Traction Heroes
Digging in to get results with Harry Max and Jorge Arango
Traction Heroes
Subsidiarity
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How do you delegate authority while maintaining coherence? One way is by establishing solid principles.
Show notes:
- Becoming a Principle-Driven Leader by Charles and Chase Koch
- Good Profit by Charles G. Koch
- The HP Way by David Packard
- Incorruptible by Eric Ries
- Principles by Ray Dalio
- Traction Heroes Ep. 11: Gall’s Law
- Traction Heroes Ep. 16: OODA Loops
- Reading Notes: “Becoming a Principle-Driven Leader” by Jorge Arango
- Normative
You want to delegate authority, the, you know, the question is, to what degree do you delegate authority, and how do you keep coherence? How do you delegate authority while keeping coherence? Hey, Harry. It's good to see you again
Harry:Hey, Jorge. Man, I love those glasses. I used to hate those glasses. Now I love those glasses. I don't know what changed
Jorge:You know, um, thank you first. Um, and, uh, thank you for admitting you, you used to hate them.
Uh, I'll say this:They are complicated when you're recording video. It means that I have to put my computer into dark mode, which I hate. I hate having my computer in dark mode. But if I don't do that, then all you see are, like, very bright reflections. Um,
Harry:Oh, interesting. Yeah. Well, I didn't really hate them before. I just didn't, I didn't groove with them. And, but I don't know why. Maybe it's the dark background. Maybe it's I just get to see your… I know if I see those glasses, I'm getting to see your lovely face, and we're gonna have an interesting conversation. But, um, either way, I've, I've grown, uh, fond of them
Jorge:Well, you might not be, um, y- y- you might not like me so much after today's reading.
Harry:I doubt that. All right, man. Uh, now I'm, I'm bracing myself.
Jorge:Uh, no, no, it's okay. I will, uh, I will, um, precede this by saying two things. One is it's a longer passage than I normally read, um, so bear with me. And the other thing is that, um, this book is written by the leader of a large company,
Harry:Okay
Jorge:the name of the company comes up a couple of times in the passage. And, uh, for the sake of keeping the suspense that we normally have with these things, I'm going to, I'm going to obfuscate things by saying company name rather than the actual company name.
Harry:Okay
Jorge:You ready for it?
Harry:Yeah, or you could use the Wile E. Coyote ACME.
Jorge:ACME. That's better. Let's do that. Okay"For all the millennia of human existence, life was miserable. Nearly everyone was born into poverty, lived in poverty, and died young. As recently as two hundred years ago, ninety percent of the world's population lived in extreme poverty. But then something remarkable began to happen. started to get better and better for more and more people. flat line representing average wellbeing became a hockey stick, suddenly and sharply improving, and it has not stopped. 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. What happened? 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. They were more fully able to apply their abilities and knowledge to better their lives and the lives of others. A top-down approach presumes those in control know what's best for everyone else. Those at the top typically seek power, rely on one-size-fits-all approaches, and use detailed rules and coercion that stifle others. No matter how well-intentioned, a top-down approach only benefits those at the top. A bottom-up approach respects the inherent worth of each person and unleashes creativity, initiative, and talent. When behavior is governed by this principle, the outcome exceeds what anyone could have planned or predicted. 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. This approach does not mean decentralizing all decisions or equally distributing authorities. 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. For example, a facility manager is most likely in the best position to make decisions that affect the whole facility. With a bottom-up approach, the manager seeks and uses the input and challenge of those who have relevant knowledge. However, with a top-down approach, managers simply impose those decisions, which undermines the culture and leads to worse results. They are guilty of, quote,"the fatal conceit," end quote. Bottom-up does not mean employees are free to do whatever they feel like. We strive to create the conditions where employees are motivated to do what is beneficial for ACME and themselves. 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. This bottom-up approach benefits everyone: employees, ACME, and, society."
Harry:I love the reading. 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
Jorge:This is from a, uh, relatively new book. It came out, I think, a couple of months ago, and it's called
Harry:Really? 41 Principles to Build
Jorge:an Enduring Business." And it's written by the, the father and son team of Charles and Chase Koch.
Harry:No way. That's super surprising
Jorge:Yes. Uh, Koch of, uh, Koch Industries, right? Um, and now I think you see why I replaced the word Koch with, uh, ACME, because would have been the clear giveaway.
Harry:Right
Jorge:Charles in particular has been writing about this idea of principle-based leadership for a long time. Uh, I know that he has a book prior to this one, which is on my reading queue, about principle, uh, driven leadership. 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. And the reason I wanted to bring it to, to our conversation
Harry:Mm-hmm.
Jorge: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. One approach you can think of as like top-down and the other is bottom-up, right? And I think it might become evident from our conversations that I tend to favor the bottom-up approach. I mean, we talked in a previous episode about Gall's law, right?
Harry:Mm-hmm.
Jorge: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.
Harry:Yeah.
Jorge:What I read is from, actually from the book's appendix. Like the book, as it says in the subtitle, it has 41 principles that they use to manage or lead Koch Industries. And there's an appendix that has, uh, descriptions of all 41 of the principles. And the principle that I read is called bottom-up versus top-down. But this is, uh, one of, like the title says, 41 that form a kind of like constellation of principles that kind of cohere. and they lead to a particular way of approaching leadership and management that articulates particular way of being, right? So, um, I'll stop there and see if you have any reactions, and if you still like me as a friend.
Harry:Well, no. I mean, yes. I mean, I still like you as a friend. Um, and I'm surprised and delighted. I'm, I, I really appreciate alternative points of view. 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. But I think putting those two things together caused me… So h- you finished the book? Let me just start with that. Have you finished it?
Jorge:Yeah. Well, I finished it on the flight. Like, I bought it in the, in the airport, the next flight I p- I literally, like, I, I read the thing.
Harry: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? Um, uh, I realize I really know nothing about those people. 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. I, I know nothing about them. 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? And of course, the… Now I'm, I, I'm delighted to be-- to have that worldview challenged, number one. 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. 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. 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. Uh, so I'm, I'm curious. I've-- It, it sort of really opens up the curiosity lens for me. When I-- when something hits me that far off, I want my response as a leader to be, "Tell me more."
Jorge: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? Like this person is like this kind of libertarian society or whatever. 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
Harry:Mm-hmm. Mm-hmm
Jorge: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? 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. 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. 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? 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? How do you delegate authority while keeping coherence?
Harry:Mm-hmm.
Jorge: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. It's like, do this or you'll be fired," right? It's more, uh, you know, "This is how we do things here." And, uh, you take it from there, right? 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. It's like, how do you keep it from metastasizing and becoming something that, um, that is different from what it started out as?
Harry:Runs amok
Jorge: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,
Harry:Yeah
Jorge: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. 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,
Harry: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?
Jorge:They talk about it in this passage that I read, right? let me see. Where does it say?"This approach does not mean decentralizing all decisions or equally distributing authorities. 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,
Harry:but
Jorge:I think that they would say that the, that part of their
Harry:remit
Jorge:as leaders is to define what those principles are. 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
Harry:if
Jorge:they make sense within the whole, right? 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,
Harry:Mm-hmm.
Jorge: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. That's obviously something that you can do when it's you doing the navigating and you doing the walking. 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? 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
Harry:Mm-hmm.
Jorge:and to help establish what those principles are. 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.
Harry:Well, and speaking of buying the book, I'm gonna add it to my list. I am curious, do they address two things? Number one, the difference or distinction between values and principles? And number two, do they, uh, spell out how to develop a good principle? Like, what's the difference between a good principle and a bad principle?
Jorge:You know, it's been now about six weeks since I read this, and I don't remember exactly. I don't think I can answer those questions and do justice to the book.
Harry:Okay
Jorge:that the answer to the second question is more of a question for the previous book,
Harry:Uh-huh.
Jorge:what that's called. I, I'll look it up and I'll add it to the show notes.
Harry:Yeah
Jorge: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. this one is more about these particular principles
Harry:That's cool. I'll, I'll check it out. And ha- have you read Ray Dalio's book?
Jorge:I have read Ray Dalio's book,
Harry:And how, how would you compare and contrast these?
Jorge:Both come from a similar impulse: the idea that you want to manage by principles. 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. I think it's a decade old at this point.
Harry:Yeah, pretty much.
Jorge:So, so that one is less fresh in my memory. Uh, but I remember it striking me as being very prescriptive. And it also made a distinction between principle, like personal principles and principles for work.
Harry:Uh-huh.
Jorge: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. 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. Like, they had this very weird culture where, like, all meetings are recorded and which was not the case ten years ago, right? Like, that's become the norm after the pandemic, This, the, uh, the Koch book, you might disagree with some of the principles. I found them compelling. I found that they hung together as a, as a whole. I can see how they could grow an organization to the size that they've grown based on these principles. 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? Um, I published my reading notes on this book, so I can link those in the show notes. 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? 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? Yeah. Um, I found this book to be more, uh, relatable and applicable than the Dalio book. The Dalio book also felt more theoretical. 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. As I was saying, like the, the, regardless of who the blame gets pinned on, right? 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? Like subsidiarity,
Harry:Oh, I never heard of that. Okay
Jorge: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?
Harry:Sure. Very Boydian.
Jorge:Very Boydian. Yeah, absolutely! And again, we talked about feedback, right? Um, it's like you want, you want that feedback loop to be very tight. 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.
Harry:the person that I think of when I think of somebody who did this really well is actually, uh, Matthew Milan. Do you know Matthew? I
Jorge:I do Matthew.
Harry:And I had the, I had the great fortune of working with him in Normative, um, a few years ago. And, uh, and, you know, they shared with me the values they had developed. 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. Um, it'd be fascinating, if we ever managed to get the guest, uh, it'd be fascinating to, to talk to Matthew.
Jorge:Yeah, for sure. Uh, Matthew is actually the one who introduced me to John Boyd's work.
Harry:Oh, interesting.
Jorge:So yeah, so totally, um, applicable. You know, I'm looking up in the book right now. I don't remember if values is one of the principles, but, but certainly, um, they do talk about navigating by their values.
Harry:Mm-hmm. Hmm.
Jorge: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.
Harry:This, this seems like fruitful territory. I'm definitely gonna pick up a copy of this and read it. 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.
Jorge:Yeah, absolutely. We have to, uh, we have to keep minds open, right?
Harry:Hmm. Yeah. All right, man. We should let you go
Jorge:uh, thank you for, uh, entertaining my eccentricities, Harry
Harry:All right. Let's all go work for Acme.
Jorge:All right, take care.
