The Idea Meritocracy

Imagine that you are the CEO of the largest hedge fund in the world, a hedge fund that has produced more net gains than any other firm in history. Now imagine that, after an important meeting, you receive this email from a subordinate, CC’ed to other senior people:

… you deserve a “D-” for your performance today in the ABC meeting […] This was especially disappointing for two reasons: 1) You have been great in previous meetings where the subject matter to be covered was the same, and 2) We held a specific planning meeting yesterday to ask you to focus tightly on culture and portfolio structuring because we had only 2 hours to have you cover those two topics […] It was obvious to all of us that you did not prepare at all.

What would you do? Even if the criticisms are merited, most people would fire this individual. If you don’t agree, picture writing something similar to your boss, or bosses’ boss. But guess what this CEO, who is a real person and who received this exact email, did: he forwarded the email to the whole firm so that it could be a learning lesson for him and an encouragement to anyone in the firm to speak out if they see something that should be improved.  

This person is Ray Dalio, and the firm, which he founded in 1975 out of his two-bedroom NYC apartment, is Bridgewater Associates. In it, unlike just about every other organisation, no one has the right to hold a critical opinion without speaking up about it.

People typically don’t like to share their critical opinions for several reasons:

1. They fear retribution of some form because they are afraid that the person they are criticising will not take the criticism well, even if it’s true and well-intentioned.  
2. They fear that the criticised will counter with arguments that reveal those initial criticisms to be unfounded, and they fear being criticised in return.
3. They know deep down that their criticism holds no water, and just want to complain to everyone else about this person’s perceived failures behind their back to feel good.

The culture at Bridgewater solves this reticence by welcoming the first two and condemning the third through its culture of openness. This culture of openness, or ‘radical truthfulness and radical transparency’ as Dalio calls it, has been a primary driving force for the firm’s success. It allows emails like the above to be shared and memos like the one below to be seen by Dalio without retribution:

Ray sometimes says or does things to employees which makes them feel incompetent, unnecessary, humiliated, overwhelmed, belittled, oppressed, or otherwise bad. The odds of this happening rise when Ray is under stress. At these times, his words and actions toward others create animosity toward him and leave a lasting impression. […] The future success of the company is highly dependent on Ray’s ability to manage people as well as money. If he doesn’t manage people well, growth will be stunted and we will all be affected.

Not only does this radically open and honest culture allow good people chiefly concerned with the goals of their organisation to improve rapidly, it also fosters an environment where only the best ideas win and consequently, the greatest success will most likely be achieved. Decisions in the firm aren’t made autocratically (as with a traditional top-down organisational structure) or democratically (as with some politics and policy-makers), but meritocratically, through a process of conjecture and refutation among experts, each with their believability-weighted scores (which we will get to later).

Unbridled Success

Bridgewater Associates’ accolades bear the value of this culture out. The firm predicted the 2008 financial crisis and had positive returns in that same year, unlike most other hedge funds. Dalio published an essay titled ‘How the Economic Machine Works: A Template for Understanding What is Happening Now’, to explain his model for the economic crisis.

An incredibly accessible yet informative version can be found on YouTube which I highly recommend everyone watch in its entirety:  

In the end, policymakers always print […] Austerity causes more pain than benefit, big restructurings wipe out too much wealth too fast, and transfers of wealth from haves to have-nots don’t happen in sufficient size without revolutions

Ray Dalio

In 2010, they made more money for their investors than Google, Amazon, Yahoo, and eBay made for their shareholders. The firm earned 4.6 billion USD for its clients in 2016, and, as of 2017, it has more assets than the next three largest hedge funds combined. It was ranked first on the Institutional Investor’s ‘World’s Top 100 Hedge Fund’ list. It also earned the Macro-Focused Hedge Fund Firm of the Year award and the aiCIO Hedge Fund Industry Innovation Award, among many others.

For a (much) fuller list of accomplishments, visit their website.  

The firm prizes extreme transparency and openness in its decision-making processes. All meetings are recorded and available to anyone working in the firm. Investments are made based on merit without considerations of hierarchy. Employees have likened the culture to being in an Olympic team: teammates record everything, study the tapes, and hold each other to the highest standards so they can collectively get better. They also agree with the claim that one’s ‘authority is only limited by the power of [one’s] logic’.   

This culture of transparency has given the firm unbridled success, but it has also contributed to the high turnover rate. About one in two employs quits or gets fired within the first two years. Many new employs who choose to work at the firm do so because they are, in theory, sold on the concept of an idea meritocracy where even a fresh graduate can criticise the decisions of the CEO. What they don’t realise is that radical transparency and truthfulness go both ways, and they themselves aren’t ready to have their weaknesses and shortcomings pointed out to them, especially in a complex field like hedge fund management.  

If you are ready to give up everything else and study the whole history and background of the market and all principal companies whose stocks are on the board as carefully as a medical student studies anatomy—if you can do all that and in addition you have the cool nerves of a gambler, the sixth sense of a clairvoyant and the courage of a lion, you have a ghost of a chance

Bernard Baruch

In my experience, some who can dish it out the best are also the worst at taking commensurate criticisms in return. But at Bridgewater, employs are forced to not only acknowledge their weaknesses, but they are also forced to acknowledge (and know that everyone else can see) weaknesses they wished they didn’t have. It takes an exceptional person, and someone whose goals are almost entirely aligned with the organisation he or she is with, to be alright with that. This automatically narrows the pool of viable candidates by a wide margin.

You may also want to see their Glassdoor reviews for more.

One might think of organisational performance vis-à-vis turnover rate as an inverted bell curve – minus other variables for the sake of simplicity – with terrible fluctuating performance at one end and consistently great performance at the other. At both ends, the turnover rate is going to be high, but for different reasons. Terrible performance is usually indicative of things like a hazy mission and vision, bad (or unethical) leadership, toxic culture, and so on. It is no wonder then, that most employs would make a human shaped hole in the wall and never return. At the other end, exceptional performance is expected from every employ (i.e., not only long hours, but quality hours), and that kind of pressure isn’t for everyone either, so many also leave. I think it’s clear that most employs leave Bridgewater for the latter rather than former reason.     

That such a counter-cultural firm exists and has experienced such incredible success merits further investigation, hence this article.    

A Ray of Hope

Dalio grew up in Long Island in the 60s and, at 12, became interested in playing the markets after he put his caddy money in Northeast Airlines stock at 12.5 USD a share and tripled his investment. He went on to earn a degree in finance from Long Island University and became interested in trading commodity futures – something almost no one did back then – because he believed that he could make more money off their low margin requirements. Around this time, he picked up transcendental meditation after the Beatles visited India to study it.  

Meditation has benefited me hugely throughout my life because it produces a calm open-mindedness that allows me to think more clearly and creatively

Ray Dalio

(for more on mindfulness meditation, check out my other articles)

After college, he was admitted to Harvard Business School (HBS) for their MBA. In the summer before the start of his MBA, he clerked on the floor of the New York Stock Exchange during the breakdown of the global monetary system, or the Bretton Woods system, in 1971. He notes that this dramatic event, which he witnessed first-hand, thrilled him, and the drive to understand currency markets stayed with him for the rest of his life.    

At his time in HBS, Dalio secured a temporary position trading commodity futures for Merrill Lynch. In his final year at HBS, this once unpopular practice suddenly replaced stock market investing as the new hot thing. The monetary system meltdown in 1971 led to an inflation of commodity prices, following which came an oil shock and the Federal Reserve tightening monetary policy to fight it. Because of that, stocks dropped, and brokerage houses wanted commodities trading departments to diversify their portfolio. Unfortunately, there were few who knew anything about it, and even fewer (possibly no one except Dalio) who also had prestigious HBS training.

For these reasons, Dalio was quickly hired as Director of Commodities at a brokerage called Dominic & Dominic LLC. But the brokerage closed down before commodities trading could get any traction, and he moved to a more successful brokerage, Shearson Hayden Stone, where he was put in charge of its hedging business. As Dalio writes in his book, however, he could not fit the culture and was fired for insubordination.

So, in 1975, a mere two years out of his MBA, Dalio created Bridgewater out of his apartment, and by 2005, the firm became the largest in the world. At the outset, Dalio was faced with a choice: pursue a high-risk high return career or a low-risk low return one. He decided that this was a false dilemma and instead focused his energies on figuring out how to be low-risk and high return.

Dalio knew that no one can predict the future, so, he surmised that what was more important was knowing how to react appropriately to new information at any point in time. To do that, Dalio realised that he needed a gargantuan store of economic and market data to draw from and make sense of. So, he created one, using economic data going back a few centuries from every country that had them.

With this data, every position his firm took in the markets could be corroborated and refined with the historical data. The iterative process allowed his firm to increase the power of its investing logic and produce greater returns. These decision rules, or principles as Dalio would later call them, soon expanded to include his life and management principles that he incorporated into the culture of his firm.

In 2006, as Bridgewater grew, Dalio crystallised these principles so that new managers could adapt to the culture quickly and benefit from the wisdom he accrued throughout his career.

One principle, which will become a cornerstone for many of the other principles – introduced at the beginning of this article – draws from his distaste for facades of politeness that mask what people really think, especially when those thoughts impinge on the quality of the collective performance at the firm. A true idea meritocracy could really only be instantiated if people in the firm were free to speak their minds, take in comments from others openly, and know what was going on even at the highest-level meetings.

Without transparency, people would spin whatever happened to suit their own interests, sometimes behind closed doors. Problems would be hidden instead of brought to the surface where they could be resolved

Ray Dalio

And so Dalio required all meetings to be recorded and available to everyone, barring ones where discussions involved personal health or proprietary information. This openness then led to the realization that people think in hugely different ways, and, in what is now, I think, common practice, the firm adopted personality and psychometric testing so that employs, managers, in particular, could better understand the decisions of their subordinates and overcome the occasional desire to strangle them.  

Out from Dalio’s principles also came idea meritocratic tools like the dot collector and baseball cards which facilitated the process of finding and acting on those best ideas.

See this demo for how the dot collector works in practice before reading on, from 9:07 to 12:44. Incidentally, the whole TED Talk is worth watching.

Other tools and protocols include ‘coach’, ‘issue log’, ‘pain button’, ‘dispute resolver’, ‘daily update tool’, ‘contract tool’, ‘process flow diagram’, ‘policy and procedures manuals’, and ‘metrics’. Read his book Principles (2017) for a description of each of them.

These tools were met with resistance at first. But then they were accepted after people got used to it and found it both liberating and effective.

These unique approaches also attracted behavioural psychologists who wanted to evaluate them. This is what one of them, indicative of the larger consensus, had to say:

[The culture at Bridgewater is] a form of proof that the quest for business excellence and the search for personal realization need not be mutually exclusive—and can, in fact, be essential to each other  

Bob Kegan, Harvard Psychologist

Just as the common aphorism goes that the best leaders aren’t the ones with the most followers, but the ones who’ve inspired and cultivated the most leaders, Dalio also believes that the greatest success for someone in charge of others is to be able to get them to do things well with as little supervision as possible.  

The burgeoning success of Bridgewater put Dalio on the radar of politicians and policy-makers. After the 2008 financial crisis, it was noted that many popular economic models at the time failed to predict it:

The models failed at a time when we needed them most . . . JP Morgan had the American economy accelerating three days before [the Lehman Brothers’ collapse]—their model failed. The Fed model failed. The IMF model failed . . . So that left me asking myself: What happened?

Alan Greenspan, Former Fed Chairman

Some believed that it boiled down to the way macro-economists omit the financial sector in their models and could not, therefore, factor in a meltdown from said sector and the impairment of the monetary policy impulse. Regardless, because the ‘finance people’ seemed better able to predict things that would happen to the economy than economists, policy-makers began to contact them more frequently for advice.  

Policy-makers sought after Dalio’s counsel because his perspective as an investor offered an interesting counter-point to theirs as policymakers.

Dalio realized that politicians and policy-makers operate under much more constrained and difficult circumstances than do investors. For example, in international relations, countries must act with their self-interests chiefly in mind, more so than would be normal among individuals. Countries interact with one another as do opponents in a chess match, probing for weaknesses while maximising their own strengths, and expecting the other to do the same. Making good idea meritocratic decisions in this landscape presents its own challenges since full transparency cannot be expected or given.

Furthermore, because of the lack of proper information, and the spin offered by vested media interests and agendas (e.g., political or ideological bias, desire to sensationalise, etc.), people often get naively opinionated about international affairs, failing to realise that they are almost never given the full picture, know all the players involved, or understand the primary causal mechanisms for this or that event occurring.

Conflicts of interests play out within countries too. Policy-makers know that trying to accommodate everyone’s best interests is impossible (because people, collectively, have impossible desires). What they must do instead is to support their constituents’ interests, because that’s how they stay afloat and maintain their position.   

Nonetheless, I came to respect most of the policymakers I worked with and to feel sorry for them because of the terrible positions they were in. Most are highly principled people who are forced to operate in unprincipled environments. […] The politics are horrendous and distortions and outright misinformation from the media make things worse. […] Unfortunately, most policymakers enter their careers as idealists and leave disillusioned

Ray Dalio

Dalio also became acquainted with Lee Kuan Yew, the founding father of Singapore. He recalls inviting him to have dinner at his house in New York sometime before Lee’s passing to discuss the state of the world economy (which Lee requested), along with former Fed chairman Paul Volcker, former Treasury secretary Bob Rubin, and former journalist Charlie Rose.

Because Lee was a world leader of a remarkably successful nation, the conversation soon turned to what distinguished good from bad leaders. Lee prefaced his comments with the understanding that leaders must be judged by how they responded to the unique challenges they faced. With that, he lauded Vladimir Putin, Angela Merkel, and Deng Xiaoping as exceptional leaders who did much to lead their respective nations in difficult circumstances.

This conversation got Dalio thinking about what makes a good leader successful in general. So, he began to study (and speak to) the movers and shakers of our time, including Elon Musk, Jeff Bezos, Reed Hastings, Muhammad Yunus, Geoffrey Canada, Wendy Kopp, Bill Gates, Andrew Carnegie, and Mike Bloomberg, among others, to distil some constellation of traits that they all possessed that facilitated their success. Among those he managed to contact, he persuaded them to take an hour’s worth of personality tests.   

Here’s a list of common traits that he found.

Successful leaders are:

• Independent thinkers
• Have strong mental maps
• Willing to test those maps and adapt them to fit reality when they don’t
• Resilient to the extreme because they are driven by a mission
• Have a wide range of vision
• Able to see the big picture and the small details
• Creative yet practical
• Assertive yet open-minded
• Intolerant of mediocrity
• Crave making a positive impact

Many of these leaders also ranked low on ‘concern for others.’ While this might sound incriminating, the question doesn’t actually consider intentions or efforts at the macro-level. To illustrate, Dalio points to Muhammed Yunus, who won the Nobel Peace Prize, among others; Geoffrey Canada who spent his life helping children in Harlem New York, and Bill Gates philanthropic work. They’ve all done incredible things for others. They deeply cared about people. But given the choice between achieving a long-term goal and pleasing others in the here-and-now, they always chose the former.  

As Dalio himself amassed a fortune from his earnings – he’s worth 17.4 billion USD as of 2018 – he started to think seriously about how best to do philanthropy. Apart from making sure that his family was taken care of, he knew that he wanted to give more than half of his money away to others (he has given north of 750 million USD thus far). But he didn’t know which causes were worth donating to. In the end, he chose causes that both aligned with the concerns of his family and that were tied to organisations he knew would use the money effectively.

Reading this part of his biography reminds me of the Effective Altruism movement (EA), and how its founders were also agonizing about which causes to give their lifetime donations to because they cared deeply about whether the money was going to be put to good use.

Regardless, those causes include

• Helping disengaged students in public schools who might later become burdens to society
• Bringing inexpensive computing to the developing world to improve education and healthcare
• Mental health and climate change research and advocacy
• Animal welfare
• Supporting special needs children in China
• PTSD and heart research
• Funding social enterprises

Dalio is looking to work on a decision-making algorithm to optimize his philanthropic efforts. In the meantime, he regularly consults with other experienced philanthropists, including Bill and Melinda Gates and Warren Buffett.

In 2018, Dalio turned the firm into a partnership to give employees more stake in it and has just completed a handing over of leadership. His life and work entered the mainstream consciousness after the publishing of his books Principles (2017) and Big Debt Crises (2018). Together with his essay on the financial crisis and its accompanying educational video on YouTube embedded above, these resources constitute everything valuable that he knows about these subjects.     

In the rest of this article, we’re only looking at his Principles book, but I hope that everything thus far has inspired you to interrogate all his other resources, especially since they’re free!

Request a free PDF of Big Debt Crises here.

Without further ado, let’s get stuck in.

Dalio’s approach, as in his investment management, is to synthesise information, and to convert a sprawling and multi-faceted issue into a clear-cut process of cause and effect. This is not theoretical economics or ideology, but a practical nuts-and-bolts approach that borrows much from engineering. Each cause has a consequence; events that in real life work their way out in the hubbub of panicked and noisy trading rooms are presented as a series of logical steps. This is what makes it most useful. Critically, he simplifies without over-simplifying

John Authers, Financial Times

Life principles

• One of the greatest tragedies in the world is people naively holding on to opinions that are wrong, not putting them out there to stress test them, and acting on them. Dalio likely subscribes to the view that the process of conjecture and refutation is the best way for people to get closer to truth. Unfortunately, this problem is likely only exacerbated the higher up one climbs the socio-economic or corporate ladder: you have less of an incentive to listen to the views of others since you have the power to realize your own and make the reality that surrounds you close to what you want it to be so that your life is more convenient and gratifying. This corroborates with the fact that one’s emotional intelligence scores tend to drop the higher up the career ladder one climbs. But I do think that people stubbornly holding on to their opinions is more than just about their ego, contra Dalio. If digging their heels into some idea or position allows them to keep/justify their career trajectory, there is little reason to think that intellectual humility alone would be enough to change that. Character, and carefully crafted incentives help too.  

One of the greatest sources of problems in our society arises from people having loads of wrong theories in their heads—often theories that are critical of others—that they won’t test by speaking to the relevant people about them. Instead, they talk behind people’s backs, which leads to pervasive misinformation. […] I could see that making judgments about people so that they are tried and sentenced in your head, without asking them for their perspective, is both unethical and unproductive

Ray Dalio

• According to Dalio, most companies operate disingenuously: decisions are made behind closed doors, people don’t say what they really think for fear of reprisal or for some other politically motivated reason. As a result, problems are left to fester. To combat this, he recommends three courses of action:

1. Put your honest thoughts on the table and don’t be offended by the honest thoughts of others.
2. Cultivate the art of thoughtful disagreement. Be genuinely curious about why someone has a different opinion, and triangulate so that the best decision can be made (for more, see my article on making arguing great again).
3. Get past disagreements using idea meritocratic tools such as believability weighted decision-making (watch the TED Talk above). Accept the final decision even if you still disagree with it i.e., trust the process.

• Things are simply more efficient and beneficial when people are not forced to play games. Even though it’s uncommon, Dalio notes that he respects and admires individuals who chose to do the right thing, i.e., be radically transparent and radically honest, even when it cost them dearly.

• Dreams + Reality + Determination = A Successful Life. Successful people have mental maps that help them understand the causal relationships that govern reality and have principles for using them to get what they want. By contrast, idealists who have departed from reality create more problems than they solve.

• Radical openness and transparency are vital for efficient learning. Learning takes place when good and timely feedback is offered usually right after some task is performed, and the learner improves. Transparency simply speeds up this process.   

Imagine how many fewer misunderstandings we would have and how much more efficient the world would be—and how much closer we all would be to knowing what’s true—if instead of hiding what they think, people shared it openly

Ray Dalio

• People have difficulty accepting their weaknesses because they might be blind to them, or because their egos get in the way. We must find a way to get over this, i.e., to identify, accept and learn how to deal with those weaknesses. If not, well-meaning people will refrain from offering us critical feedback, and we’ll never understand the root causes of our lack of success.

• Pain is the signal. Just as everything good for you is painful in some way or other, choose the healthy but painful truth over a comfortable delusion. The pain will turn to pleasure and then it soon becomes inconceivable to live any other way, as many employs discover about the radically transparent culture at Bridgewater.

• Intellectual humility + great mental maps = most powerful combination. You have the best ideas and are more than willing to swap them for even better ones that you are always looking out for.

• If several believable people offer you the same constructive criticism about something you see differently, chances are you are wrong. Ask questions and bring in a neutral party if you still cannot come to a consensus.

• Hold views that have evidence to back them up. Not all views that are true have evidence that can back them up, and not all evidence-backed views will turn out to be true. However, as a rule of thumb, you are more likely to have views that approximate reality is there is clear evidence supporting them. Beware of the cognitive heuristics and biases that get in the way. I’ve written about them elsewhere. Get acquainted with them and catch yourself when you fall into these modes of thinking. Do not filter evidence to make them consistent with your view. There is enough noise for viewpoints to be almost impossible to adjudicate as is.

• Firms need people with all kinds of skills and specialities. Optimize by making sure that people’s strengths and weaknesses are complemented by their positions and duties vis-à-vis other colleagues. It’s like conducting an orchestra: with the same set of people, the performance can be both magnificent and horrendous depending on how well people are aligned to their roles.   

• Understand that people act the way they do because it makes sense to them, and part of it is physiological, i.e., something that they cannot easily change.  

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

Ray Dalio

• Good problem solvers identify the root causes of the most salient problems and come up with the best designs to solve them. This process is iterated ad infinitum and its visual representation looks like a looping line that is upwardly inclined. The steeper the line, the more effective the problem solving. If the wrong problems are identified, the root causes are missed, and the solutions are sub-optimal, then the line starts to level out and decline. Great problem solvers, especially at the managerial level are vital to keeping this line upwardly inclined.

• Many people appreciate the concept of an idea meritocracy intellectually but are deeply challenged by it emotionally. But many can get used to it, and, once they do, will not want to work any other way. If, however, promotions and upward mobility are determined by meritocratic performance alone, one could see how the idea meritocracy might crumble: there will always be smarter people below us, and it is natural for us to feel threatened by them, even if they are a better fit for the position we’re currently in. It would take a carefully planned promotion and compensation structure, and also the hiring of only exceptional people who buy into the mission of the firm, to avoid undermining the idea meritocracy. Incidentally, this other-oriented philosophy drives much of the logic behind 80000 Hours and is the reason I respect its founders.

• Be a hyperrealist. Dalio isn’t making a philosophical statement. He simply means embrace reality as it is and not what you want it to be.

Success is achieved by people who deeply understand reality and know how to use it to get what they want. The converse is also true: idealists who are not well-grounded in reality create problems, not progress. For example, communism was a system created by people with good intentions who failed to recognize that their idealistic system was inconsistent with human nature. As a result, they caused more harm than good

Ray Dalio

• Be radically open minded. Seek out the most thoughtful people who disagree with you and get them to debate with you and with each other. Triangulate the best results. On time-sensitive issues, idea meritocratic tools like baseball cards are particularly helpful.

• Authenticity is freedom. People who believe they should be or are compelled to be a different person inside and outside become conflicted and lose touch with their authentic self. They will not be happy, and they cannot perform at their best.

• The extent to which we understand and harmonize with nature’s laws determine the levels of our success. Animal predatory cycles seem heartless and are painful to watch in the moment. However, without their role in regulating ecologies and population sizes, greater problems emerge, as we have seen when humans introduce foreign species to their native lands. Goodness or altruism cannot, therefore, be understood in a vacuum: self-serving behaviours can and have contributed to the flourishing of life. Among humans, self-interest (e.g., the desire for recognition, to realise one’s potential, to earn lots of money, etc.) has motivated people to do difficult things that benefit them and contribute to society. In return, society rewards those who give them what they want, even if their desires can be shaped somewhat artificially. This is the global economy in a nutshell.

Management principles

• Working within a proper idea meritocratic structure might sound infeasible, because people might not stop criticising each other and nothing would ever be done. But, with the right tools, like the ones mentioned above, it can be both extremely efficient and effective. Dalio argues that it is much harder and much less efficient to work in an organization where most people are unable or unwilling to offer their honest thoughts. Transparency and honesty remove the need to try to look good, and it eliminates the time required for people to get on the same page because they’re not trying to guess what everyone else is thinking.  

In most companies, people are doing two jobs: their actual job and the job of managing others’ impressions of how they’re doing their job. That’s terrible

Bob Kegan (edited)

• Some have likened Bridgewater’s culture, like the practice of recording all meetings, to that of a cult. Apart from winning media attention to Bridgewater, this comparison couldn’t be further from the truth. Cults typically demand unquestioning obedience and structure their organisation like a pyramid to prevent secretive top-level discussions from travelling down to the average member. Information only flows one way: upward. By contrast, Bridgewater demands the exact opposite and structures its organisation such that all information, including the highest-level decision-making processes, are made transparent to all employs. This may be counter-cultural but definitely not cult-like.  

Who is crazy? […] 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 non-hierarchical, 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?

Ray Dalio

• Speak up, and be ready to be challenged, or get out. In other words, it is unacceptable at Bridgwater to hold in critical opinions or to complain and criticise privately. In many other settings, speaking out often invites reprisal. By contrast, it’s not speaking out at Bridgewater that lands you in trouble: you might actually get fired.   

• Never say anything about someone behind their back that you wouldn’t also say to their face. Doing so is considered the greatest offence at Bridgewater and must be avoided at all costs. In practice, this means that managers should not talk about people who work for them when they are not present. If this cannot be helped, the people spoken about must be sent a recording of the exchange.

• An idea meritocracy doesn’t mean having discussions without closure, especially when consensus cannot be had. Once the decision-making machine (i.e., believability weighted tools) has made its choice, employs must abide by the decision even if they still disagree.

• Don’t be naïve about dishonesty; understand where it comes from, how it’s impacting the performance of the firm, and deal with egregious offenders practically, i.e., fire them. People will return to patterns of behaviour they are used to, including lying when it suits them, even after they are caught. You can take that to the bank.

• When investigating people, be transparent about it. Let them know you are going to investigate and explain why. Security protocols should not be taken personally, just as cashiers counting the money you give them shouldn’t be taken as them thinking you’re dishonest. Exceptions are made in the case of auditing, where procedures should not be made known to those being audited, for obvious reasons.

• Radical transparency isn’t as legally condemnatory as it first seems. Dalio recalls lawyers’ concerns that taping all their meetings would create evidence that courts and regulators could use against them. But Dalio hypothesized that taping all their meetings would reduce the chances of anyone doing anything wrong in the firm and would, in fact, protect them if they were wrongly accused. Furthermore, if the tapes showed that things were handled badly, they would rightly pronounce the firm’s just deserts and give them an impetus to improve. The proof, however, is in the pudding: in the last several decades, Bridgewater has not had a single material legal or regulatory judgement against them.   

• There are of course instances where meetings or other sorts of information transfers should remain private. They include exchanges where (1) information is of private, personal nature that isn’t relevant to the performance of the community; (2) the information puts the long-term interests of Bridgewater and its clients at risk (i.e., proprietary investment logic, etc.); (3) the value of sharing the information is low and potentially distracting (e.g., compensation).    

• Withhold transparency from people who cannot handle it well, i.e., fire them. This is the management’s responsibility. Ironically, radical transparency makes it easier to determine who they, and other harmful people in the firm, are.

• Watch out for ‘fast talkers,’ who try to bamboozle with their slick words to get their agenda past-the-post. Fast talkers are especially effective against people who fear to look stupid. Embrace looking stupid and ask all the questions you need to understand what’s really going on. It is everyone’s responsibility to clarify opaque concepts before moving on.

• The idea meritocracy is practised at Bridgewater with the help of believability weighted decision-making tools (e.g., the dot collector and baseball cards). Employs’ track records are captured over time, giving everyone in the firm 360-degree information about everyone else’s reliability on several dozen measures. When there are disagreements, the believability weighted votes are taken seriously, and the responsible parties (RP) who make the last call have the choice to abide by the vote or override it if the dispute cannot be resolved. But this is rare. Dalio himself, throughout his tenure as an RP, has never once overridden the vote even when he disagreed violently with it: ‘I felt that to do so was arrogant and counter to the spirit of the idea meritocracy.’   

• There is a reason why power corrupts: power is powerful, and it will rule in any system unless people choose to do something about it. For example, governance works well only when its leaders value the principles behind the system of governance, e.g., democracy, rather than impose their will on it achieve some personal goal.

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

Ray Dalio

• When hiring, look for people who are willing to look at themselves objectively who acknowledge and know how to compensate for their weaknesses, and who have character. These are required for success.  

Talk to believable people who know them, look for documented evidence, and ask for past reviews from their bosses, subordinates, and peers. As much as possible, you want to get a clear and objective picture of the path that they have chosen for themselves and how they have evolved along the way. I’ve seen plenty of people who claimed to be successful elsewhere operate ineffectively at Bridgewater. A closer look often revealed that they were either not as successful as they portrayed themselves or they got credit for others’ accomplishments

Ray Dalio

• Beware of the impractical idealist. Idealistic people may have noble moralistic notions of how people should behave. But because they do not take into account how and why people actually behave, they do more harm than good. By contrast, practical idealists are best positioned to make the world a better place. To be practical one must know where the majority of people’s interests lie and how to design systems that account for these and can still produce the desired results.

• Make sure that performance and progression metrics are as clear and impartial as possible. This reduces arguments and dissatisfactions among employs greatly. The ability to see everyone else’s track records measured against these metrics makes evaluation more objective and fairer.   

Remember that in an idea meritocracy a single CEO is not as good as a great group of leaders. Dependence on one person produces too much key-man risk, limits the range of expertise (because nobody is good at everything), and fails to establish adequate checks and balances. It also creates a burden because there’s generally too much to do. That’s why we have a co-CEO model at Bridgewater that is essentially a partnership of two or three people who lead the firm

Ray Dalio

• A great culture is sustained by great people. Therefore, bring in people who have the values, abilities, and skills that fit the organisation’s culture. Pursue integrity and demand it from others.

• Embrace honest mistakes. Creative and effective people routinely make mistakes. Their effectiveness comes from their learning from those mistakes. If a firm cannot embrace mistakes, it will develop a fear-based culture that encourages back-biting rather than the synergistic desire to improve.

• Determine whether you have earned the right to have an opinion. We all have them, but they aren’t of equal worth. Engage in high-quality research and get feedback from experts and peers. When forwarding an argument, idea, or decision, all are required to explain the thinking behind it openly and transparently so that it can be judged as accurately and meritoriously as possible.

• Given limited time and the rising number of people who will be affected by a decision the higher up it goes, who each have their own questions, opinions, and push-back, communications about decisions must be leveraged, preferably with technologies like open e-mails and FAQ boards, and prioritized by urgency.

• When running a meeting, make the topic of discussion, and the level with which it is discussed, crystal clear, and manage the conversation so that it stays on track. Anything less would risk making the meeting directionless and unproductive.

• Don’t control people by barking orders at them. This is unproductive. Get them on your side by showing how fulfilling their responsibilities is good for both the shared goals of the firm and their individual goals, e.g., achievement, satisfaction, promotions, etc. Such discussions must remain fair, reasonable, and open-minded.

What Dalio has accomplished with Bridgewater is, as we have seen, nothing short of remarkable. For anyone who’s lived on this ball of dirt (i.e., Earth) for some time, many of the ideas and practices described above sound like the stuff of fantasy, Utopian fantasy in particular (hence that instinctive comparison with cults). Many, including myself, find it hard to imagine this culture being replicated anywhere else. And yet, not only has this culture been carefully constructed and instantiated in reality, it has also produced the greatest success of its kind.

As you might have guessed, there are, however, many questions that cannot be easily answered. Dalio himself admits that investing isn’t like other fields where there may be so many more competing interests and agendas, among other variables, such as domains that lack consistent and regular feedback, that an idea meritocracy simply cannot exist. Furthermore, about 99.999% of the people who will read this article or his books aren’t in the same position Dalio was when he created his firm, and have no opportunity or clout to set the culture as they please.

Thankfully, in his many Q&As for his book tour, he has responded to such questions by saying that one doesn’t need the technological tools mentioned above for an idea meritocracy to operate at smaller scales and that individuals can be thought leaders in their own right, advocating for a more idea meritocratic atmosphere and showing how everyone (the honest and competent especially) can benefit.

Despite any residual scepticism, I’ve valued the chance to read about his life and work and hope you did too.