Next month, self-made billionaire Ray Dalio will step down from his position as co-CEO of Bridgewater Associates, one of the world’s largest hedge-funds, which he founded and grew to a $150 billion firm. He attributes the success of his firm to the company’s culture of radical truthfulness and radical transparency. Based on the belief that markets reward the best ideas and are blind to whose ideas they were, Dalio set out to create an “idea meritocracy.” For years, the company has operated with a concept called believability-weighted decision-making, wherein decisions are made using the best ideas of the most qualified. How do you create a culture of truthfulness and transparency, where everybody agrees as to who is most qualified to make each decision?
At Bridgewater, all meetings are transparent. How? They are filmed, recorded and archived. Anybody can watch them! Every conversation at every meeting is accessible by all employees. Every comment and discussion can be heard by all. Each employee publicly rates every other employee’s credibility on a number of dimensions, which leads to measures of believability. This allows Bridgewater to move from a one-man, one-vote system of decision-making to a system where only those most qualified get to vote. Everything is visible to all.
Many years ago, I developed a Tool (a model of thought) called the Video Tape Test, its very name dating its origin. The Tool suggests that all conversations should withstand a simple test: if a videotape of your conversation is given to the people you are discussing, will you have any reason to be embarrassed? Although you might have good reason to keep the conversation confidential, its exposure should not cause you embarrassment. The idea of the Video Tape Test is to encourage you to say what you think. The potential transparency will cause you to be constructive and compassionate in your communication, even when the subjects are not present in the conversation.
Is Bridgewater’s concept of radical transparency just an example of using the Video Tape Test on all conversations? Does it take the Video Tape Test to its logical conclusion? There is actually a subtle, but material, distinction. The Video Tape Test does not suggest that your conversation should necessarily be shown to, or viewed by, the subjects of your conversation. Rather it requires that, should they view it, you should not have reason to be embarrassed. Further, the Video Tape Test does not contemplate showing the video to people not involved in the conversation. In contrast, radical transparency invites anybody to view any conversation, inviting the relevant, the curious and the nosy.
Has Bridgewater’s culture worked for them? Since 1991, they have consistently delivered 12% profitability. In 30 or so years, they have grown the firm to $150 billion with just 300 clients. They are the darling of Wall Street. Institutional investors flock to them with their pension fund monies. Although their performance has been sub-par over the last two years, they are within their “cone charts,” the permissible range of deviation. With that record, who can question their concept of idea meritocracy? How about their concept of radical truthfulness and radical transparency? Are the employees okay with that culture?
There have been some media reports that the culture fosters an environment of fear and intimidation. There has been at least one employee who filed a case with the Connecticut Commission on Human Rights and Opportunities. The New York Times reported that the National Labor Relations Board said Bridgewater had interfered with employees' rights through its use of confidentiality agreements. But are these outside the norm of the complaints and dissatisfactions you would hear about any culture?
This caused us to ask, when is transparency too radical?
If I tell you that I find Sue too abrasive, should you feel compelled/comfortable/authorized to tell Sue that? Is that transparency? Should you tell Mark, who is not involved in my comment about Sue? Does Mark need to know? Does he have a right to know? Is there value in him knowing? When does transparency move from being value-producing to gossip-mongering?
I posit that transparency should be based on a right-to-know and a need-to-know basis. In other words, anybody who has a right to know or who needs to know should be able to watch the video in the Video Tape Test. How about everybody else? Should we expose the video for one and all to see? As Bridgewater found there are pros and cons to that. In examining this question, I realized there is one additional reason for transparency. To set the stage, I reflect on one of our previous Food for Thought articles.
In September 2014, I introduced the concept of an Authenticity Index, a measure of correlation between your behavior in public and your behavior in private, your behavior when it is transparent and your behavior when it is anonymous. I observed in that article that two individuals who would politely hold the door open for one another on a cold winter day might not be as polite while driving home during rush hour, when the lanes merge and they’re safe in the anonymity of their comfortable cars. It is a sad commentary on the human race that our behavior changes when we move from an environment of transparency to one of anonymity.
Completing our hypothesis, I suggest that the need for transparency should be on the basis of a need to know, a right to know, or fostering accountability.
During my talks to CEOs, I often talk about transparency, and I use examples from our company. The most often asked question is whether we (and should we) make employees’ salaries public. I have never had a good answer to that question. Although I am not going to give you an answer now, I ask you to consider that question in light of the three reasons for transparency mentioned above. Do your employees have a need to know? Or is it just curiosity? Do they have a right to know? Would it be fair to say that they have a right to know what the top executives make? Does transparency of salaries foster accountability? Will management be more diligent in eliminating favoritism and biases (such as gender and race) if it was public? My questions should not be interpreted with an implicit answer. Rather, these questions give you a model for thinking about the central question of making salaries public.
Transparency is the best form of accountability. Use it widely. But use it constructively.
It is only fitting that I close with an epilogue on Bridgewater. Ray Dalio built a great company over a 30-year tenure, and has spent the last 7 years working through a transition process. As he steps down, he will remain with the firm, serving as an investment advisor. But the real question is, will the culture survive? Will it thrive? Will it have the edge? Time will tell.
Food for Thought is our way of sharing interesting concepts on corporate leadership and management with others who might find it useful. The thoughts offered are intended to be controversial and thought-provoking. They are intended to help our readers intentionally realize their potential, what we call Potentionality.