#85 Bethany McLean: Crafting a Narrative

1. Prioritize Ethics Over Legality

Recognize that an “ethical failing can actually be more damaging than a legal failing,” as many problematic business practices are “perfectly legal” but violate the spirit of the rules or misrepresent economic reality. Question actions that are legal but “unconscionable,” like drastically raising drug prices without R&D justification.

2. Challenge Business Optimism Bias

Actively counter the inherent “bias toward belief” in the business world, where most people want to make money if a stock goes up, making it “prettier to think so” than to be skeptical. Recognize that everyone, including company management, analysts, and portfolio managers, has biases, and a skeptical view (e.g., from short sellers) should be considered equally valid.

3. Question Pure Profit Focus

Be cautious of the “bottom line ideology” that simplifies a company’s purpose solely to making money, as this can lead to ethical compromises and a narrow view of the world. While clarifying, this approach can ignore broader societal impacts and may not be sustainable or fair, especially when risks are pushed onto others.

4. Recognize Business Rationalization

Be aware of the powerful tendency to rationalize bad decisions, especially when under pressure to produce profits, as it can appear true and keep one’s ego happy by avoiding confession of failure. The most dangerous things have a “strong element of truth to them,” making it tempting to believe in a “slippery slope” of wrongdoing.

5. Execution Differentiates Visionaries

Understand that visionaries and fraudsters might share similar grand, ambitious ideas, but the key difference often lies in “execution.” A visionary “either knows how to execute or knows how to hire the people who can execute,” while a fraudster doesn’t, leading to exposure when they can no longer convince people or secure funding.

6. Incentivize Long-Term Company Health

Advocate for compensation systems that genuinely align top executives’ financial outcomes with the long-term success and survival of the company (e.g., 100 years), rather than short-term gains. Current systems, like stock options, can incentivize executives to get paid even if the company goes bankrupt, creating a “heads you win, tails they don’t lose” scenario.

7. Require Executive Personal Investment

Consider requiring executives, especially in systemic institutions like healthcare and banking, to have a significant percentage of their net worth invested in their company. This would “encourage better decision-making” by creating a “meaningful impact” if they make poor choices, similar to how private partnerships fostered different behavior.

8. Understand Company Business Model

When investing in a company, ensure you understand its fundamental business model and how it generates profit, rather than just focusing on stock price jumps or earnings growth. Many investors in Enron couldn’t answer this basic question, leading to significant losses when the company went bankrupt.

9. Seek Diverse Business Information

Be aware that despite being “awash in information,” crucial skeptical information about businesses often travels in small circles and doesn’t reach the mainstream. This “odd veil” over critical information means you need to actively seek out diverse perspectives, especially from credit markets or short sellers, which may offer a different narrative than equity markets.

10. Question Charismatic Leaders

Be skeptical when a business leader has a strong “cult of personality” and is seen as a “secret sauce” or “magic bullet,” as this often appeals to emotions rather than rational business models. While some charismatic leaders succeed, many cases have not ended well, and “the lure of the founder is so strong” it can overshadow fundamental business principles.

11. Avoid Business Confirmation Bias

Actively guard against “confirmation bias,” where people look at others (especially “smart people”) investing in something or the market rewarding it, and conclude “it must be right.” This is an “emotional argument rather than a rational argument,” and a strong stock performance doesn’t inherently prove genius or correctness.

12. Detect Misleading Micro-Truths

Be cautious of people who are “cute with language” or “trafficking in micro-truths,” where what they say is literally true but “totally not telling you the broader truth.” This precision with language can be used to misrepresent economic reality or broader facts.

13. Distrust “Too Good to Be True”

Be highly skeptical of business scenarios that, in retrospect, “just clearly going to seem to be too good to be true.” Many major business failures, like Enron or the financial crisis, involved widespread belief in something that defied common sense (e.g., making loans to people who couldn’t pay them back).

14. Beware Companies Making Enemies

Be more skeptical of companies that make a lot of enemies on their way up, as the tide will turn viciously against them if problems arise. Both Enron and Valiant were hated by competitors and regulators, leading to a severe backlash when their issues became public.

15. Recognize Culture’s Influence

Be cautious of how strong company culture and economic dependence can foster “blind belief” and make it difficult to see problems. If your pay depends on a company’s success and everybody else believes, it’s hard to “shift your perspective and step outside that” to identify issues, as “culture is so, so important.”

16. Identify Ego-Driven Greed

Recognize that beyond a certain point, the pursuit of money often serves “greed in service of ego” rather than material needs, driven by comparison to others in one’s “narrow stratosphere.” This perspective highlights how wealth accumulation can become about feeling “bigger than they are” rather than genuine need.

17. Cultivate Wealth Perspective

To counter ego-driven comparisons, broaden your perspective on wealth by remembering that billions of people would instantly trade their problems for yours. This helps in “seeing all around us” rather than just “seeing forward” in comparison to the ultra-wealthy.

18. Support Ambitious Plans Critically

Support “big, grand, ambitious plans” as they can change the world, acknowledging that “inevitable frauds and blowups are the price we pay.” However, critically examine systems where those taking big risks can “reap the really big rewards” while pushing the actual risk onto “other people,” which is a “corruption of capitalism.”

19. Address Capitalism’s Societal Costs

Be aware of how “capitalism gone wrong” can lead to situations where people at the top extract wealth and walk away, leaving society to bear the costs of cleanup or negative externalities. This highlights the need for thoughtful consideration of corporate obligations beyond immediate profit.

20. Scrutinize Exceptional Flaws

Recognize that exceptional people often have “incredible flaws in other areas” and may not be “well-rounded individuals.” Avoid the misconception that character flaws are markers of brilliance, and instead, critically assess “which flaws matter” for a particular goal or enterprise.

21. Analyze Investment Failures

If an investment goes wrong, spend time “trying to think about why they got it wrong” rather than dismissing it as just “the odds in investing.” Thoughtful people reflect on mistakes, especially when a company’s unethical actions were widely known but underestimated in their potential impact.

22. Embrace Honest Journalism

Strive for transparency and intellectual honesty in journalism, clearly stating facts and sources so readers can understand the reasoning and potentially identify flaws. Good journalism allows for rational disagreement by showing “how I established it,” even if the story might ultimately prove wrong.

23. Verify Damaging Claims

When reporting something that could damage someone, ensure you “better know that it’s true” and give the person a chance to comment before it goes to print. This “much higher burden” of evidence and transparency ensures fairness and accuracy.

24. Pre-Share Unflattering Details

Always ensure that subjects of a story “will know everything in the piece that is unflattering before it goes to print,” allowing for discussion and refutation. This practice ensures fairness and prevents “any surprises in the story.”

25. Gather All Information

Believe that “everything should be reported” to get closer to the truth, even if not all information can be used publicly. Knowing more, even off-the-record details, helps in crafting accurate stories and avoiding misrepresentations.

26. Safeguard Information Sources

Err on the side of protecting sources, especially in the business world where there are “real consequences to people for having their name associated with something.” Clarify rules for off-the-record or background conversations at the start to ensure mutual understanding and prevent inadvertent identification.

27. No Shortcuts to Information

Understand that there are “no shortcuts” to gathering information; you “just have to call everybody and talk to everybody and be open-minded and ask as many questions as you can.” You cannot predict who will provide the best information, as it can come from unexpected sources.

28. Interview with Open Curiosity

When conducting interviews, approach people with “real open-mindedness and real curiosity,” without bringing an agenda. This respectful approach helps in getting people’s stories and understanding nuance, even from those accused of wrongdoing.

29. Writing is Hard Work

Understand that writing is a “craft” and “work,” not always a “joyous act of words just flooding forth.” Improvement comes with practice and effort, similar to a “great workout” that is “wonderful but hard.”

30. Outline Writing Thoroughly

Adopt an outline-oriented approach to writing, gathering “everything that I think might belong in a story in one place before I write.” This helps in thinking through all material and structuring the narrative effectively.

31. Focus Writing on Clarity

In writing, focus on “finding the narrative and offering clarity,” getting down to “the clarity and the essence of a story” rather than including every single fact. Too many facts can obscure the main point, like “too many lights on a Christmas tree,” making it hard for readers to see clearly.

32. Pursue Core Passions

Identify what you are “passionate about and relentlessly interested in” and pursue that thing, as it will be approached with greater “passion and creativity and an interest level.” For other areas, figure out “how you do the right thing” even if you’re not passionate, rather than pretending interest.

33. Live with Kindness and Effort

Strive to “be kind and try hard” in all aspects of life, as this simple principle can guide actions and lead to a fulfilling existence. This applies to interactions with others and personal endeavors.

34. Leverage Failures for Learning

Actively recognize that “you learn more from your failures than you do from your successes,” as failure provides an opportunity to reflect, understand what went wrong, and learn something new. While success is more fun, failure offers deeper insights.

35. Normalize Parental Struggles

Be transparent with children about your own struggles and failures, as it is “very freeing for children to see their parents struggle with things and fail.” This realism prevents kids from feeling inadequate when they face challenges, showing them that “that’s life” and not everything is perfect.

36. Encourage Free Reading

To instill a passion for books in children, “let them read whatever they want” rather than dictating specific “good books” or classics. The belief is that reading anything is more important than reading particular genres, fostering a natural love for it.

37. Support Child-Led Development

Allow children to “lead the way” in their development, letting them shape who they want to be rather than trying to mold them into a pre-existing idea. This involves following their interests and respecting their individuality from an early age.

38. Bridge Urban-Resource Disconnect

Recognize the “disconnect” between urban environments and the production of resources that make modern life possible, such as fossil fuels. Avoid being a critic of resource industries without understanding their contribution to daily life, while also acknowledging their societal costs.