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Ray Dalio founded Bridgewater, one of the largest hedge funds, with 235 billion euros in assets under management. He is one of the 100 richest people in the world. He is also a successful writer and an influential political advisor.
In the 1980s, Dalio almost went bankrupt with Bridgewater because he had bet on South American government bonds. He had to let all his employees go. This defeat was a personal experience for him and a turning point in his career.
Since then, he has built Bridgewater’s management and decision-making system on principles that he has embedded in IT systems. His success proves his approach to mistakes and his strategy of systematizing learning within the company right.
Bridgewater’s meritocracy of ideas.
Dalio has built up Bridgewater’s corporate culture just as meticulously and systematically. He also follows the principle that good self-reflection leads to a better understanding of colleagues. He also believes that the company needs to be radically open and radically honest so that the best ideas can prevail.
This is completely unconventional and contradicts most people’s everyday experience. Because radical openness and radical honesty prevent politics as we know it from our day-to-day business in the automotive industry, for example.
Dalio is convinced of another principle: everyone is motivated by meaningful work and deep personal relationships. Precisely because everyone has different skills and personality traits, there is an environment and a team for everyone in which they can be productive and complement others. But the prerequisite for this is that they know and accept themselves and their abilities.
Self-reflection alone is not enough: Even if everyone, whether intern or CEO, asks themselves the question: “Am I right in my opinion?”. But an answer is essential in an “idea meritocracy”. In a meritocracy of ideas, decisions are not made on the basis of majorities or mandates, but the objectively best idea prevails. Just like in science, ideally.
To achieve this, unconscious errors of thought and judgment must be eliminated. In science, there is peer review: every scientific article must be read and evaluated by specialist colleagues. Such a procedure is impractical in business.
At Bridgewater, Ray Dalio has therefore developed a method for decision meetings. This method is used to determine the credibility of all participants. Decisions are not made according to the majority or seniority principle, as is usually the case in other companies, but according to how credible the opinions of the individuals are.
The quality of decisions made using this method speaks for itself: Bridgewater has achieved an average return on investment of more than 15% in recent years. The collection of employee credibility assessments improves the team’s decision-making processes.
Bridgewater’s “dot collector”.
And this is how it works: During the meeting, everyone can judge everyone based on certain characteristics. For example: Is open to other opinions, presents their arguments convincingly, is well prepared for the meeting. The ratings are added up and result in a matrix. This looks like this for a specific meeting:
All ratings are saved and accumulated over time – without exception. This makes the ratings more robust.
Of course, different data protection laws apply in the USA, which simplify “radical transparency” within the company. The main point here is to clarify the procedure. At the same time, it can be seen that good data protection clearly has detrimental side effects on “radical transparency”.
In one specific example, Dalio and his team discussed whether interest rate cuts by the US Federal Reserve had triggered a bear market in bonds. The democratic vote clearly showed that more than three quarters of all meeting participants were convinced that this was the case.
The weighting according to credibility shows a clear result: the Yes votes were significantly less credible than the No votes.
For context: this team helps decide on investments of 235 billion dollars! That’s more than any board member in a DAX company. It is clear that radical honesty and transparency are important for the success of the company, as they suppress errors of perception and judgment.
Implementing radical transparency in German companies seems impossible without jeopardizing corporate culture, company agreements and the protection of private data. This tool cannot therefore be used in most German companies. But the principle of self-reflection and understanding others can undoubtedly be easily transferred with the help of other tools.
PrinciplesYou – an outstanding tool.
Dalio’s team has developed another tool that has had a decisive impact on Bridgewater’s corporate culture. Unlike many “practical tools”, it meets scientific standards and has no legal implications.
And best of all, it’s available free of charge. The name: PrinciplesYou.
This is a personality test like many others, one or more of which you may have already taken, dear reader. MBTI, Big Five, 16 Personalities, DISG, Hogan – the list is long. These tests measure attitudes, mindsets and habits – in different ways and with varying degrees of accuracy.
As a psychologist with intensive training in statistics and testing at the Humboldt University in Berlin, I have looked at the science behind it – and can say with certainty that it meets the highest scientific standards. The measurement reliability meets the highest scientific standards. In addition, this test compares mean scores with those of Bridgewater employees (currently 1,500 employees), among others, collected over the years. In other tests, the comparison samples are often students or patients in clinical facilities.
PrinciplesYou is the best tool on the market. That’s why AutomotiveLearners is the exclusive partner of PrinciplesYou and PrinciplesUs. PrinciplesUs is a further development that makes it possible to put together and coach teams and to further develop the corporate culture.
We use PrinciplesYou in our Skill-to-Skill program and PrinciplesUs in our client consulting.
