribute, the more extreme the potential good or bad outcomes it is likely to produce. For example, a highly creative, goal-oriented person good at imagining new ideas might undervalue the minutiae of daily life, which is also important; he might be so driven in his pursuit of long-term goals that he might have disdain for people who focus on the details of daily life. Similarly, a task-oriented person who is great with details might undervalue creativity, and worse still, may squelch it in the interests of efficiency. These two people might make a great team, but are likely to have trouble taking advantage of the ways they’re complementary, because the ways their minds work make it difficult for them to see the value of each other’s ways of thinking. Having expectations for people (including yourself) without knowing what they are like is a sure way to get in trouble. I learned this the hard way, through years of frustrating conversations and the pain of expecting things from people who were constitutionally incapable of delivering them. I’m sure that I caused them plenty of pain too. Over time, I realized that I needed a systematic approach to capturing and recording our differences so that we could actively take them into consideration when putting people into different roles at Bridgewater. This led to one of my most valuable management tools: Baseball Cards, which I mentioned in the first part of this book. Just as a baseball card compiles the relevant data on a baseball player, helping fans know what that player is good and bad at, I decided that it would be similarly helpful for us to have cards for all of our players at Bridgewater.
Understand that diagnosis is foundational to both progress and quality relationships. If you and others are open-minded and engage in a quality back-and-forth, not only will you find better solutions, you will also get to know each other better. It is an opportunity for you to assess your people and to help them grow, and vice versa. Design Improvements to Your Machine to Get Around Your Problems Once you’ve successfully diagnosed the problems standing in the way of your achieving your goals, you need to design paths for solving them. Designs need to be based on deep and accurate understandings (which is why diagnosis is so important); for me, it’s an almost visceral process of staring at problems and using the pain they cause me to stimulate my creative thinking. This is exactly how it was for the team responsible for client service analytics, and especially for Bridgewater’s co-CEO David McCormick, who was then head of the Client Service Department. Coming out of the diagnosis, he moved quickly to design and implement changes. He fired the team members who had allowed standards to slip and reflected deeply on what new designs he could implement to get the right people into the right roles. In selecting his new Responsible Parties for client service analytics, he picked one of our top investment thinkers who also had extremely high standards (and was very outspoken about cases where he saw them slipping) and paired him with one of our most experienced managers, who knew how to build the right process flows and make sure everything that needed to happen would go precisely as planned. But that wasn’t all. When coming up with a design, it’s impor-tant to take time to reflect and make sure you’re looking at the problems from the highest level. David knew it would be a mistake to look only at this one part of the department, because the same slip in quality that had happened there was likely to have occurred in other places too. He needed to think creatively to come up with a design that would build a durable culture of pervasive excellence throughout the entire department. This led to his invention of “Quality Day,” biannual meetings in which members of the Client Service Department would review each other’s mock presentations and memos and give direct feedback on what was good and what wasn’t. More importantly, the meetings were a chance to step back and assess whether the ways of ensuring quality were working as expected, by bringing in a bunch of tough, independent thinkers to offer criticism and get the process realigned on what good looks like. Of course, there were many more details to all of David’s plans for transforming the department. But the important thing is how all the details and plans extended from a high-level visualization of what was required. Only when you have such a sketch can you begin to fill it in with specifics. Those specifics will be your tasks; write them down so you don’t forget them. While the best designs are drawn from a rich understanding of actual problems, when you’re just starting out on something, you often have to design based on anticipated problems as opposed to actual ones. That’s why having systematic ways of tracking issues (the Issue Log) and what people are like (the Dot Collector) is so useful: Instead of just relying on your best guesses of what might go wrong, you can look at data from prior “at bats” for yourself and others and come to the design process with understanding rather than having to start from scratch. The most talented designers I know are people who can visualize over time, running through different collections of people from the scale of small teams to entire organizations, accurately anticipating the kinds of results they’ll produce. They excel at design and systemization. Hence the overriding principle: Design and systemize your machine. Creativity is also important to this process, as is character, because the most important problems to design around are often the hardest, and you need to come up with original ways of addressing them and be willing to make hard choices (especially when it comes to people and who should do what). The following principles delve into designing and how to do it well. Build your machine. Focus on each task or case at hand and you will be stuck dealing with them one by one. Instead, build a machine by observing what you’re doing and why, extrapolating the relevant principles from the cases at hand, and systemizing that process. It typically takes about twice as long to build a machine as it does to resolve the task at hand, but it pays off many times over because the learning and efficiency compound into the future.
Perceive and Don’t Tolerate Problems. On your way to your goals, you will inevitably encounter problems. To be successful you must perceive and not tolerate them. Problems are like coal thrown into a locomotive engine because burning them up, inventing and implementing solutions for them, propels us forward. Every problem you find is an opportunity to improve your machine. Identifying and not tolerating problems is one of the most important and disliked things people can do. For a lot of people identifying problems is difficult to do. Most people would rather celebrate all the things that are going well while sweeping problems under the rug. Those people have their priorities exactly backward, and there is little that can be more harmful to an organization. Don’t undermine your progress in pursuit of a pat on the back; celebrate finding out what is not going well so you can make it go better. Thinking about problems that are difficult to solve may make you anxious, but not thinking about them (and therefore not dealing with them) should make you even more anxious. Having this kind of anxiety about what can go wrong is extremely useful. It is what drives one to develop systems and metrics for monitoring the outcomes your machine is producing and motivates those who manage well to constantly taste-test the outputs of the system and to look for problems in its nooks and crannies. Having that constant worry and doing the double-checking is important to maintaining quality control. Making sure that little problems don’t exist is important because, if they’re allowed to continue, they will grow into big problems. To convey the point, I will tell you about a case in which we initially failed to maintain excellence, then perceived the problem, got at its root causes, designed changes, and pushed those changes through to produce excellent results. When I started Bridgewater, I was responsible for everything. I made the company’s investment decisions and its management decisions and then I built the organization to support me and eventually to carry on excellently without me. As Bridgewater grew, the standard I set was uncompromising and straightforward: The analysis we provide to clients should always be of the same quality it would be if I did it myself. That’s because when clients ask what “we” think, they aren’t asking what just anyone thinks, they want to know what I and the other CIOs, who are in charge of our investments, are thinking. To achieve that goal, Bridgewater’s Client Service Department either handles the questions they get from clients themselves or passes them on to people with various levels of expertise who are assigned to answer questions based on their level of difficulty. The client advisor (who is a knowledgeable professional designed to be the interface between Bridgewater and the client) has to understand the questions well enough to know who they should be routed to, and they need to review the answers before they go back to the client to ensure they are excellent. To be certain that always happens, I created a checks-and-balances system in which some of our best investment thinkers both draft memos to clients themselves and quality-control their colleagues’ work, grading it to provide traceable metrics that can be followed to monitor how well things are going and make changes as needed. In 2011, as a part of my management transition, I handed the oversight of this process to others, and several months later one of the people in the Client Service Department began noticing problems. It started with one memo, which two senior investment advisors noticed had gone out the door to a client even though it contained errors. Though these were minor errors, they were important errors to me. With my prodding, the new management team began investigating other memos and discovered that this poorly prepared memo wasn’t just a one-off; it was symptomatic of a more widespread breakdown in the quality control machine. Worse still, the investigation revealed the Responsible Parties were failing to perceive and diagnose these problems. And most worrisome, it wasn’t clear that, without my pushing, anyone else would have taken the time to investigate. This initial failure to perceive and not tolerate problems did not happen for lack of caring; it happened because most of the people in the process paid more attention to getting the tasks done than assessing whether the goals were being achieved. They had become more like rubber stampers than craftsmen, while the top people who were supposed to “taste the soup” to make sure it was excellent were focused on other things. Discovering this was disappointing to all of us, because it showed that the high standards that for so long had been the reasons for our success were slipping. Facing this reality was painful, but ultimately healthy. The existence of a problem like this one, whether from a flaw in the design of one’s machine or from one’s own or others’ inabilities, is not shameful. Acknowledging a weakness isn’t the same thing as accepting it. It’s a necessary first step toward overcoming it. The pain one feels, whether from shame and embarrassment, or frustration at one’s inability to get the better of it, is like the pain one feels at getting flabby that motivates one to go to the gym.
Even the most intelligent people generally behave this way, and it’s tragic. To be effective you must not let your need to be right be more important than your need to find out what’s true. If you are too proud of what you know or of how good you are at something you will learn less, make inferior decisions, and fall short of your potential. Understand your blind spot barrier. In addition to your ego barrier, you (and everyone else) also have blind spots, areas where your way of thinking prevents you from seeing things accurately. Just as we all have different ranges for hearing pitch and seeing colors, we have different ranges for seeing and understanding things. We each see things in our own way. For example, some people naturally see big pictures and miss small details while others naturally see details and miss big pictures; some people are linear thinkers while others think laterally, and so on. Naturally, people can’t appreciate what they can’t see. A person who can’t identify patterns and synthesize doesn’t know what it’s like to see patterns and synthesize any more than a color-blind person knows what it’s like to see color. These differences in how our brains work are much less apparent than the differences in how our bodies work. Color-blind people eventually find out that they are color-blind, whereas most people never see or understand the ways in which their ways of thinking make them blind. To make it even harder, we don’t like to see ourselves or others as having blind spots, even though we all have them. When you point out someone’s psychological weakness, it’s generally about as well received as if you pointed out a physical weakness. If you’re like most people, you have no clue how other people see things and aren’t good at seeking to understand what they are thinking, because you’re too preoccupied with telling them what you yourself think is correct. In other words, you are closed-minded; you presume too much. This closed-mindedness is terribly costly; it causes you to miss out on all sorts of wonderful possibilities and dangerous threats that other people might be showing you, and it blocks criticism that could be constructive and even lifesaving. The end result of these two barriers is that parties in disagreements typically remain convinced that they’re right, and often end up angry at each other. This is illogical and leads to suboptimal decision-making. After all, when two people reach opposite conclusions, someone must be wrong. Shouldn’t you want to make sure that someone isn’t you? This failure to benefit from others’ thinking doesn’t just occur when disagreements arise; it occurs when people encounter problems that they are trying to solve. When trying to figure things out, most people spin in their own heads instead of taking in all the wonderful thinking available to them. As a result, they continually run toward what they see and keep crashing into what they are blind to until the crashing leads them to adapt. Those who adapt do so by teaching their brains to work in a way that doesn’t come naturally (the creative person learns to become organized through discipline and practice, for instance), using compensating mechanisms (such as programmed reminders), and/or relying on the help of others who are strong where they are weak. Differences in thinking can be symbiotic and complementary instead of disruptive. For example, the lateral approach to thinking common among creative people can lead them to be unreliable, while more linear thinkers are often more dependable; some people are more emotional while others are more logical, and so on. None of these individuals would be able to succeed at any kind of complex project without the help of others who have complementary strengths. Aristotle defined tragedy as a terrible outcome arising from a person’s fatal flaw, a flaw that, had it been fixed, instead would have led to a wonderful outcome. In my opinion, these two barriers, ego and blind spots, are the fatal flaws that keep intelligent, hardworking people from living up to their potential. Practice radical open-mindedness. If you know that you are blind, you can figure out a way to see, whereas if you don’t know that you’re blind, you will continue to bump into your problems. In other words, if you can recognize that you have blind spots and open-mindedly consider the possibility that others might see something better than you, and that the threats and opportunities they are trying to point out really exist, you are more likely to make good decisions.

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