Power tends to corrupt, and absolute power corrupts absolutely. –Lord Acton
Modern postindustrial capitalism can endow vast amounts of wealth upon individuals. When the financial media, desperate for advertising revenue, deifies successful businessmen this frequently divorces them from reality, an effect amplified by lack of feedback from employees and associates petrified by their boss’s power over them.
This is not a new story. Three centuries ago, the wealth and adulation accorded John Blunt, head of the South Sea Company, evolved into a fearsome megalomaniacal malignancy of Blunt’s soul. As described by economic historian Edward Chancellor,
His ambition becomes limitless, a chasm opens up between the public appearance of success and universal adulation, on the one hand, and the private management of affairs which become increasingly confused and even fraudulent.
The economic and technological ferment of the early twentieth century accelerated this trend, as exemplified by Henry Ford, who fell into rabid antisemitism and whose racist tropes are still quoted by the Christian nationalist right.
In recent decades, the financial industry has yielded an ever-greater number of corporate game players, money managers, and “tech bros” who illustrate Lord Acton’s famous dictum, from Mark Zuckerberg’s blindness to social media’s corrosion of democratic norms to Elon Musk’s flirtations with homophobia and antisemitism.
Rob Copeland’s marvelously readable and well-researched The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend, details a similar detachment from reality borne on the absolute power deployed by Dalio at Bridgewater.
In the 1980s and 1990s, the firm’s highly successful Pure Alpha and All-Weather strategies captivated the hedge fund world. Founded by Dalio in 1975 and headquartered in Westport, CT, Bridgewater became the world’s largest, a distinction it still holds despite its past decade’s mediocre performance. Until recently, the financial press showered it with well-deserved positive coverage.
Dalio’s reputation was reinforced by his laid-back public persona and mildly leftish politics focusing on the societal dangers of increasing wealth and income disparities. (This places him well to the left of the few people at his level of net wealth, currently estimated in the $20 billion range).
Dalio’s megalomania centers on the philosophical rather than the worldly: a managerial psychological theory of everything encapsulated in his “Principles,” a grab bag of hundreds of aphorisms ranging from the banal to the Delphic, starting with gems like “Realize that you have nothing to fear from the truth,” “Be extremely open,” “Don’t tolerate dishonesty,” “When you experience pain, remember to reflect,” “Talk about ‘Is it true?’ and ‘Does it make sense?’” and so forth. Norman Vincent Peale would be proud.
So far, so good.
But according to Copeland, there’s something rotten in Westport, namely the way that Dalio’s bromides get applied within Bridgewater. New employees had to memorize, and were then tested on, nearly 300 Principles. This requirement applied to even the most distinguished new hires, such as James Comey, who signed on as general counsel having previously served as the U.S. deputy attorney general. As eventually happened to nearly all at Bridgewater, Dalio soured on Comey, in his case labeling him a “chirper”: someone who parroted the Principles but didn’t understand them or behave accordingly.
Employees’ fealty to the Principles was measured in a process known as “radical transparency,” in which they could be deemed responsible for even the most minor organizational failures, which included such transgressions as wilted cafeteria peas and men’s room urine spots. Sooner or later, nearly everyone found themselves hauled before a Dalio-presided inquisition featuring, at best, public humiliation, and at worst, on-the-spot firing. Video recordings of these sessions became available for viewing by staff not lucky enough to have observed the live event.
Perhaps the most abused Dalio underling was Eileen Murray, who as CEO endured Dalio’s vitriol for 11 years before finally quitting in 2020 (subsequently suing him for gender discrimination). Her humiliations included a series of videos entitled “Eileen Lies!” While no one has accused Dalio of sexual exploitation, a common peccadillo among corporate tyrants, in Copeland’s telling he turned a blind eye towards, and in at least one case suppressed investigation of, sexual harassment and groping by other male Bridgewater executives.
Few Bridgewater employees escaped the psychological trauma of “radical transparency,” which reduced not a few to uncontrollable public sobbing fits and resulted in widespread employee psychological illness. Another part of Dalio’s system was “baseball card” evaluations, slips upon which employees were expected to rate their colleagues. The more negative, the better; since the best way to protect yourself from colleagues who might down rate you was to preemptively down-rate them first, resulting in a downward spiral of professional assassination that not infrequently ended with a Dalio-led videotaped tribunal.
Not content to apply “radical transparency” to the day-to-day management at Bridgewater, Dalio spent hundreds of millions of dollars on Principles Operating System (PriOS), the software embodiment of the Fund’s operations, intended not only as a cryogenic immortalization of his management skills to be deployed upon his retirement, but also to run the operations of other companies. (One employee opined that the project tried “to make Ray’s brain into a computer.”) While Dalio boasted that PriOS had been approved by both Elon Musk and Bill Gates, only a few companies purchased it. Given the deterioration of Bridgewater’s performance after 2010, why would they?
One person avoided exposure to the radical transparency process, and that was Ray Dalio; those few employees who foolishly took the Principles seriously enough to apply it to the boss found themselves subjected to a choreographed response: Dalio would listen patiently to the unfortunate sacrificial lamb and then turn to the audience and ask if anyone believed the criticism; no one ever did. The reader is left to wonder if Dalio cynically relished the power dynamic that froze his Bridgewater underlings into silence, or if he was deluded enough to believe that his employees always agreed with him.
But for sheer intellectual arrogance, nothing matches two of the book’s vignettes. The first involved data showing that the more time employees spent on the Principles, the worse they performed. When informed of this, Dalio responded with “I don’t believe in [mathematical] regressions.”
The second vignette involved “How the Economic Machine Works,” Dalio’s mathematical model of world history that supposedly predicted which nations would succeed and which would fail.
One of billionaire-hood’s perks is jetting in top-drawer academics just to chat; Dalio was so proud of his scheme that he invited the famed historian Niall Ferguson to Westport for schooling. One does not need a doctorate in history to know that that the rise and fall of nations cannot be reduced to a few equations or if-then constructs; as noted by Copeland, “If this work had been done by one of his graduate students, Ferguson would have flunked him.” When Ferguson, as Dalio’s guest, gently reminded him of this fact, he exploded, “What’s your fucking model, Niall?” When he again quietly told him that no model was possible, Dalio repeated the question.
Expectedly, the book’s publication triggered a furious public relations and legal assault on Copeland accusing him of wholesale fabrication and revenge for being turned down for a job at Bridgewater (Copeland’s rejection was one of a blizzard he received before embarking on his distinguished journalism career at The Wall Street Journal and The New York Times.) Given the book’s extensive documentation and interviews with former Bridgewater employees, and especially the degree of fact checking done at both newspapers and by his publisher, readers can judge Dalio’s accusations for themselves. Regarding legal action, Dalio must surely know that its pursuance opens the door to a discovery process he might not find agreeable.
Copeland has written a cautionary tale of just what happens when modern financial capitalism endows its Great Men – and they’re all men – with enormous wealth and not enough feedback. It should be part of any MBA curriculum.
William J. Bernstein is a neurologist, co-founder of Efficient Frontier Advisors, an investment management firm, and has written several titles on finance and economic history. He has contributed to the peer-reviewed finance literature and has written for several national publications, including Money Magazine and The Wall Street Journal. He has produced several finance titles, and four volumes of history, The Birth of Plenty, A Splendid Exchange, Masters of the Word, and The Delusions of Crowds about, respectively, the economic growth inflection of the early 19th century, the history of world trade, the effects of access to technology on human relations and politics, and financial and religious mass manias. He was also the 2017 winner of the James R. Vertin Award from the CFA Institute.
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