Beyond Bridgewater's Culture and Principles?

Sep 12 17:09 2017 Print This Article

Ray Dalio, Chairman & Chief Investment Officer at Bridgewater Associates, published a comment on LinkedIn, What is Bridgewater's Culture Really Like and What Are the Reasons For It?:As you know, at this stage in my life, I want to pass along the principles that have helped me and Bridgewater. It was these principles, and not me, that produced whatever success we’ve had, so I believe they can also help other people and other organizations. To pass them along, I did a TED talk and wrote my book, Principles. The 16-minute TED talk will give you a glimpse into the logic of our culture and what it looks like from the inside. The book will give you a much richer picture. What you do with them is up to you. What our culture is really like and the logic behind it is confusing for some people because I haven't described it openly before and because it has been talked about a lot in the media, occasionally by sensationalistic writers who create distorted perspectives. The most studied and professional views come from three world-renowned organizational psychologists and business professors who examined Bridgewater in depth. In case you're interested, here's some of what they wrote in their books.Adam Grant in his book, Originals, wrote:"My time studying Bridgewater began to change me. I'd become more direct in giving critical feedback ... I'd come to believe that no one had the right to hold a critical opinion without speaking up about it."“When I polled executives and students about the strongest culture they had ever encountered in an organization, the landslide winner was Bridgewater Associates.” “Although there’s always a lot of debate, Bridgewater is a highly cohesive, close-knit community, to the point that its staff frequently call it a family, and it’s common for employees to stay for decades.”“In the investment world, you can only make money if you think differently from everyone else. Bridgewater has prevented groupthink by inviting dissenting opinions from every employee in the company. When employees share independent viewpoints instead of conforming to the majority, there’s a much higher chance that Bridgewater will make investment decisions no one else has considered and recognize financial trends no one else has discerned. That makes it possible to be right when the rest of the market is wrong.”“At Bridgewater, employees are expected to challenge the principles themselves. During training, when employees learn the principles, they’re constantly asked: Do you agree? ... Rather than deferring to the people with the greatest seniority or status . . . decisions at Bridgewater are based on quality. The goal is to create an idea meritocracy, where the best ideas win. To get the best ideas on the table in the first place, you need radical transparency.”“Dalio can be confident that members of his staff won’t feel pressured to nod and smile whenever he presents an opinion; his whole team will be radically transparent in challenging his assumptions about markets, and they’ll be the same with one another. Decisions will be made based on an idea meritocracy, not a status hierarchy or democracy.”Bob Kegan in his book, An Everyone Culture: Becoming a Deliberately Developmental Organization, wrote:“Imagine finding yourself in a trustworthy environment, one that tolerates—even prefers— making your weaknesses public so that your colleagues can support you in the process of overcoming them. . . You’re imagining an organization that, through its culture, is an incubator or accelerator of people’s growth.”“Bridgewater stands for the pursuit of what is true, no matter how inconvenient, both as a business necessity in the financial markets and as a path for personal evolution and cultural integrity.”“At Bridgewater, learning from one’s mistakes is a job requirement... Bridgewater destigmatizes (and even celebrates) making mistakes. More than that, it treats the ongoing, often painful experience of one’s imperfections as valuable data for learning rather than unproductive blame.”Ed Hess in his book, Learn or Die, wrote:“[High-quality] learning requires high-quality critical thinking and high-quality learning conversations, which in turn require an environment of trust and authenticity, the freedom to speak freely, and the freedom to be ‘human’ and disclose our weaknesses ... Bridgewater has put in place these processes that enable and promote not only critical thinking but also the confrontation of each individual’s ego defenses that inhibit his or her learning and growth.”“I am not saying that Bridgewater is just like the Navy SEALs. Making the best investment decisions is not analogous to executing a Navy SEAL mission; however, it’s clear that there are common threads between the cultures of these two high-performance but very different organizations. The fact that some of the same learning mindsets, capabilities, and processes apply in high-change environments, both business and nonbusiness, is compelling.”“Bridgewater is probably the most advanced learning organization I have studied—by that I mean that its learning culture and processes are consistent with what is known in the science of learning. Bridgewater has confronted our “humanness” better than most organizations I have studied or worked with; the only other organization that I have found that relies as heavily on the science of learning is the U.S. Army.”“Disagreements are encouraged because . . . the process of wrestling through disagreements and stress testing one’s thinking and beliefs [gets one] to the truth or a better place. One senior manager told me ‘I don’t like conflict. But I deal with it here because it has rational benefits.’”“At Bridgewater, Ray continually emphasizes that people’s differences—their unique ways of thinking and seeing the world—are good, because all jobs are not the same. It is those differences that bring together different ideas and the different perspectives necessary to stress test ideas and create the best outcomes for an organization. The challenge is to educate people to embrace each other’s uniqueness and independent thinking.”Whenever Ray Dalio starts his comments by stating "at this stage of my life," I get worried, is he doing well or already thinking about what happens after he kicks the bucket?As my 86 year old father who still practices psychiatry three times a week keeps telling me, "après moi le déluge."In all seriousness, Ray has at least ten if not twenty or more good years ahead of him but he has written yet again about the uniqueness of Bridgewater's culture and how critical it has been to his firm's success.A little over a year ago, I wrote a very critical comment on Bridgewater's radical transparency, where I note the following:For me, all this stuff on "radical transparency" is just marketing fluff and it's a huge distraction for everyone, including Ray Dalio and the employees at Bridgewater. Imagine going around with an iPad to every meeting where you know you're being taped and rating your colleagues?Thinking back to my on-site due diligence of Bridgewater, this would explain why I felt most people there were tense and scared. Gapper is right, people aren't robots, and while Ray Dalio may have mastered the machine, his attempt to master the right culture at Bridgewater has backfired on him, exposing a much more paranoid, cynical side of what all this radical transparency is all about -- to control people and stop any revolution from within the ranks to overthrow King Dalio. Ok, maybe I'm being too harsh, maybe Ray has great intentions and I have to admit, I like some of his principles, especially the ones on dealing with slimy weasels (if you can't say something to someone's face, you're a slimy weasel, period).But the bigger problem I have with this "radical" view of how people should interact in a company, especially a large hedge fund full of competitive individuals is on philosophical and ethical grounds. Let me explain. Ray Dalio may have mastered the machine but people aren't machines. His mechanistic/ deterministic view on markets and how the economy and world work cannot be translated into the way people should or can realistically interact with each other. In short, while you can code many relationships in the economy and financial markets, human interactions are far more complex. People aren't machines and when you try to impose some mechanistic deterministic view on how they should interact with each other (in order to control them?), you're bound to stifle creativity and breed contempt and an atmosphere of animosity, especially when the fund underperforms.What else? I believe what ultimately matters is what Bridgewater employees are thinking and saying when the cameras and iPads are off or when they leave the shop. Bridgewater can tape all the meetings they want but Ray Dalio can't read minds and he doesn't know what is being said in private when employees are venting to each other or their partners at home (unless he's secretly taping them at the workplace and their homes, which is a sign of disrespect, not to mention it exhibits traits of a delusional paranoid tyrant).Also, Gapper is right, there's an elitist (and narcissistic) air to all this. They hire a bunch of Ivy League kids and if after 18 months they manage to "get to the other side" of their emotions they then  become part of the Bridgewater "Navy SEALs," the select few who have mastered their emotions and are able to view things without their emotions getting in the way.It's such nonsense and while it's great for marketing purposes, when the fund starts losing money, it exposes the shortcomings of this elitist mechanistic approach. Worse still, it leaves no room for real diversity at the workplace (how many people with disabilities does Bridgewater hire?) and you end up with a bunch of emotionally challenged robots at "the other end" who follow rules to conform to what their master wants, not because they truly believe or want to live by these ridiculous rules governing their every interaction.Sure, Bridgewater is a great hedge fund, one of the best. But in my opinion, it's a victim of its success and it's gotten way too big and in order to control this explosive growth, they've implemented this 'radically transparent' cultural approach without properly thinking through what this entails or whether it stifles diversity, creativity, camaraderie and cooperation.  I know what Ray Dalio would tell me: "Leo, you just don't get it, you yourself are exhibiting behavorial traits that run contra to Bridgewater's principles."Fair enough but I contacted Bridgewater not once but twice to do an on-site visit and even emailed Ray a couple of times. I was politely turned down by some employee in charge of the media.I think my biggest problem in all this is Ray's maniacal obsession with coding the economic machine simply doesn't translate well when trying to code political events or human interactions (it's even highly debatable how well any hedge fund can code economic and financial variables given there is too much uncertainty in determining their future behavior).The greatest intellectual influence in my life was Charles Taylor, a brilliant political theorist and moral philosopher who is still part of McGill University's department of Philosophy.To call Taylor brilliant is an understatement. Last year, he was named the first-ever recipient of the Berggruen Prize, a $1 million-dollar award handed out annually to a thinker "whose ideas are of broad significance for shaping human self-understanding and the advancement of humanity.''I remember during my undergrad years at McGill University when I finished reading his seminal book, Sources of the Self, I was in total awe of his sheer brilliance and lucky enough to have taken a few elective courses with him while majoring in economics and minoring in mathematics (I needed to counterbalance the sterility of those courses with some heavy intellectual food for thought).But as brilliant as he is, Charles Taylor is also extremely humble, very engaged and is guided first and foremost by his Catholic faith and his love of humanity. It runs in his family as his sister, Gretta Chambers who died on Saturday, was equally brilliant and a trailblazer in her own right.In my opinion, Taylor's critique of John Rawls' A Theory of Justice is just devastating. You see, Rawls' conception of justice begins with his orignal position, which is a dubious construct to begin with, and he goes on to develop a set of mechanistic rules which attempt to bypass a rich history of Western thought.In contrast, Taylor's arguments are steeped in Western thought, elaborating and building on the great works to set the foundations arguing for a just communtiy which respects tolerance and diversity.Anyway, I don't want to delve deeply into Taylor's philosophical arguments here, but the world doesn't work according to anyone's preset notion of mechanistic ideas, be it in politics, philosophy or economics.Last week, after I covered Ray Dalio's warning on the dangerous divide, my friend, Jonathan Nitzan, professor of political economy at York University, shared this with me after reading this comment:Dalio, like most other economists and financial analysts, lives in a bifurcated world of economics vs. politics. For him, economics is a machine (he calls himself a mechanic). This machine would have worked just fine (equilibrium) if it were not for the external political shocks that constantly bombard it (distortions). His main claim to fame (other than the money he manages and owns) is to argue that current political shocks are bigger than other analysts believe.The idea that capital is not an economic category but a political entity to start with, that capitalization discounts not utility but sabotage, and that capitalism is not a mode of production and consumption but a mode of power is something he cannot possibly fathom (for more on this latter perspective, see our 2016 paper "CasP Model of the Stock Market" and the accompanying video here which is embedded below).Jonathan is no irrelevant Marxist academic quack. He formerly worked as an Associate Editor, Emerging Markets at BCA Research and he really knows markets and politics extremely well and has produced truly exceptional and highly relevant papers along with his colleaugue in Israel, Shimshon Bichler (see their research here).I think it's safe to say no greater intellectual mind has ever worked at BCA Research and I was dead serious that Ray Dalio and the folks at Bridgewater should invite him over there to meet and discuss his ideas in detail (go ahead, rip into him, Jonathan can take it and will answer all your questions).Anyway, let me get back to Bridgewater's coveted principles. Everyone has their two cents about how organizations can function well. Last week, Dr. Travis Bradberry posted a comment on LinkedIn, Nine Things That Will Kill Your Career.I will let you read the comment but it got me to reply because there was something that irked me about the title and comment (click on image):

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About Article Author

Pension Pulse

Leo Kolivakis is an independent senior economist and pension and investment analyst with years of experience working on the buy and sell-side. He has researched and invested in traditional and alternative asset classes at two of the largest public pension funds in Canada, the Caisse de dépôt et placement du Québec (Caisse) and the Public Sector Pension Investment Board (PSP Investments). He's also consulted the Treasury Board Secretariat of Canada on the governance of the Federal Public Service Pension Plan (2007) and been invited to speak at the Standing Committee on Finance (2009) and the Senate Standing Committee on Banking, Commerce and Trade (2010) to discuss Canada's pension system.

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