Eric Ries - How Great Companies Stay Great S8 | E12

Summary

Radical Candor: Communication at Work
Episode: Eric Ries – How Great Companies Stay Great (S8 | E12)

Episode Overview

In this episode, Kim Scott welcomes Eric Ries, celebrated author of The Lean Startup, to discuss his newest book, Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great. The conversation dives deep into the challenges organizations face in maintaining their purpose and integrity under the relentless pressures of modern financial systems. Covering everything from real-life cautionary tales of value destruction to actionable frameworks for building resilient, mission-driven organizations, this episode provides both philosophical and practical guidance for leaders, founders, and anyone committed to ethical, effective work.

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Key Discussion Points & Insights

1. Motivation for Incorruptible

[02:43 – 05:45]

• Eric describes his motivation: Despite the widespread success of Lean Startup principles, he’s witnessed numerous companies lose their soul and founder control, ending up a "villain in their own story."
  • “So many people that I admire the most, who I’ve helped the most, like something wrong happened, like they took a wrong turn and their company is not what it could have been.” (Eric, 03:11)
• His realization: Widespread adoption of so-called "best practices" has taught leaders a value-destroying set of behaviors that render even successful founders miserable.
  • “We’re teaching people a value-destroying set of best practices... literally setting incredible amounts of value on fire.” (Eric, 04:25)

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2. The Vectura–Philip Morris Story: Fiduciary Duty Gone Wrong

[05:45 – 14:03]

• Eric recounts a chilling real-world example: Vectura, a UK-based therapeutics company, was eventually sold to Philip Morris against public outcry, purely because board members believed their legal fiduciary duty prioritized a marginally higher share price over ethics or mission.
  • “The British Thoracic Society begged them not to do it. But the board of directors had a meeting and they just said, look, this is ironclad. Black and white. It’s our fiduciary duty. We must sell the company to Philip Morris. So they did.” (Eric, 11:48)
• This exercise illustrates how “fiduciary duty” as commonly interpreted is deeply misaligned with long-term value and ethics.

Memorable quote:
“When I tell the story now, I’m always like, ‘See, I was exaggerating. It wasn’t a dollar per share, it was much worse. Ten pence per share was enough to get them to trigger this so-called fiduciary duty.’ So, yeah, I think that story is really chilling.” (Eric, 12:59)

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3. The Financialization of Everything and “Gravity”

[14:03 – 34:46]

• Eric and Kim trace the roots of the current crisis in corporate purpose, from the historical legal structure of U.S. corporations to the spread of “shareholder primacy” ideology in the last fifty years.
• They discuss the concept of “gravity”—the powerful, nearly invisible force that pulls even the best-intentioned companies toward mediocrity and value destruction as they succumb to market and financial system pressures.
  • “What we see is companies, over time, they slowly start to conform to the values of our financial system, even if they started out in different places.” (Eric, 27:36)
  • Kim shares the example of Google’s cultural and strategic descent post-IPO, highlighting how “the market” becomes an unconscious participant in every decision.

Notable moment:
Kim: “When I left [Google], I burst into tears—full snot running down the face kind of tears—because it was such a special thing.” (Kim, 27:55)

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4. The Measurement Problem & Unintended Consequences of OKRs

[34:46 – 39:15]

• Kim connects the discussion to her earlier book “The Measurement Problem”—how what’s easy to measure gets rewarded, often to the detriment of what really matters.
• Eric calls out the dangers of reducing multi-dimensional value to narrow OKRs (Objectives and Key Results), arguing for holistic metrics that protect trustworthiness and ethical value.
  • “Every single person who receives one of those metrics has a choice to make: if they want to, they can choose to personally boost their individual metric … at the expense of the trustworthiness of the company…” (Eric, 36:16)

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5. Solutions: Building Governance Fortresses and Institutional Integrity

[39:51 – 58:21]

• Fixes for mediocrity and ethical collapse aren’t simple; Eric advocates for “interlocking sets of practices” at the institutional level, not just relying on founder heroics.

  • “We need institutional protections, not personal protection. That opens up a new space of creativity to build governing systems that follow the architecture of institutional longevity rather than relying on the goodwill of any one person.” (Eric, 43:13)

• Case study: Costco’s “governance fortress”—structured defensive mechanisms that preserve mission and insulate management from both market and activist investor pressures.

  • “Costco is taking money that rightfully belongs to shareholders and spending it on improving the customer experience.” (Eric, 45:46, quoting a Wall Street analyst criticizing Costco, illustrating absurdity)

• Encourages replication of alternative structures, e.g., industrial foundations (Patagonia, IKEA), and calls out how these non-shareholder-primacy models produce organizations much more likely to survive and thrive for 50+ years.

Notable quote:
“Every time someone talks to you about best practices, you need to hear that they’re saying Kroger practices. This is a company that thinks you should be more like Kroger and less like Costco. Is that really what you want?” (Eric, 48:21)

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6. What Can Leaders Do? Action Steps

[52:36 – 58:21]

• The most crucial step is timing: “It’s always too early until it’s too late.”
• Two core paths: Path of Ethos and Path of Integrity.
  • Path of Ethos: Building for mission alignment—“align every resource… toward the goal of making money only by accomplishing the mission and in no other way.” (Eric, 54:13)
  • Path of Integrity: Building structural defenses to prevent mission theft and protect against both internal and external pressures (“gravity”).
• Emphasizes practical steps—establishing solid corporate purpose, alternate governance, and holistic measurement.

Advice:
“If you just kind of float with the current, you’re guaranteed to wind up with that same mediocre outcome.” (Eric, 52:49)

• Shares research: companies with so-called “bad governance” (i.e., non-standard by Wall St.) actually outperform on longevity and often financially.

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7. Notable Quotes & Takeaways

• “I think it’s perfectly possible to make money in an ethical way and that our grandparents and great grandparents were not as confused on this point as we are.” (Eric, 15:57)
• “If you’re willing to betray companies for money, they will reward you generously. So that’s what we’re up against... But if you are, if you find that thought kind of intuitively revolting, good for you. You’re a human being.” (Eric, 51:00)

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Memorable Moments

• The tale of Vectura’s demise: a microcosm of everything wrong in current capitalism.
• Kim’s raw recollection of leaving Google and the grief that follows when companies lose their purpose ([27:54]).
• Laughter over the Wall Street analyst accusing Costco of “taking money that rightfully belongs to shareholders and spending it on improving the customer experience.” ([45:46])
• The head-shaking that “best practices” are typically just “Kroger practices”—i.e., a recipe for mediocrity, not greatness.

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Timestamps for Key Segments

| Segment | Description | Timestamp | |---------|-------------|-----------| | Introduction & Eric’s motivation | Why Eric wrote Incorruptible, the problem statement | 02:43 – 05:45 | | Story: Vectura & Philip Morris | Fiduciary duty gone wrong, real-life cautionary tale | 05:45 – 14:03 | | The force of “gravity” | How companies lose their way, Google case | 14:03 – 34:46 | | Measurement and OKR failure | Dangers of metrics and how to rethink them | 34:46 – 39:15 | | Institutional integrity & Costco | Defending against mediocrity, governance fortress | 39:51 – 48:21 | | Leader action steps | What to do, how, and when to do it | 52:36 – 58:21 |

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Book & Further Resources Recommendations

• Incorruptible: Why Good Companies Go Bad and How Great Companies Stay Great by Eric Ries
• Radical Candor by Kim Scott
• Eric recommends:
  • The “Murderbot Diaries” series (for fiction illustrating system critique)
  • “Dungeon Crawler Carl” series by Matt Deniman
  • “Radicalized” by Cory Doctorow

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Final Thoughts

Eric Ries challenges listeners to fundamentally reconsider what ethical, sustainable business looks like—and to take action now, not later. By demystifying the unseen forces that erode great companies, and highlighting actionable alternatives like holistic measurement and governance fortresses, this episode is a handbook for anyone yearning to build, lead, or support organizations that don’t just survive, but embody lasting greatness.

Find Eric and his work at Incorruptible Co.

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Summary written in the spirit of Radical Candor: Clear, direct, and deeply caring.

Transcript

[A]

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[B]

Hello everybody. I'm Kim Scott. Welcome to the Radical Sabbatical podcast where we are talking to some of the authors of the books that have made a huge impact on me rather than our usually scheduled programming. Today I am thrilled to have Eric Reese. Am I pronouncing your name Eric?

[A]

Yes, yes, Reese. Like a candy. I always tell people.

[B]

Yeah, Eric Reese with us. Eric is the author of the New York Times bestseller the Lean Startup, the Leader's Gu, and he has a book coming out that I think is one of the most important books I've read in the last decade. It's called Incorruptible why Good Companies Go Bad and How Great Companies Stay Great. And I'm sure everyone listening wants to build a great company or a great team that stays great. And I think, Eric, what you write about in this book is very relevant right now because so many of our listeners have asked us to take a step back and think about what it means to lead, to manage in this moment in time. The world right now feels broken. Something is rotten in the state of Denmark and the market seems to reward companies that are doing things that seem to do more harm than good, to put it gently. I guess. And it begs a question, what does it mean to be a leader in this kind of environment? People are asking, am I contributing to to this more harm than good problem by being successful? And obviously I don't want to go into my career trying not to be successful. So I think your book really addresses this anxiety and so much more. So thank you for writing it.

[A]

Oh gosh, thanks for the kind Words. I'm so glad you, so glad you enjoyed it.

[B]

Yeah, it's really important. So what prompted you to write it? When was the moment that you said, I've got to sit down and spend some time on this topic?

[A]

Gosh. Well, I've been working on it for years. It feels like forever. You know how the writing process can be. Sometimes it does not come easy. And for this one I really, I had a hard time figuring out both like what is the thesis exactly and how do I narrow its focus enough to make it a book and not like a 12 volume, you know, monstrosity.

[B]

Yeah, yeah.

[A]

Because I had been like, I've had a lot of success with Lean startup and the kind of movement that, that spawned and I'm very proud of it. I feel like really blessed. I get to do what I get to do and I've helped so many companies. Right. Like hundreds of companies, thousands. I don't know how many companies I've touched at this point. Printing incred incredible wealth and, and impacting the world. So I'm happy. That's all good. But I've been at this long enough that I've also gotten to see the dark underbelly of this business. And so many of the people that I admire the most, who I've helped the most, like something wrong happened, like they took a wrong turn and their company is not what it could have been.

[B]

Yeah.

[A]

And we all kind of vaguely trade

[B]

them or got taken away from them.

[A]

Yeah. It's incredibly common. It's so common that we hardly even know what to call it. Yeah, we just see it. We see it all the time. You know, I was just in a restaurant and I took one bite of the food and I hadn't been there in a couple of years and I was like, did private equity buy this restaurant? I could taste it. I could taste it. And we've all had, I tell that story all the time. And so many people come up to me and they're like, I know what restaurant you're talking about.

[B]

My son, my son was just, we went to this great restaurant that we loved and we ordered the flourless chocolate cake and he was like, I know who makes this cake. Every restaurant buys this cake from the same giant company. And it's not good.

[A]

It's not good. It's just, it's not what it was. And I think what I eventually realized is that we're, we're teaching people a value destroying set of best practices.

[B]

Yes.

[A]

I myself, they're worth their, they're abysmal And I just thought for a long time I was like, I don't really understand these practices, but I. Somebody surely does. And they must be that way for a reason. And over time, you know, I've come to see, first of all, I've seen the destruction that they wreak firsthand. And later I came to understand the research we have that they're actually like, quite poor. When I say value destroying, I don't mean like in a minor way or as a metaphor, like literally setting incredible amounts of value on fire. And at the same time, they're making the people that operate them miserable.

[B]

Yes.

[A]

So I've seen all these people have all this worldly success, one compromise at a time.

[B]

Yes.

[A]

And then they end up. Yeah. Out of control of their own company. Their company becomes malignant or bureaucratic. They. They wind up becoming the villain of their own story. And they're left with a lot of riches and a lot of regrets.

[B]

Yeah.

[A]

I started to ask the question, like, who is it for if the winners are miserable? Yeah. Like, why is it? And the answer is right there in the subtitle. Because I think of this book, it's like, there's the why readers who are like, why is this happening? And the how readers, like, how do I prevent it from happening to me? So those really were the two theses of the book, which, like, how do we get in this situation and what are we going to do about it?

[B]

So one of the stories that you told in the book is. That is haunting, is of an entrepreneur who created a company that would allow you to inhale a drug and then who bought it and what hat like, oh, sure, tell that story.

[A]

Because I'll tell the story. Yeah. It's a really haunting story. And it so sum ups our moment. Our moment in the financial system that we're in right now. And I'll tell you how I discovered the story too.

[B]

Okay.

[A]

Because I didn't know about it in real time. What happened was for years I've been doing this hypothetical exercise with entrepreneurs when I would meet them, because a lot of founders especially. But I see this in other middle managers and senior leaders and board members. A lot of people have never read their own corporate charter and have no idea what their corporate governance is. It's actually shocking to me.

[B]

I will confess, even after reading your book, I haven't yet done. I'm gonna do. My co founder and I are like, we gotta do this.

[A]

It's like eating your vegetables for. And listen, I don't blame you because these documents are so boring. And actually, that's part of the pro.

[B]

That's part.

[A]

That's part of the problem. They're also written in this very esoteric language that. Where, like, up is down and black is white. So even though it says one thing on the page, it actually means kind of the opposite in. In practice.

[B]

So what, like a ballot measure?

[A]

It's. It's. It's really. It's absurd. It is not designed for builders to comprehend because it is designed for builders to delegate to the governance class. That's a. It's a. It's an usurpation of power away from those who build things to those who govern things. Anyway, so for a long time, to help founders, especially board members, understand this problem, I would ask them to do this hypothetical and say, who do you think is the most evil company in the world? Yeah. And people would be like, what do you mean, evil? Define evil for me. And it's okay. I don't mean. It's a kind of like, absolute moral sense. What I mean is the one company on this earth that no matter how much money they offered you, you would never go work there.

[B]

Yeah.

[A]

That's it. Like, there's just nothing they could do. There's no promise they could make you. You don't trust them. You don't believe. And nobody has trouble answering this question. They might not want to say it out loud.

[B]

Yeah.

[A]

And, you know, and over the years, I've been using the exercise, People name different companies. You know, like, it used to be like, munitions and weapons merchants were high on the list.

[B]

Yeah.

[A]

You know, used to be like, bioengineering companies were high on the list. And increasingly tech companies are, unfortunately, now

[B]

it's met up, probably.

[A]

Yeah. I get that a lot from. Especially from younger people who feel betrayed, personally betrayed by this product. Anyway, I tell them, look, your values may be different than mine, but my father was a pulmonologist growing up, and we were always taught that Philip Morris was the most evil company in the world. Whatever. Whatever they offer, you just don't believe them because they're up to no good, because they were willing to sell cigarettes to children. Okay, fair enough. If you're listening to this and you want to do the exercise at home, you don't have to pick Philip Morris. You could pick whoever you want.

[B]

Yeah.

[A]

So I asked people, okay, imagine that. That company, whoever you picked, in my case, Philip Morris, comes to you and offers to buy your company from you for $1 more per share than it's worth. Are you selling like entrepreneurs Always says, no, no, of course. Outrageous. One person did ask me one time, well, what are they going to use my product for? I'm like, to sell cigarettes to children. Does that change your answer? Hell no. I mean that was the most mild version of the answer I get here. People like, of course I'm not doing that. I'm like, great. Well, did you know that according to your own corporate charter that you yourself signed, most governance experts in the world believe that you have a fiduciary duty to say you have to, you have to do it. It's not up to you should this happen. And the first time I exercise, I remember someone accused me of lying. They're like, that can't possibly be right.

[B]

Yeah.

[A]

And I'm like, listen, call your guy. Yeah, they always be like, well my guy would never do that for me. I'm like, call your lawyer. It's always your guy. I don't know why. Call your guy. Just ask him straight up if what I'm saying is true or not. And they call me back and they're like, he said it's true. He doesn't understand why I'm upset. He thinks he did me a favor by giving me the best practice corporate governance. Like, okay, now you see the problem. Anyway, after I'd done this exercise for a lot, I actually had, I got in a situation where people would sometimes accuse me of exaggerating. Like, come on, that's, that's an unfair hypothetical dollar.

[B]

It's not going to happen. Yeah, that'll never happen.

[A]

And so I went hunting for like stories, you know, I was accumulating for the book research on stories where this had happened and occurred to me one day. I was like, has this ever happened involving the actual Philip Morris? Yeah, you know, it's like I actually never bothered to look. It was hypothetical to me. So I'm looking around that I got a list of all the companies Philip Morris had ever acquired and I discovered this company in the UK called Vectura. Now Vectura was a spin out of the University of Bath formed by a bunch of founder scientists who believed in inhaler therapeutics. So inhaled medicine for asthma, copd, illnesses like that. Yeah, it had a successful spin out. They had university based ip, they took the company public. They were a publicly listed company on the London Stock Exchange. And one day the actual Philip Morris, I think what happened is a consultant came to them and told them that they should diversify their ill gotten gains out of just tobacco into other adjacent businesses. So some you could just see how like some consultant made a spreadsheet and a practice, best practice, whatever. And they were like, oh, we have a lot of experience in inhaled technologies. We should go acquire this inhaled therapeutics company. So the actual Philip Morris shows up on the doorstep of Vector and says, we'd like to buy the company for 155pence per share. At the same time the company's like, oh, this doesn't sound good. So they started soliciting other bids and they got a big US private equity firm to bid 145 pence per share. And they were getting this bidding war going, but, but Philip Morris made a public statement. They're like, listen, we have unlimited money, you understand, because of our, our ill gotten gains, you understand?

[B]

So we addicted so many.

[A]

Yeah, like because of all the bad stuff we do, we have, we have plenty of money. So we will outbid any rival. So anyone bids anything, we're going to outbid them, so don't bother. So the private equity firms like, whatever, we're not going to bid against Philip Morris. It's not possible. But we will, we still will buy. Leave our bid where it is. So the board of Victor had this very simple decision to make. Three doors. Door number one, stay independent. They're a public company, no. So problem to be solved. Just stay a minute. Door number two, sell to the private equity firm. Door number three, sell to Philip Morris. Now. This was a massive controversy in the uk. Every normal person who hears this story is like a big tobacco should not own a health care company. This is absurd. There were inquiries. The British Thoracic Society begged them not to do it. But the board of directors had a meeting and they just said, look, this is ironclad black and white. It's our fiduciary duty. We must sell the company to Philip Morris. So they did, they just, they just did it. Now within three years, Philip Mars had taken basically 90% of the purchase price. They had to take it as a write down because they utterly destroyed this company and they sold it for parts. It was like a massive active value destruction. Even on top of how this was an absurd concept from the beginning, yet the board of directors felt like their hands were tied. So when I tell the story now, I'm always like, see, I was exaggerating. It wasn't a dollar per share, it was much worse. 10 pence per share, it's about 15 cents US was enough to get them to trigger this so called fiduciary duty. So yeah, I think that story is really chilling. And everyone who Tells me it's not going to happen to them. I'm always like, well, then what? Tell me specifically what is different about your situation than Victoria's? And they're always like, I have good intentions. Well, guess what?

[B]

The CEO of that, I mean, the founder of that company must have just been devastated.

[A]

Like, you know, I don't know whether it's a. It's a happy part of the story or a sad part of the story, but he actually had passed away before this happened, so at least he didn't live to see it done.

[B]

Yeah, I guess.

[A]

But yeah, it's. It's grim, but it's extremely common.

[B]

Yeah.

[A]

And in fact, it's so common that, you know, this was, as far as we can tell, an act of unintentional value destruction. But a lot of acquisitions these days are specifically designed to destroy the thing. They're basically catch and kill behind you on the thing. They're literally catch and kill. In fact, there's an academic study in the pharmaceutical industry on what are called killer acquisitions. There's actually enough, it happens often enough that we have a data set to know that at least 5% of pharma acquisitions are designed to shut down the opposing company's R and D. So these are not value creating activities. These are value destroying activities that shouldn't be. Like, if our ideology, our modern ideology about finance driven capitalism were true, that it's really about value creation and competition, we wouldn't see these symptoms.

[B]

Yeah.

[A]

So that's how you know that this theory is clearly false.

[B]

Yeah. Yeah. So in some ways, I mean, this is part of the problem, I guess, is these large companies, a lot of antitrust regulations have been weakened or even just killed. So part, part of the, part of the problem is basically just the financialization and therefore de industrialization. But not just de. Industrialization.

[A]

D. I don't build defication. Yeah, that's what I was gonna say. The ability to make money by making things. Things at all.

[B]

Yeah, yeah, yeah. So that's part of it. In some ways it feels a little bit. Your book feels like the answer to what Cory Doctorow calls insidification.

[A]

Oh, yeah.

[B]

Is that, is, is that fair? Would you agree?

[A]

Oh, very much so. In fact, I. I consciously thought about that a lot when writing the book because of course, I find his writing very compelling, but also very infuriating.

[B]

Yeah.

[A]

And I understand from the out, like from the outsider's perspective, if you're a policymaker or a customer or even an investor, if you're from the. On the Outside of these organizations, it's very natural to see them as rapacious by, by nature. But being on the inside, I feel like I know the human beings who start these things, who operate them, who live them every day, who are. I know they're investors and they're board members and they're executives. Like, I really.

[B]

They're good people. They're all.

[A]

And a lot of them are very good people who really mean well. And in fact, what I've seen is so many of them basically lose control of the thing that they made, so they're inadvertently creating like a Frankenstein's monster.

[B]

Yeah.

[A]

Not intending to do so. And I just felt like, okay, leaving the policy aside, this is not a book, not a political book, and it's not a book about public policy. Although I think the public policy implications are obvious. But, but I don't, I don't go there in the book because I just wanted to answer this question. Not what should companies be allowed to do? But instead the more important question to me is what should we as company builders? What should we want to do?

[B]

Yes.

[A]

What should we seek? What ought we to do? It's kind of an old fashioned book answering, asking a kind of a virtue question about what is the right way to go about making money. And my conclusion, you know, spoiler alert, is that there is really no need to give up on making money. I think it's perfectly possible to make money in an ethical way and that our grandparents and great grandparents were not as confused on this point as we are. Yeah, we actually lost on this. Lost something very essential. And it's why I chose the title of the book Incorruptible, because I felt like in our modern language, we don't even have a word for this value destroying behavior. We don't know what to call it. You know, mission drift sounds like a navigation.

[B]

Yeah, Short termism.

[A]

Short termism, that's like one person's. Short termism is another person's agility. So what are you gonna do with that? Right? We just, we don't, we literally can't call, call it anything. And eventually I realized, I was like, well, what would it have been called in previous eras? Oh, it would have been called corruption.

[B]

Yes.

[A]

Because our modern definition of corruption has become catastrophically narrow. Now it only means like the most egregious crime.

[B]

Well, and even that now seems.

[A]

And even that is like going by the wayside. No, it's a slippery slot. Once you start in, in once you start to reward and celebrate and get your grant, social approval for that matter, let alone celebrate to value destroying ways of making money. It's very dangerous. It's why, like, the ancients warned us about demagoguery and. And all this stuff. Like, they. They weren't. They weren't concerned because it doesn't work. It's dangerous because it does work. You know, as you start selling an addictive product, it seems to work. You make money. Right. So what's happened is we've created an economy where many of the ways that we make money today are. Great grandparents and great grandparents not just would have looked at that as, like, morally dubious. They would have been crimes.

[B]

Yes.

[A]

Right. Including in the 19th century. This blew my mind when I learned it. I'm like, how does not. How is this not widely known? I don't know. In the 19th century and before, for almost the entire history of the joint stock corporation, but Certainly in the 19th century in America, if you tried to create a corporation, you, were required by law to state what its purpose was.

[B]

Yes.

[A]

Its purpose had to be to make a thing, and you had to make an application that showed that it was in the public interest that this thing be made. So in those days, if I had tried to enact modern best practices, and I had tried to acquire a company that, you know, made a railroad or I tell the story of the erie wars where there was someone, a banker, tried to take over the erie canal construction operating company. If you wanted to convert a company from making a thing to simply making money for its shareholders, As I want to say, the legal purpose of this company now to make money for shareholders to make money. Yeah, that would have been illegal. The courts would have voided your charter as ultra vires, meaning beyond the scope of what had been granted as the corporate authority. So this is not like some ancient thing from the medieval period or whatever. Delaware didn't switch over to what's called general incorporation until 1899, and then 1899,

[B]

you could incorporate in. Your purpose was to make money.

[A]

No. Here's what's so interesting. If you read the statute in 1899, the key breakthrough, this is called general incorporation. And the idea was simply that people should be allowed to form a company for any reason without having to go to their state legislature and get permission. But if you read the statute, it's super clear that you still have to say what the reason was. Yeah, you had to say, this is the purpose of the corporation. And it was only in the late 70s, early 80s that we adopted the now modern idea of shareholder primacy, where it was Seen as acceptable to say that you're not trying to do anything at all but just trying to make money.

[B]

And not even make money, make money for a very narrow set of people.

[A]

The share just for the shareholders. Increasingly we're even talking about just for the short term. Cheryl. And not even for any kind of long term. It's gotten, it's an idea that is like, you know, it's consuming itself. It's, it's self destructive.

[B]

Yeah.

[A]

And so yeah, that's where, that's where this modern idea of fiduciary duties comes from. And in the book I trace the history of how, how we went from a. What I call a three legged stool. Like a very sensible and coherent idea of corporate purpose. Which was basically three legs. First leg. Corporations are incorporated in order to do a specific thing that is has a public benefit. Two boards of directors are trustees of that corporation. So they have a duty, a fiduciary duty, a positive duty from trust law to preserve and protect that corporate purpose.

[B]

Not just.

[A]

And their tertiary third duty, the third leg was the agency duty. They are also agents of the shareholders, but they had a negative duty to prevent the shareholders from being defrauded. Because the shareholders have given money for some purpose. If use it for something else, that's a form of fraud. So that three legged stool made perfect sense. And it was because of that three legged stool that we had the biggest breakthrough in corporate governance which is the creation of limited liability for investors. Right. Because investors are not the controlling entity they don't bear. Which makes perfect sense. But what has happened over the course of the 20th century as financialization increase, we have knocked the legs off this tool. We've gotten rid completely of the purpose leg. Now everything is, is financial only we got rid of the trustee leg. It's become like the list of ways that boards now are supposed to police. Self dealing is like very minor compared to what is considered their major duty. The only the agency duty remains. They are basically agents of the shareholders

[B]

to maximize, to make sure they make money. Yeah.

[A]

The reason why this is so stupid, on top of all the other social and economic and environmental catastrophes that it is enabled, it is also really bad for investors. First of all, it doesn't work in the long run. Doesn't work in the long run. It doesn't work. So it puts investors into a prisoner's dilemma where each feels they have to extract as much value as possible lest someone beat them to it. But also it is logically incompatible with limited liability. So going back to Roman times This is an ancient idea. If I am your agent, then I also, I incur liability on your behalf for my actions. Right. You send me to the marketplace to get me the lower, lowest price by whatever means necessary, and I stab a merchant. It's as if you stabbed the merchant because you gave me the knife and these instructions. So if we're going to really live in a world where corporations are agents of shareholders, then we can't have limited liability.

[B]

Wow.

[A]

And if you've wondered why is the public all of a sudden super outraged about all this behavior, why are there been increasing calls for the corporate death penalty? It's because I think people are intuitively understanding there has to be some account, somebody has to be accountable for this behavior. And if you're going to say the board is not accountable because ultimately they only answer to shareholders, then it's, then it's just who is. Who else can be accountable? It has to be, it has to be the shareholders. So I think shareholders would be wise to stop having their agents go around saying that they are in fact owed only this fiduciary duty.

[B]

Yes.

[A]

And go back to a more reasonable understanding of what the fiduciary duties are for.

[B]

I thought you were going to go down a different path, which is that the companies that really try to. That, that, that, that try to resist what you call gravity. I want to talk to Greg about gravity in a minute. But the, the, the companies that, that try to instill a purpose and, and put that purpose to the forefront tend to do much better than those who don't like the short termism. In addition to incurring this major liability, like on the fear side, there's also a greed problem. It doesn't work.

[A]

It doesn't work. On top of everything else, it's not very effective. Boy, that was one of the biggest things I wanted to get right with this book and why part of why it took so long. There's like almost as much citations in this book as the main body of the text. I was like, we have to get. Yeah, I really spent a lot of time on this because at first I kind of couldn't believe it. Like when I first got into this, I was like, I hated the word corporate purpose. I was like, ah, yeah, it feels like some kind of, like I, I was skeptical too. But like, over time I've just seen the evidence. Like if you just meet companies that are mission driven, they're purpose driven, they just, yeah. They have such a level of flow that conventional companies can't touch. And I was like, and I've made. All the money I've made in my life has come from these companies. I just, they outperform. So I started to be like, oh, okay, that seems pretty obvious. I wonder if there's any research about this. And what's funny is you talk to the academics who study these questions and they're like, there's no, there's no. I'm like, I need you to answer this controversial question for me. Does. They're like, there's nothing, there's no controversy. The data is unequivocally clear. And there's so many variations of it. Companies that obviously were, that, that are purpose driven outperform companies where people, investors or employees can trust what they say outperform. Companies with alternative governance structures that are not designed around shareholder primacy also outperform. And not just outperform in the moral dimension, but simply in the economic dimension because they're able to pursue long term economic goals. It's very, the mechanism is not some mystery either. The whole thing is well understood. So at a certain point you start to be like, if all these worst practices, we know what their alternatives are and we've studied the alternatives and we know the alternatives work better, why are we wedded to these practices? For what? To what end?

[B]

Yes, well, because there are some people who really benefit from the short term.

[A]

There sure are.

[B]

And, and they have a lot of power right now.

[A]

They have a lot of power.

[B]

But it's, it's so interesting. Like I really learned this when I first got to Google. I'm going to tell a small anecdote and Google's not perfect and maybe it got, maybe it succumbed to gravity in the fullness of time. But when I first got there, this was in 2004, there was a little link at the top of Google to a definition of if you just put in a word, you would get some results. But there was also like a link out to a dictionary and it went to. I forgot what dictionary. But some, some formal dictionary. But, but Dictionary.com, which was not a formal dictionary, was an Adsense publisher. And I'm like, oh, we should, we should link to them because then we'll make money on every. And I got in so much trouble for saying that. So you know, I'm like a newly minted mba. And I was like, this seems obvious, but they're like, you don't understand what our purpose is. Our purpose is to organize the world's information and make it universally accessible and useful. And we think this does that. Better than that. And we don't care about the money.

[A]

Yeah, that's the old, that's the old Google.

[B]

The old Google, Yeah.

[A]

And now like there was an incredible article, I can't remember who wrote it, tracing the history of, of that issue inside the controversies that related to that on Google and kind of charting that that was a. Basically like, that was part of why Google beat Yahoo.

[B]

Yes.

[A]

And then after Yahoo had been driven into submission, Google started to succumb to those same forces and they hired a bunch of Yahoo people who ultimately had the last laugh because they changed it to match the Yahoo policy in the end.

[B]

Well, and, and you know, there was also gravity. It went public like, and if you read the S1, there was a lot of hand wringing like, and conviction that, yeah, the company could go public and not succumb to gravity. And gravity. So talk about gravity. This is basically the gravitational pull of, of the stock market, basically.

[A]

Yeah, yeah.

[B]

That's my understanding of it.

[A]

Yeah, yeah. So this is, I think one of the things that I feel like we got wrong in a lot of business writing and a lot of management thinking is we're focused so much on the surface level characteristics of organizations, the things that we can see and measure, which are important. Strategy, business model, culture, people. Madam, I said this stuff's not important, obviously super important. But because we're focused on the surface, we're missing certain things that are below the surface. And I call them the fundamental forces that act upon organizations. Borrowing metaphors from physics in order to understand this, one of which is what I call financial gravity. So if you want to understand the gravity, it's important to understand its macro effect, but also its micro mechanism. So in macro effect, what we see is companies, over time, they slowly start to conform to the values of our financial system, even if they started out in different places.

[B]

And the fact maybe the story of Google right there.

[A]

Yeah, I mean it really. And I actually made a study of the blog posts that long time. I'm talking about people who've been there more than 10 years. Longtime Googlers write when they leave Google. It's like a genre. They're incredible. You should read them. Read four or five of them back to back to back. You will feel this sense of loss.

[B]

Yeah.

[A]

That they can't quite name.

[B]

Yeah. No, when I, when I left, like, I burst into tears and not like, like full snot running down the face kind of.

[A]

Yeah, yeah, yeah. Because it was such a special thing. And listen, Google's a great company even today. Great company.

[B]

Yeah.

[A]

Still a great company, but, like, it has had this. This loss of something, something special, something precious. So. So that. That's. The macro effect is. And the fact that you know that it's a force and not random is that companies all wind up in the same place. Even if they start in different decades, different industries, different founders, different ideals, they all wind up in the same mediocre place. So much so that if I tell you that a company has lost its soul, or if I tell you a company has succumbed to big code disease. You already know what I mean.

[B]

Yes.

[A]

You don't have to be like, what. Which company? What industry? You know, it doesn't matter. You know exactly what happened. Okay, so then that, like, so we have to understand what causes this macroscopic effect. And I delved a lot into the psychology research here. If you've ever watched someone meet a celebrity or a billionaire for the first time, you've probably had this experience. It's kind of gross. You know, it's like, they. They.

[B]

What happened to you? Yeah. Yeah.

[A]

They're like. You're like, when did you become incredibly obsequious and agreeable? Like. And if you talk to people who've had that experience, you say, why did you do that? They don't know why. They didn't plan to.

[B]

It's just like, they weren't even aware that they were doing it.

[A]

They weren't even aware that they were doing it. It is an unconscious force. And it's. It's an instinct. It's a survival instinct that been bred into us that you can't turn off any more, that you can change your eyes from dilating in the dark. It's just. It kicks in. So what? And when does it kick in? It kicks in whenever you have resource disparities between people. This is why inequality is so toxic.

[B]

Yes.

[A]

When you have power, status, or economic disparity between people, you start to, like, you just unconsciously think, gosh, this person could make my career.

[B]

Yeah.

[A]

The snap of their fingers.

[B]

Yeah. And I'm gonna overlook all kinds of annoying things that they're.

[A]

I just, you know, and we. So much research about this. Like, I mean, even, like, I'm. One of my favorite studies. They measured people who had resource disparities and gave them each a cookie while they're sitting and talking to each other.

[B]

Yeah. And the. The person with more money gobbles up the cookie.

[A]

Yeah. Yeah. They literally could measure the radius of crumbs that they left on the table is proportionate to their net worth, their relative status Disparity. It's incredibly. It's just because it's 100% unconscious. So what happens is. So you see a company go public, for example, and I ask CEOs all the time. You know, I built a stock exchange, so I spent a lot of time studying the IPO process and companies. And I asked people who've taken a company public, what's the biggest difference you notice before and after the ipo, they always give the exact same answer. Everyone's watching the stock ticker.

[B]

Yeah.

[A]

They can't help it.

[B]

Yeah.

[A]

Their net worth is now gyrating with the stock market. And so what happens is in every meeting, there's like an extra ghost in the meeting with you, which is called the market. And you start to hear people say stuff like this, like, oh, we want to do that, but the market might not like it.

[B]

Yeah.

[A]

And if you quiz them about it, you're like, what does that mean? Who's the market who might not like it? They're not actually super clear. You see this in startups. They're like, VCs might not like it.

[B]

Yeah.

[A]

Which. Which VC?

[B]

Which VCs?

[A]

Yeah. Is there. Do you have someone in mind? And they're like, how do you. And more importantly, if you say, how do you know that that's true? They'll be like, well, everyone knows that. Like, but did someone tell you, like, how. How is it that you have knowledge that everyone knows that no one ever said out loud. Right. It's an unconscious transmitter. So the first stage of it is gravity warps behavior. You start to change your behavior in ways that you think will please the dominant force.

[B]

And, and, and you also, that's. If you're. If you're in a position of less power, even if you're in a position of more power, like when, when Twitter went public, Dick Costa, who, who I think was a great leader, said, we are not going to be assholes in a box. Like, that is whatever. And, and, and they weren't assholes in a box. And yet, you know, it happened.

[A]

It happens anyway. Yeah. Because what happens is, first of all, as we financialized everything in the world, the financial system, measure and measure, immeasurably vast. So. So yeah, you're the CEO of a big company, but you are actually very small relative to this massive system. And we see, like, it's actually like a spectacle of watching, like, these incredibly wealthy people desperately trying to make the stock price go up.

[B]

Yeah.

[A]

You're like, what? For what? And then feeling insecure and they feel incredibly Insecure. And they're actually very easy to bully and move from the outside because they have this deep need to conform. So eventually, the other thing that psychology research teaches us is that consistently enacted behaviors eventually become internalized as values.

[B]

Yeah.

[A]

So you might start out saying, we're going to be the good guys, don't be evil. We're going to always put the customer first. You even have companies that still says that on the wall. And everyone involved says, that's what we do. People don't even realize that the value changed. But their actual internalized belief is something like, well, we try to put the company, the customer first. I tell the story.

[B]

It's like J and J's credo. Did you read that book? That. That is the most insidious.

[A]

That's an incredibly insidious story. And, and in fact was this very famous story about. After the original person who created the credo, Robert Johnson ii, after he passed away, the company was drifting and a second generation leader was at a. At a corporate retreat. It just been named company president.

[B]

Yes.

[A]

And one of the other executives gets up at the retreat and is explaining that the credo, with its five commitments is kind of like juggling a series of balls.

[B]

Yeah. And one you better not drop.

[A]

There's only one red ball, the one you better not drop, the one for profit. And the new president stands up and says, excuse me, my friend, but I'm afraid you're mistaken. Starting today, all the balls are red. Like he was the one who's like, no, it doesn't work that way. We make profit because we take care of patients, because we do all this other stuff. But, but, and in fact, he did. He was eventually named CEO. He did revitalize the company. And he was responsible for the very famous Thailand. I'll recall if you know that story.

[B]

Yes. And yet if you know more tears, that book.

[A]

Yeah.

[B]

Like he, he was. He was flawed. Profoundly.

[A]

No. Profoundly flawed. Because despite his best efforts, despite, like. My favorite thing is that Robert Wood Johnson, when he invented the credo, he had it carved into gigantic limestone blocks.

[B]

Yes.

[A]

In stone. At every person who walked into the office. So that he was like for all time. People have to see the creed. But. And the blocks are still there. The people who put asbestos in the baby powder walk by those blocks every day on their way to work. It's not enough. It doesn't matter what you put on the wall. It doesn't matter what you intend. Gravity operates automatically. It is an unconscious process. So unless you specifically design an organization to resist It. What you will get eventually is this very exploitative behavior that our current financial system transmits as its values.

[B]

You know, it's so interesting. I've been thinking about. I've been thinking about Meta and. Because there are a lot of good people. I mean, I know people who I really like, you know, who. Who work there. It like, not, you know, okay. And I. I'm totally. There's part of me, and this may be an excess of empathy, but there's part of me that is really. That does feel some compassion for these folks because they have these dashboards. They're looking at the numbers, the number is going up, and they're like, hooray. I'm. You know, it's the. The very first book I ever wrote was called the Measurement Problem, and it's about how capitalism is really good at rewarding what we can measure and really bad at rewarding what we'. Value. And it seems like figuring out how to have the dashboard for what we value is part of how we resist this gravity. Gravity.

[A]

Gosh, you were prescient in writing that for sure, because we know that that's, I think, a very succinct way of saying the problem. And in fact, in the book, I argue for what I call holistic metrics, which are like intentionally designed systems of metrics that are designed to help us bring the intangible, the most important forms of value, into the realm of the tangible. So, for example, in our modern system of okrs, there's a tremendous flaw, like a deep, deep, deep flaw. And that is when we take an objective like revenue growth or whatever, our objective, market share, any objective, and we

[B]

break it down what an OKR is. Objective and key result.

[A]

Yeah, objective and key result. This is another word for the modern sense, the modern idea that you should break down a large goal into a series of sub goals and assign each individual manager a specific metric that they personally will be responsible for hitting. If we do that. Every single person who receives one of those metrics has a choice to make. If they want to, they can choose to personally boost their individual metric, their little dashboard, at the expense of the trustworthiness of the company, or at the

[B]

expense of their peers, or at the. Or at the expense of the. Like, I got a good number and it hurt the.

[A]

Sure, yeah, I'm not. I'm not responsible. I think it was. I think it was the marketing guru Rory Sutherland, who has a whole rant about how when people are brought in to do cost reduction, they're not held accountable for the Cost to the brand, you know, the erosion of quality. Like they're not really held accountable for the long term consequences of their choices.

[B]

Yeah.

[A]

That's all we're talking about here. And most companies, not only do they assign metrics and hold people accountable to hit your metric, we do it in a competitive way where we stack rank people against each other. This is an old Jack Welchism going back all those years. So when we stack rank people according to how well they hit their metric, then we create a prisoner's dilemma again where it's like, look, you might not want to violate the trustworthiness of the company, boost your numbers, but if you don't, you'll be at a disadvantage against those managers who do. We, we therefore wind up promoting the most sociopathic amongst us. And then we wonder why companies lose, lose their trust. Like what? Like it's a, it's a nuts, it's a nuts idea. It is when the trustworthiness of the company is its most valuable asset.

[B]

Yeah.

[A]

So a huge part of the book is about the operating discipline necessary to bring these intangible values into the realm of the tangible so that we can manage for them. Because it's not enough to just say, well, let's be trustworth in general. Well, that's.

[B]

Yeah.

[A]

From that logic you could justify anything. Rather we have to be able to say, and I ask people to visualize this scenario because I think most people who've been a middle manager at any time in their career will be able to relate to this if you're what I call a torchbearer. I feel like every company, there's like a silent reserve culture.

[B]

Yeah.

[A]

Who just, they always want to do the right thing, no matter what. If you've ever had that job and you have that disposition, it's exhausting because every single day of your life somebody comes into your office wielding a spreadsheet like a weapon.

[B]

Yeah.

[A]

Listen, I've calculated the ROI. We could save $0.03 per widget if we like put toxic chemicals in the thing and make people ill. And then

[B]

we'll make a little feel stupid for wanting to do the right.

[A]

And if you say like, I don't think that's the right thing, like, what are you, some kind of idealistic, soft hearted. Whatever. We're here to make money. And so like, because they seem serious and you feel weak, you wind up compromising. And oftentimes what you do is instead of saying yes or no, you just say, okay, well how about if we only, you know, Instead of saying $0.03 let's save $0.01 and let's do it a little bit. Like be evil a little bit. And instead what we need to be able to do is train all of our people that if that ever happens to you, you got to be like, oh, you are proposing the liquidation of a critical and precious resource. So get out of my office. Absolutely not. Of course we're not doing that. What? Why are we even talking about this? I don't need a spreadsheet to know it's wrong.

[B]

Yeah. And you know what happens really? Like at a certain point they call you a communist. And that like that's where this leads is if you're not part of, if you're not, if you're not part of this gravitational pull towards really self destructive, self destruction.

[A]

Yeah.

[B]

And, and mediocrity, then you're a communist, like.

[A]

Yeah, I see that all the time.

[B]

Yeah.

[A]

And it's absurd again because we have the evidence that doing the right thing is more profitable in the long run.

[B]

Yeah. So you offer a lot of solutions to this gravitational pull of mediocrity slash immorality. Really.

[A]

Yeah.

[B]

One of them is for leaders to make sure they're in control. But that maybe is a dangerous solution.

[A]

It is.

[B]

So talk about that because it's. This was one of my favorite parts of your book.

[A]

Well, there are no easy answers here. So I feel like I felt bad.

[B]

Five or six, you need. You can't do one thing.

[A]

Yeah, yeah. I really try to emphasize this with people like that. You have to build an interlocking set of practices that make sense. And honestly, we're grappling with a problem that's as old as humanity itself. Like, figuring out how human beings should share power and resources is one of the oldest, oldest philosophical problems there is. And part of the issue with our current corporate monoculture is we're like, we've lost a bit of our human birthright, which is like human beings naturally love to play around with different ideas about how these structures should work and experiment there. So having all companies be exactly the same is actually like, like a real loss. Yes, so. Yes, so. So what we're talking about now is like, okay, given that you've built something worth protecting. Right. You've built a company that has an I call an ethos that it stands for something good, has built up an asset of trustworthiness, then you know for sure that people are going to try to steal it from you. Okay. Like this is the biggest naivete that I feel like I and every other leader I have worked with for many years. We all share this. This naive idea that if you show that your method of doing value creation is better, the market will reward you and protect you. Wrong. It is going to send the vultures for you to steal what you've made. Precisely because the most trustworthy companies are the ones that can make the most money by betraying those promises.

[B]

Yes.

[A]

So, yeah. So first of all, don't be naive. Okay. But then you're like, people say, okay, if investor control of companies leads to this weakness, then the solution must be founder control of companies. And that is better. I mean, I don't want to be super clear. I think, like, what, what if you look at Meta, Google, you look at all these founder control companies, it's just statistically speaking, they outperform. So, like, they actually make more money for investors than having investors be in control. The parable of the golden goose is as old as we have written records. Okay. Like, it's an old story for that. It's an old song from way back when. So the, The. The issue though, is that founder control by itself has significant liabilities. And there shouldn't come as any surprise to anybody who studied political philosophy for more than five seconds. God Emperor for life and your descendants too, is a rough power corruption. It's power corrupts. The psychologists call it hubris syndrome. It literally causes a mental illness that is not. Again, it's not optional. You can't be like, I'm gonna will myself. I'm gonna be the exception. Because. No, it's not. So I, I do think that founder control as a bridge to something better is okay. In the same way that, like, George Washington, like, had unquestioned command of the. Of the.

[B]

Yeah. Better the founder than the market.

[A]

Right? Certainly. But. But over time, I know too many founders a problem.

[B]

Yeah.

[A]

Who have significant problems, including several who feel trapped. In the book, I said, like, like Atlas, unable to even shrug.

[B]

Yes.

[A]

Because they are literally. Their physical body is the only thing that stands between their company and the ruin of the market.

[B]

Yeah. Yeah.

[A]

That's a rough assignment. That's. Nobody should be asked to do that.

[B]

And of course, I still be allowed to retire.

[A]

You should be allowed to retire without fear that your organization will fall apart after you go. And of course, I document hundreds of these stories in the book of companies that failed this test of succession.

[B]

Yeah.

[A]

Where the founder couldn't leave. And so when they died, really bad stuff happened.

[B]

Yeah.

[A]

So. So I just. I don't think seeing this problem as a personal problem is. The root is. Is Itself a fallacy. We need institutional protections, not personal protection. And that opens up a new space of creativity to build governing systems that are that, that, that follow the architecture of institutional longevity rather than relying on the goodwill of any one person.

[B]

Yeah, and I think it's maybe not even fair to say relying on the goodwill because again, it's inevitable. Like, we are all corruptible. You know, it's so easy to hate the, you know, but if I, you know, if I were, if I were in, you know, it's easy to, it's

[A]

really easy to hate.

[B]

How could Tim Cook have gone to this unbended knee, to this. But, like, what would I have done in his shoes? I would like to think, you know, I would make a big stink, but probably I wouldn't.

[A]

Yeah. And so like, so to give an example that is maybe familiar to a lot of listeners, the book, the book has a recurring character of Costco, kind of pops up periodically in the book at various moments because it, because it's such a, it's such an easy example of something really cool. And one of the things that most people, there's a lot of things about Costco that people don't know. They know it's big, but they can't imagine how big it is. Costco is like much bigger than you think. For almost everybody listening factoids about Costco, by the way, is that if it, if Kirkland Brands, it's like it's in house, private label. If that was an independent company, it would be bigger than Coca Cola, bigger than Procter and Gamble, bigger than United Airlines. Like, it would be a massive business in its own right. That's how big Costco is. It's a, it's a. And although the founder of Costco, Jim Senegal, is still alive, it's already had three CEOs since. So Costco's 40 years old. And it has managed to keep its integrity, like, generation by generation. And part of the reason for that is that Costco has what I call a governance fortress. It is not tied to the founder himself with super voting shares and this kind of stuff, but is rather organized structurally into the bones of the company that allows the company to manage its own affairs without outside interference. And as a result, the board of Costco really has that old fashioned trustee.

[B]

They have a purpose.

[A]

They have a sense of purpose about what they're doing. And they feel like their job is to insulate management from the ravages of the market, not to amplify those ravages to go inside. So there's so many funny stories about Costco over the years dealing with this issue. One of my favorites is there was a whole controversy a few years ago about their governance fortress and how bad it is. And a Wall street analyst wrote this as a criticism, mind you.

[B]

Yeah.

[A]

That Costco is taking money that rightfully belongs to shareholders and spending it on improving the customer experience. Okay, That's. That's the problem. That's the problem. Stealing money from investors.

[B]

And.

[A]

And, you know, the CEO at the time was like, you don't have no idea how much money we spend trying to make Costco look cheap. You know, like, we do. We know what we're doing. Costco's a $400 billion valuation because it has not lost faith with its customers. In another funny episode, a bunch of activists, shareholder activists and corporate governance experts, like, got it together to attack the company for its bad management practices because Costco for many years, had the worst possible governance rating you can get from the governance rating agencies. Literally the worst. Because it. The theory that they. And they wrote these letters, and they had this whole campaign to do this. They said, look, Costco's governance leads to management entrenchment, and entrenchment leads to poor performance. And I was like, it does not. That's like. First of all, even if that was true in general, which, by the way, it isn't true. But even if it was true in general, it doesn't apply to Costco.

[B]

Costco's one of the things done really

[A]

well of all time. How can you possibly say so? They were, like, attacking them for poor performance. And here's my. Here's like, the most wild thing. They did this activist campaign, and they had a shareholder vote to declassify the board, basically to remove one of the elements of the fortress. And they got 76% of the people voting to vote yes to this insane proposal. Now, the good news is that the fortress at Costco requires not just the people who happen to vote in these elections to vote yes, but all shareholders. And Costco has millions upon millions of retail shareholders who are also loyal customers.

[B]

Yeah.

[A]

You know, so. So the fortress held.

[B]

Yes.

[A]

But what's so interesting about it is, like, why. Why are people attacking Costco of all companies? Like, surely there are a lot of worse companies you could be attacking.

[B]

Well, I mean.

[A]

And also, that's what happens.

[B]

Yeah. Like, why. Why do they want to kill the goose that lay the golden egg once again? Like, it's ridiculous.

[A]

They desperately, desperately want to. In the book, I give the example around this exact same time. The same people launched a campaign against Kroger and Kroger. Costco told them to F off. But Kroger was like, very eager to be seen as having good governance. It's like, look, who doesn't want to be seen as having good governance. It's a, it's a hugely valuable for your career, especially.

[B]

Yeah.

[A]

If you can show that you help the company achieve good governance. So, yeah, they did all the things that Costco would not do. And if you look at the performance of both companies since then, Kroger is a perfectly fine company.

[B]

Yeah.

[A]

I actually found an analyst who called the performance of Kroger like Costco in reverse. Just, just, they've been like, obliterated by Costco performance wise. And so I always tell founders, the next time someone talks to you about best practices, I need you to silently separate in your mind. You need to hear that they're saying Kroger practices.

[B]

Yes.

[A]

Okay. This is a company that thinks you should be more like Kroger and less like Costco. Is that really what you. If that's what you want, yeah. God bless. But if it's not what you want, you need to stop listening to these people. These practices are not in your interest. They're not, they're not designed to create shareholder value.

[B]

Steve Jobs used to say when I worked at Apple, best practices just get you back to average. And that's like, it's the death of innovation. It's the death.

[A]

Absolutely, absolutely.

[B]

It's just like, you know.

[A]

Yeah, yeah. And I heard, I remember, I heard the story from another, from a founder. I haven't ever verified directly with the source, but another founder was telling me that he went, when he was taking his company public, he went to see Tim Cook for advice. And he's like. And Tim told him this story, said, look, before you go public, you should know that when Steve was alive, there wasn't a single week that went by that he didn't rage into my office asking how we could take Apple private. He hated being a public company. He felt like the markets were constantly opposed to his ethos. And this is like, in the wrong direction, pushing in the wrong direction. And I think for a lot of people, again, for founders, of course, but for a lot of leaders and a lot of front Matt men are just employees, board members, customers, everybody. If you think, if you have a goal of accomplishing anything at all concrete in this world, like you said, you want to work on climate change or whatever. Of course. But I'm saying, like, even if you have a Humble ambition. That's as simple as, I don't know, I want to make a high quality,

[B]

I want to build a better pen,

[A]

I want to make my customers like. The second you say that you are trying to accomplish some purpose other than making money, you are a business revolutionary whether you know it or not. Not. You are so opposed to our dominant finance driven theory of business that they will come for you. These people don't play around. They make a lot of money from the dismantling of these companies and they will come for you. So you need to be, I think, appropriately prepared for that resistance and pushback to happen. And luckily we have the tools that are necessary to prevent this from happening. It is absolutely a choice.

[B]

You can go public, for example, on the long term stock exchange, I certainly hope founded

[A]

it.

[B]

We, we can resist this gravitational pull of mediocrity for sure.

[A]

Yeah, for sure.

[B]

But it takes, you have to be very conscious and you have to be willing to lay down your own power.

[A]

I think that's a huge part of the fear people have. Because look, I don't have to sugarcoat this. If you, if you perform obeisance to these set of values, it will be a career accelerator for you.

[B]

Yeah, you'll make a lot of money.

[A]

These people are not shy. Like if you, if you want to study solidarity, don't sort of, don't study trade union, study banks. They understand, they know how to close ranks, they know how to reward their allies and they are very, if you are willing to betray companies for money, they will reward you generously. So that's what we're up against. And if you like. I feel like I meet people who are like, that doesn't sound too bad. Go, go nuts. I'm not here to convince you of anything. But if you are like if that, that thought, if you find that thought kind of intuitively revolting, good for you. You're to me like you're a human being. Okay, good news. So then you have to be willing to preserve that still small voice inside. You have to learn to listen to it. And you have to build a career and eventually an organization that is responsive to those values. Otherwise you will get this garbage by default.

[B]

Yes.

[A]

But on the flip side, if you're willing, like the people I know in business who sleep the best at night are the people who've done the hard work to build an organization around them that stands for something that they can feel good about. Because they don't have that sense of dread and constant moral compromise. They, they don't have to like, not look their kids in the eyes when they say, hey, where did our money come from, dad? Like, they have, they have a, a level of equanimity that the conventional system cannot offer you. I think that's worth far more than the riches these people will, will offer

[B]

you to betray those values infinitely, infinitely more. It's success beyond success is what we're, what we're going for, not just success. Well, Eric, what, what a great book. What a great conversation. If you, if you could leave people with one, well, four things to do. Because you can't do just one. Like what should people do about.

[A]

Great. Oh, I was like one. It's gonna be super difficult. Okay.

[B]

Because one won't work.

[A]

Well, let's take a couple. There's a couple ideas in turn that I think are important. The first is the most important question is actually not even what to do, but when to do it.

[B]

Yes.

[A]

It goes back to that old proverb about the best time to plant a tree. You know, yes, ideally you would have done it 40 years ago, but next best time is right now. So in the book I have a principle I call it's always too early until it's too late. And this is so many people get talked into putting off these decisions until they no longer have the power to do them. I see this in, in individual people in their careers as well as obviously in founders and their structures. So the most important thing is to get clear about what you're, where you're trying to go so that you can then take active steps to get there. If you just kind of float with the current, you're guaranteed to wind up as Steve Jobs with that same mediocre outcome. Then in terms of what to do, once you decided, I want to do something, there are kind of. The blueprint in the book is made up of two. Two paths, I call it. First is the path of ethos, and the second is the path of integrity. And I tried to find old fashioned words for all the key concepts in this book to stay away from all the trendy modern business jargon like stakeholders and culture and whatever. I was like, enough. We have enough. So. So this is not a book about stakeholders and culture. This is a book about fiduciaries. And this is a book about ethos, character. So if you want to build something worth protecting, you have to be willing to align every resource at your disposal, human, financial, ecological, every resource towards the goal of making money only by accomplishing the mission in no other way. And that sounds like it's an Easy thing to say. Very hard thing to do, but not very hard.

[B]

Yeah.

[A]

There are very tangible, specific techniques we can do. We can establish a corporate purpose. We can establish cultural and managerial practices that create that alignment. We can think in a clever way about the business, this model anyway, so we can become what I call mission driven, not just mission hopeful. That's the first step, the path of ethos. The problem is, if you do that, as I said before, you will build an organization that is. That is genuinely trustworthy. And when you build up trustworthiness as an asset, someone will try to steal it from you. That's where we need the path of integrity. We need to have the structural integrity to be able to resist this thievery when it comes. And it doesn't matter if the call comes from outside the building or sometimes the killer is already inside your house. Right. Like, it doesn't matter if the issue is temptation or the. Or outside pressure. It's all the same, thanks to gravity. It's gravity all the way down.

[B]

Yeah.

[A]

So you better be geared up for this. The good news is we have all this evidence, and I'll give you, like, just a couple little factoids that I just blew my mind. Okay. First of all, since 2008, this is incredible to me, companies that are rated as having bad governance have outperformed companies rated having good governance in total.

[B]

Wow.

[A]

Yeah. So, like, it's not subtle. This isn't subtle. Good governance is not producing good outcomes. Okay. Second, here's the other crazy one. In the book I lobby for, I advocate for a whole bunch of governance structures that are not the typical shareholder primacy structure. And I won't get into all of them right now, but suffice it, there's a lot out there, and there are enough of them to have been studied. We have all these data sets about which ones are good and bad. So if you take just one of them, what's called the industrial foundation structure, this is like Novo Nordisk. We're a nonprofit company, overseas profit company. There's enough of those companies in the world that we've been able to study their performance on average. And those companies are six times more likely to live to year 50. Wow. Compared to a conventional company, we're talking about 10% versus 60%.

[B]

Okay.

[A]

They're dramatically. Dramatically better in terms of longevity, but also in terms of a lot of financial metrics.

[B]

Yeah. And the major exception everybody is thinking of is open AI.

[A]

Well, interestingly, this is the wild part. Open. No. OpenAI never had that structure.

[B]

So I thought they did.

[A]

No. This is what's so interesting. OpenAI came up with a genuinely novel structure in which there is a for profit and there is a nonprofit, but they're, they're part of one mega entity with this, like, nested doll structure that no one's ever seen before, nor will anyone ever see again since, because it has this, it has this problem. The key to the industrial foundation structure is you have trustees who oversee the performance of a for profit. Okay, so it's like, it's like having a government with multiple branches that can access Patagonia. Patagonia has that structure. IKEA has that structure. Carlsberg Beer has that structure. The German optical company Zeiss adopted that structure in 1885. So it's not like it's not actually a new structure at all, but it's kind of fallen out of currency. Like, most people don't know about it, and yet we interact with these companies every day. If you've ever eaten a Hershey chocolate bar, if you have a Vanguard mutual fund, if you've ever rooted for the Green Bay packers, if you've shopped at the rei, if you have a Patagonia fleece, like, you do this structure all the time. And if you ever thought to yourself, gosh, Patagonia seems like a pretty cool company, I wonder why. Yeah, you know, now you know why. Yet when you start a company, this goes back to the path of integrity and you start a new company. Or if you tell your boss, hey, I heard this podcast, I think we should do this, you'll be like, oh, let's go talk to our general counsel about it. Let's talk to our lawyer.

[B]

If you talk to anybody, tell you

[A]

now, they'll all be like, no, that's some weird old fashioned passion thing. You know, we don't do that anymore. We have modern best practices. Yeah, again, Kroger practices.

[B]

Yes. Yes.

[A]

So, yeah, so, so I would. In the book I have in each of these categories a whole bunch of specific techniques people can adopt. And my promise to anyone who chooses to pick the book off a shelf and check it out, every single technique is backed up. First of all, it's not just my personal idea. These are all backed up by real life case studies that you can, you can learn from of actual companies that have really done this and by reams of academic research that show these practices outperform. So, no, there's no sacrifice being asked of anybody here. You can still have an incredibly vibrant and successful company. In fact, you're much more likely to

[B]

do so this is how to be good and great. That is not just great, good and great. Yes, awesome. Okay, last question and then I will let you go. What are you reading? Or do you have any time to read? Are you.

[A]

Oh, my. Well, I'm in.

[B]

Read when I write.

[A]

Promo. Hell no. But I have found that I have to read fiction.

[B]

Yes.

[A]

To offset all this. All this nonfiction. And unfortunately, so much fiction now deals with these issues in tangential ways. I keep winding up back in my. In my domain of work. So, like, there's a whole series of incredible books that have come out in recent years, like the Murderbot Diaries. If you've read. If you've read all systems.

[B]

Okay. No. Okay.

[A]

It's like a super fun summer read. Matt Deniman has a series of books, books that start with Dungeon Crawler Carl, which is like. Which is like a really. These are like, they're. They're almost like goofy books, but they actually, like, very quickly turn into very, very, very sharp critiques of our financial system. Like it's leaking into fiction everywhere, even when you don't expect it. So, yes, if you want. If you want a really fun read that will get into these issues a different way. These, you know, with a lot more. A lot more things blowing up than in my books. Yeah, those are two. I might recommend.

[B]

You can. You can also try radicalized by Corey Dr. That. That's. I'm going to read yours and you can read mine.

[A]

Yeah, yeah, exactly. I'm really looking forward to that one. I like Corey a lot.

[B]

Yeah. All right, well, thank you so much, Eric, and thank you for writing the book. Where can people find you?

[A]

I am in all the usual places, unfortunately, on social media. Although I don't recommend you spend any of your time on social media. So if you want to bypass all that, you can go right to my website, Incorruptible Co. You can join my mailing list, which is low volume, but try to. Try to create a lot of value there. And if people. If you want to pre order the book when this is coming out, we have all kinds of bonuses you can get if you pre order. There's a secret chapter that got cut from the main manuscript. There's implementation guides, some special events, and a lot of cool stuff. So. So check that out. My favorite part of the website actually is we also have a list of all the independent bookstores around the country that are carrying the book. So if you want to buy the book, you could also, you know, if you want to buy it from your most convenient place, please do. But if you want to also support a local community institution, maybe buy it from a local independent bookstore and know that you're doing a double good if you do that.

[B]

Awesome. Thank you so much, Eric.

[A]

Great pleasure. Thank you for all your support and for your work. It's just, it's been great.

[B]

Thank you. The Radical Candor podcast is based on

[A]

the book Radical Candor via Kick ass

[B]

Boss without losing your humanity by Ken Scott.

[A]

The Radical Candor Podcast theme music was composed by Cliff Goldmock. Follow us on LinkedIn Radical Candor the

[B]

company and visit [e-mail] hi, this is

[A]

Alex Goldmark from NPR's Planet Money. We're really excited for you to listen to the Planet Money Audiobook. It's a smart, fun guide to how economics affects every facet of your life. Written and read by the hosts of the podcast. Come explore the hidden world of economics. The Planet Money audiobook is out now on Spotify or wherever audiobooks are sold. The right window treatments change everything. Your sleep, your privacy, the way every room looks and feels. @blinds.com, we've spent 30 years making it surprisingly simple to get exactly what your home needs. We've covered over 25 million windows and have 50,000 five star reviews to prove we deliver. Whether you DIY it or want a pro to handle everything from measure to install, we have you covered. Real design professionals, free samples, zero pressure right now. Get up to 50% off with minimum purchase plus get a free professional [e-mail] rules and restrictions apply.