Full Transcript for Subsidiarity

That's better. 00:02:21.597 --> 00:02:22.157 Let's do that. 00:02:22.336 --> 00:02:29.741 Okay"For all the millennia of human existence, life was miserable. 00:02:30.931 --> 00:02:34.871 Nearly everyone was born into poverty, lived in poverty, and died young. 00:02:35.600 --> 00:02:40.510 As recently as two hundred years ago, ninety percent of the world's population lived in extreme poverty. 00:02:40.757 --> 00:02:43.067 But then something remarkable began to happen. 00:02:43.977 --> 00:02:46.727 started to get better and better for more and more people. 00:02:47.567 --> 00:02:56.106 flat line representing average wellbeing became a hockey stick, suddenly and sharply improving, and it has not stopped. 00:02:56.887 --> 00:03:05.167 Today, less than ten percent of people live in extreme poverty, even though the world's population is now almost eight times what it was two hundred years ago. 00:03:06.407 --> 00:03:07.106 What happened? 00:03:07.907 --> 00:03:25.306 short, certain societies haltingly but increasingly began to move from top-down, a few people controlled the many, bottom-up, where more and more people enjoyed greater opportunity to live as they saw fit, although it has been an uneven process that remains incomplete. 00:03:26.817 --> 00:03:32.067 They were more fully able to apply their abilities and knowledge to better their lives and the lives of others. 00:03:33.806 --> 00:03:38.486 A top-down approach presumes those in control know what's best for everyone else. 00:03:39.356 --> 00:03:48.146 Those at the top typically seek power, rely on one-size-fits-all approaches, and use detailed rules and coercion that stifle others. 00:03:49.176 --> 00:03:53.787 No matter how well-intentioned, a top-down approach only benefits those at the top. 00:03:55.116 --> 00:04:01.736 A bottom-up approach respects the inherent worth of each person and unleashes creativity, initiative, and talent. 00:04:02.497 --> 00:04:07.896 When behavior is governed by this principle, the outcome exceeds what anyone could have planned or predicted. 00:04:08.776 --> 00:04:18.706 Everyone benefits when behavior is mostly governed by general principles rather than detailed rules, freeing individuals to use their gifts and knowledge to tackle problems and pursue opportunities. 00:04:19.791 --> 00:04:24.831 This approach does not mean decentralizing all decisions or equally distributing authorities. 00:04:25.682 --> 00:04:34.711 Leaders should only make decisions for which they have the demonstrated capability while seeking and using the input and challenge of others who can improve those decisions. 00:04:35.471 --> 00:04:41.322 For example, a facility manager is most likely in the best position to make decisions that affect the whole facility. 00:04:42.471 --> 00:04:48.132 With a bottom-up approach, the manager seeks and uses the input and challenge of those who have relevant knowledge. 00:04:48.982 --> 00:04:56.771 However, with a top-down approach, managers simply impose

those decisions, which undermines the culture and leads to worse results. 00:04:57.492 --> 00:05:00.851 They are guilty of, quote,"the fatal conceit," end quote. 00:05:01.396 --> 00:05:05.146 Bottom-up does not mean employees are free to do whatever they feel like. 00:05:05.946 --> 00:05:13.485 We strive to create the conditions where employees are motivated to do what is beneficial for ACME and themselves. 00:05:14.526 --> 00:05:24.406 The responsibility of every supervisor is to enable their employees to understand how and be motivated to maximize value in harmony with our principle-based framework. 00:05:25.235 --> 00:05:31.995 This bottom-up approach benefits everyone: employees, ACME, and, society." 00:05:33.827 --> 00:05:34.908 I love the reading. 00:05:36.458 --> 00:05:45.827 I can't help but wonder if it's torn out of the HP Way or something, but I'm super curious to hear, uh, to hear where it came from 00:05:47.302 --> 00:05:49.903 This is from a, uh, relatively new book. 00:05:49.913 --> 00:05:54.382 It came out, I think, a couple of months ago, and it's called 00:05:58.062 --> 00:05:58.661 Really? 00:05:58.773 --> 00:06:00.062 41 Principles to Build 00:06:00.062 --> 00:06:08.463 an Enduring Business." And it's written by the, the father and son team of Charles and Chase Koch. 00:06:09.923 --> 00:06:13.494 No way. 00:06:14.843 --> 00:06:16.863 That's super surprising 00:06:18.790 --> 00:06:19.201 Yes. 00:06:19.250 --> 00:06:23.420 Uh, Koch of, uh, Koch Industries, right? 00:06:23.511 --> 00:06:31.730 Um, and now I think you see why I replaced the word Koch with, uh, ACME, because would have been the clear giveaway. 00:06:32.163 --> 00:06:32.543 Right 00:06:33.069 --> 00:06:40.863 Charles in particular has been writing about this idea of principle-based leadership for a long time. 00:06:41.684 --> 00:06:52.533 Uh, I know that he has a book prior to this one, which is on my reading queue, about principle, uh, driven leadership. 00:06:53.144 --> 00:07:05.713 This one just kinda leapt at me in an airport bookshop, and I picked it up and literally, uh, read it over a flight because I found it very compelling. 00:07:06.163 --> 00:07:10.754 And the reason I wanted to bring it to, to our conversation 00:07:11.233 --> 00:07:11.413 Mm-hmm. 00:07:11.843 --> 00:07:28.081 is because I've always been very drawn to this notion of there being two approaches to a situation, a group of people, a system. 00:07:28.901 --> 00:07:33.581 One approach you can think of as like top-down and the other is bottom-up, right? 00:07:34.252 --> 00:07:44.276 And I think it might become evident from our conversations that I tend to favor the bottom-up approach. 00:07:44.355 --> 00:07:48.105 I mean, we talked in a previous episode about Gall's law, right? 00:07:48.192 --> 00:07:48.302 Mm-hmm. 00:07:48.576 --> 00:08:08.362 Um, and I, and I think that systems that, evolve to meet the conditions that the system is operating in tend to perform better than systems that have been designed, you know, from the get-go, uh, to, to satisfy some kind of hypot- set of hypotheticals. 00:08:08.985 --> 00:08:09.245 Yeah. 00:08:09.516 --> 00:08:13.956 What I read is from, actually from the book's appendix. 00:08:13.956 --> 00:08:24.625 Like the book, as it says in the subtitle, it has 41 principles that they use to manage or lead Koch Industries. 00:08:26.026 --> 00:08:31.925 And there's an appendix that has, uh, descriptions of all 41 of the principles. 00:08:32.375 --> 00:08:36.605 And the principle that I read is called bottom-up versus top-down. 00:08:36.995 --> 00:08:51.775 But this is, uh, one of, like the title says, 41 that form a kind of like constellation of principles that kind of cohere. 00:08:52.936 --> 00:09:03.485 and they lead to a particular way of approaching leadership and management that articulates particular way of being, right? 00:09:03.485 --> 00:09:09.395 So, um, I'll stop there and see if you have any reactions, and if you still like me as a friend. 00:09:10.452 --> 00:09:11.153 Well, no. 00:09:11.472 --> 00:09:12.153 I mean, yes. 00:09:12.153 --> 00:09:13.692 I mean, I still like you as a friend. 00:09:13.732 --> 00:09:16.423 Um, and I'm surprised and delighted. 00:09:16.423 --> 00:09:20.113 I'm, I, I really appreciate alternative points of view. 00:09:20.722 --> 00:09:38.452 Uh, and, and many things came up as you were, um, you know, as you were reading it, I had one orientation, and then when you told me who it was from, I had a r- like a nearly, uh, uh, bimodal, like off the spectrum other side reaction to it. 00:09:38.493 --> 00:09:43.302 But I think putting those two things together caused me… So h- you finished the book? 00:09:43.373 --> 00:09:44.202 Let me just start with that. 00:09:44.212 --> 00:09:44.962 Have you finished it? 00:09:45.241 --> 00:09:45.562 Yeah. 00:09:45.611 --> 00:09:46.951 Well, I finished it on the flight. 00:09:47.011 --> 00:09:52.922 Like, I bought it in the, in the airport, the next flight I p- I literally, like, I, I read the thing. 00:09:53.610 --> 00:10:09.434 You know, the, the first thing that came to mind was, um, I, I think it was Abraham Lincoln who said something, and I'm gonna butcher this and, you know, paraphrase statement terribly is, you know, "I don't, I don't like that man. I must need to… I must get to know him better." Y-you know? 00:10:09.735 --> 00:10:14.434 Um, uh, I realize I really know nothing about those people. 00:10:14.904 --> 00:10:28.684 I, I've j-- I am a, I, I am-- I've been paint-- the v-v-- who they are, their personal brand, what they stand for in the world, I am the, I am a victim of social media and, and popular press. 00:10:28.705 --> 00:10:30.065 I, I know nothing about them. 00:10:30.065 --> 00:10:47.595 I've done no research whatsoever, uh, into who they are, what they've done, how they think, and yet, uh, I find myself, you know, negatively biased toward, um, anything they would have to say just based on what I've heard about

them, you know? 00:10:48.105 --> 00:10:53.764 And of course, the… Now I'm, I, I'm delighted to be-- to have that worldview challenged, number one. 00:10:54.304 --> 00:11:13.325 Uh, and I, I appreciate the opportunity, as we've discussed in the past, to, to have my worldview, um, you know, put in front of me as a worldview, something that may contain, you know, a bunch of uncritically held beliefs about things that I think are true that may not be based in fact at all. 00:11:13.975 --> 00:11:28.965 And I, I'm, I may be slightly less victim to the echo chamber of social media and, and, um, you know, large media, but I, I am by no means anywhere near immune to that. 00:11:28.975 --> 00:11:40.745 And this is an example of, wow, now I'm confronted with something I'm hearing that, uh, that grates on things that I thought I knew. 00:11:41.585 --> 00:11:43.815 Uh, so I'm, I'm curious. 00:11:43.815 --> 00:11:46.815 I've-- It, it sort of really opens up the curiosity lens for me. 00:11:46.815 --> 00:11:53.544 When I-- when something hits me that far off, I want my response as a leader to be, "Tell me more." 00:11:54.041 --> 00:12:23.630 I can appreciate that, and I, a-a-and I, I know that, uh, that someone might have… And, and that's why I prefaced it by saying, it's like, "I don't know if you're gonna be my friend anymore." Is it-- 'Cause I know that, uh, that Charles Koch in particular is seen by a lot of people, let's say kind of left of center as, um, maybe like a… There's like this libertarian caricature, right? 00:12:23.630 --> 00:12:28.051 Like this person is like this kind of libertarian society or whatever. 00:12:29.490 --> 00:12:51.961 Um, I think that if you can put that aside, if you can put that mental image aside, and maybe we should for the rest of this conversation and focus on the ideas rather, um, you might find that the work is compelling and cohesive, and I would dare say practical, particularly for someone leading organization 00:12:52.469 --> 00:12:52.688 Mm-hmm. 00:12:52.688 --> 00:12:52.698 Mm-hmm 00:12:52.979 --> 00:13:12.280 the key idea here is that rather than tell people what to do you would be better off instilling in them a set of principles and then giving them leeway respond to things as they come up, right? 00:13:12.321 --> 00:13:24.061 And the reason why I chose that principle out of the 41 is I think that this one is fundamental to this worldview, this notion that, uh, you can lead bottom up or you can lead top down. 00:13:28.653 --> 00:13:46.229 Leading top-down as it, uh, you know, as this passage that I read said explicitly, um, implies that the people calling the shots know everything about the conditions that they're deciding on. 00:13:47.178 --> 00:14:03.269 And in a large, complex organization, you know, th- these are complex adaptive systems, um, it's unlikely that the people at the top are going to have good, a good sense for what's going on, on the ground, right? 00:14:03.399 --> 00:14:13.068 So you want to delegate authority, the, you know, the question is, to what degree do you delegate authority, and how do you keep coherence? 00:14:13.109 --> 00:14:15.469 How do you delegate authority while keeping coherence? 00:14:15.860 --> 00:14:16.201 Mm-hmm. 00:14:16.964 --> 00:14:36.620 I took the m- primary thesis of this book, and I expect that this is true of the other, the other ones as well, uh, that the, the way that you do that is by instilling a set of principles, It's, it's leading almost by creating a particular culture rather than, um, through coercion. 00:14:36.649 --> 00:14:39.340 It's like, do this or you'll be fired," right? 00:14:39.750 --> 00:14:47.019 It's more, uh, you know, "This is how we do things here." And, uh, you take it from there, right? 00:14:47.019 --> 00:15:00.629 So you're creating like, it's like you're writing the operating system that will allow the thing to evolve and grow while maintaining coherence, which I think is the tough thing about designing systems that grow bottom up. 00:15:00.919 --> 00:15:08.259 It's like, how do you keep it from metastasizing and becoming something that, um, that is different from what it started out as? 00:15:08.577 --> 00:15:09.368 Runs amok 00:15:09.820 --> 00:15:16.690 It runs amok, and I, and I'll say this, like after you recommended it, I have started reading, uh, Eric Ries's new book, 00:15:17.048 --> 00:15:17.427 Yeah 00:15:18.240 --> 00:15:30.220 which I, I've just started, so I d- I don't know enough to, to, to say this with any degree of certainty, but I suspect that what he's pointing at is something like this. 00:15:30.230 --> 00:15:49.889 It's like, how do you start the, how do you start the system going with the cultural conditions that will allow it to evolve in such a way that it doesn't turn into something that betrays itself or, or or, or, or, or ends up, uh, up compromising what you started it for, 00:15:50.082 --> 00:16:16.283 It does sort of prompt me to wonder, however, where the, the, the guiding, uh, where the guiding constraints are, and does that mean that the principles are empowering the operating-- the cultural operating model, but the direction of the organization is fundamentally still top-down based on its vision and its mission and its goals? 00:16:16.812 --> 00:16:19.841 They talk about it in this passage that I read, right? 00:16:22.601 --> 00:16:23.052 let me see. 00:16:23.052 --> 00:16:23.881 Where does it say? 00:16:25.701 --> 00:16:30.652 "This approach does not mean decentralizing all decisions or equally distributing authorities. 00:16:30.731 --> 00:16:47.772 Leaders should only make decisions for which they have the demonstrated capability while seeking and using the input and challenge of others who can improve those decisions." And, and I think, and again, I don't wanna speak for them and I, and I can't cite the book because I haven't memorized it obviously, 00:16:48.251 --> 00:16:48.741 but 00:16:48.761 --> 00:16:54.761 I think that they would

say that the, that part of their 00:16:55.461 --> 00:16:56.052 remit 00:16:56.131 --> 00:16:59.072 as leaders is to define what those principles are. 00:16:59.682 --> 00:17:17.592 But also, given the nature of this particular set of principles, I would expect that that would give the organization enough leeway to allow new principles to surface and to adopt those 00:17:18.251 --> 00:17:18.511 if 00:17:18.511 --> 00:17:20.422 they make sense within the whole, right? 00:17:20.422 --> 00:17:36.546 So, so it's, it's the, the notion that you're, you're setting the direction, and this is something we've touched on in other conversations, I feel, like this notion of the, you know, oper-- uh, navigating by using a compass, 00:17:37.012 --> 00:17:37.202 Mm-hmm. 00:17:38.375 --> 00:17:46.875 and the difference between understanding where you want to go at a high level versus what the next steps you need to take based on conditions you find on the ground. 00:17:48.405 --> 00:17:53.546 That's obviously something that you can do when it's you doing the navigating and you doing the walking. 00:17:53.915 --> 00:18:11.117 But when you have a very large organization, uh, you have to find a way of balancing hierarchy, which has to be there, with flexibility, which is implied by this approach, right? 00:18:12.347 --> 00:18:21.508 but I, but I would, I would venture that the, the responsibility of leaders in, in an organization like that is be the kinda keepers of the culture 00:18:21.924 --> 00:18:22.234 Mm-hmm. 00:18:22.377 --> 00:18:24.147 and to help establish what those principles are. 00:18:24.478 --> 00:18:31.117 It's certainly a, a much more important function of leadership than it would be in an organization that is much more kind of by the book. 00:18:31.594 --> 00:18:36.854 Well, and speaking of buying the book, I'm gonna add it to my list. 00:18:36.894 --> 00:18:41.584 I am curious, do they address two things? 00:18:41.594 --> 00:18:46.733 Number one, the difference or distinction between values and principles? 00:18:47.713 --> 00:18:55.614 And number two, do they, uh, spell out how to develop a good principle? 00:18:55.663 --> 00:18:58.173 Like, what's the difference between a good principle and a bad principle? 00:18:58.457 --> 00:19:05.997 You know, it's been now about six weeks since I read this, and I don't remember exactly. 00:19:06.906 --> 00:19:09.396 I don't think I can answer those questions and do justice to the book. 00:19:09.729 --> 00:19:09.989 Okay 00:19:10.436 --> 00:19:15.257 that the answer to the second question is more of a question for the previous book, 00:19:16.096 --> 00:19:16.317 Uh-huh. 00:19:16.457 --> 00:19:17.057 what that's called. 00:19:17.057 --> 00:19:19.606 I, I'll look it up and I'll add it to the show notes. 00:19:20.047 --> 00:19:20.406 Yeah 00:19:20.666 --> 00:19:31.537 but there's a previous book, like I said, that talks about principle-driven leadership, I, and I suspect that that might be more of the territory that that book covers. 00:19:32.576 --> 00:19:36.027 this one is more about these particular principles 00:19:36.345 --> 00:19:36.775 That's cool. 00:19:36.835 --> 00:19:37.575 I'll, I'll check it out. 00:19:37.615 --> 00:19:39.615 And ha- have you read Ray Dalio's book? 00:19:39.743 --> 00:19:41.592 I have read Ray Dalio's book, 00:19:42.204 --> 00:19:44.775 And how, how would you compare and contrast these? 00:19:45.234 --> 00:19:54.744 Both come from a similar impulse: the idea that you want to manage by principles. 00:19:56.881 --> 00:20:11.567 I found the principles in the Koch book… well, let me precede everything I'm about to say by saying read Dalio's book a long time ago when it came out. 00:20:11.567 --> 00:20:13.436 I think it's a decade old at this point. 00:20:13.605 --> 00:20:14.384 Yeah, pretty much. 00:20:14.517 --> 00:20:17.557 So, so that one is less fresh in my memory. 00:20:19.396 --> 00:20:26.719 Uh, but I remember it striking me as being very prescriptive. 00:20:27.959 --> 00:20:33.538 And it also made a distinction between principle, like personal principles and principles for work. 00:20:33.760 --> 00:20:34.090 Uh-huh. 00:20:34.308 --> 00:20:42.169 Um, so it, like, it made the argument that you need to, you need to operate by principles, whether you're talking about your life or your business or what have you. 00:20:42.949 --> 00:21:00.528 Um, and I don't know, I, I don't remember if I read this in the book or if I read, read it in reading about Dalio, but I know that the way that those principles were applied in his organization ended up being kind of weird. 00:21:00.759 --> 00:21:08.128 Like, they had this very weird culture where, like, all meetings are recorded and which was not the case ten years ago, right? 00:21:08.128 --> 00:21:16.276 Like, that's become the norm after the pandemic, This, the, uh, the Koch book, you might disagree with some of the principles. 00:21:17.653 --> 00:21:18.843 I found them compelling. 00:21:18.932 --> 00:21:21.472 I found that they hung together as a, as a whole. 00:21:22.169 --> 00:21:32.378 I can see how they could grow an organization to the size that they've grown based on these principles. 00:21:33.179 --> 00:21:38.808 I also s- like, as I was reading it, I was suspecting it's like there might be more to it than just principles, right? 00:21:38.919 --> 00:21:44.828 Um, I published my reading notes on this book, so I can link those in the show notes. 00:21:45.739 --> 00:21:57.219 uh, but, uh, but in the, in the reading notes, I also said that, uh, one criticism I had of the book was that it felt like they were def- they, they copped to a lot of mistakes they made in the book, right? 00:21:57.308 --> 00:22:16.058 So it's like, "We made a lot of errors, and when we erred, it was because we did not follow our principles." But I felt like in a lot of the cases that they cited, they kind of deflected the blame to, like, the people they had hired to manage the business, felt little, I

don't know, like, it's like, really? 00:22:16.128 --> 00:22:16.209 Yeah. 00:22:18.358 --> 00:22:26.936 Um, I found this book to be more, uh, relatable and applicable than the Dalio book. 00:22:27.406 --> 00:22:29.416 The Dalio book also felt more theoretical. 00:22:29.426 --> 00:22:42.686 This one, um, it might, it might be because it's fresher in my memory, but it had a lot more stories from the actual growth of this company, and it's very frank about the mistakes they made. 00:22:42.916 --> 00:22:47.027 As I was saying, like the, the, regardless of who the blame gets pinned on, right? 00:22:47.416 --> 00:23:12.290 Uh, they, they do give examples of times when they did not meet their standards and what happened, and it does make for a compelling case for leading an organization or a team through this principle-based approach, which there's a technical term, right? 00:23:12.290 --> 00:23:13.401 Like subsidiarity, 00:23:13.604 --> 00:23:14.334 Oh, I never heard of that. 00:23:14.364 --> 00:23:14.726 Okay 00:23:15.131 --> 00:23:23.030 The, basically it's the, the, the idea is that you delegate decision-making to the people closest to the effects of that decision, right? 00:23:23.238 --> 00:23:23.478 Sure. 00:23:23.667 --> 00:23:24.377 Very Boydian. 00:23:26.336 --> 00:23:26.526 Very Boydian. 00:23:26.526 --> 00:23:28.215 Yeah, absolutely! And again, we talked about feedback, right? 00:23:28.276 --> 00:23:33.316 Um, it's like you want, you want that feedback loop to be very tight. 00:23:34.296 --> 00:23:54.346 i- if you're going to… Well, first of all, I completely buy that and abide by that approach, and I think that if you're going to buy that approach, it behooves you to consider how the, the whole is going to hang together, and this book provides a compelling answer in the form of principles. 00:23:55.111 --> 00:24:03.490 the person that I think of when I think of somebody who did this really well is actually, uh, Matthew Milan. 00:24:03.790 --> 00:24:04.631 Do you know Matthew? 00:24:04.651 --> 00:24:04.661 I 00:24:04.991 --> 00:24:05.882 I do Matthew. 00:24:06.045 --> 00:24:11.444 And I had the, I had the great fortune of working with him in Normative, um, a few years ago. 00:24:12.035 --> 00:24:16.684 And, uh, and, you know, they shared with me the values they had developed. 00:24:16.684 --> 00:24:23.285 And the way they had articulated those values was they were really spelled out more as principles than values, which is why I had asked that question earlier. 00:24:23.914 --> 00:24:30.394 Um, it'd be fascinating, if we ever managed to get the guest, uh, it'd be fascinating to, to talk to Matthew. 00:24:30.669 --> 00:24:31.378 Yeah, for sure. 00:24:31.439 --> 00:24:34.709 Uh, Matthew is actually the one who introduced me to John Boyd's work. 00:24:35.092 --> 00:24:35.882 Oh, interesting. 00:24:35.994 --> 00:24:38.628 So yeah, so totally, um, applicable. 00:24:39.019 --> 00:24:40.868 You know, I'm looking up in the book right now. 00:24:41.578 --> 00:24:48.689 I don't remember if values is one of the principles, but, but certainly, um, they do talk about navigating by their values. 00:24:49.195 --> 00:24:49.355 Mm-hmm. 00:24:49.355 --> 00:24:49.365 Hmm. 00:24:50.538 --> 00:25:00.588 Anyway, yeah, um, that distinction is worth digging into, and maybe we do a separate conversation on values, and we'll circle back to the distinction between values and principles. 00:25:01.238 --> 00:25:03.097 This, this seems like fruitful territory. 00:25:03.097 --> 00:25:05.107 I'm definitely gonna pick up a copy of this and read it. 00:25:05.617 --> 00:25:19.518 Uh, I super appreciate you bringing it to my attention and to our attention, um, uh, 'cause I think there are a, a very wide range of readers who wouldn't have, uh, picked it up just based on, uh, who the authors are, and I, I think that would've been a real disservice. 00:25:19.817 --> 00:25:20.686 Yeah, absolutely. 00:25:20.737 --> 00:25:24.207 We have to, uh, we have to keep minds open, right? 00:25:24.506 --> 00:25:24.705 Hmm. 00:25:25.135 --> 00:25:25.395 Yeah. 00:25:26.266 --> 00:25:26.786 All right, man. 00:25:27.645 --> 00:25:28.185 We should let you go 00:25:28.330 --> 00:25:31.540 uh, thank you for, uh, entertaining my eccentricities, Harry 00:25:32.377 --> 00:25:32.917 All right. 00:25:33.577 --> 00:25:34.827 Let's all go work for Acme. 00:25:37.527 --> 00:25:38.126 All right, take care.