Principles by Ray Dalio

Principles – Get Your Culture Right

1. Trust in radical truth and radical transparency

Following the principle of being radically truthful is essential for any organization over the long term. We need to create a culture that there is nothing to fear about from knowing or telling the truth. 


  • The culture of fearlessly telling the truth henceforth avoids many large-scale errors, especially in a financial services firm. Majority of the scams are a result of small mistakes that were kept hidden over a long term. Take an example of the Harshad Mehta scam. If the bank officials who knew that something fishy was cooking in their books, could report at the right time, the Indian stock market could be saved from a sharp crash post the burst of the scam.
  • Being truthful also means that integrity. Don’t let loyalty come in the way of truth. Even if your very close friend is involved in a mistake it is better to blow the whistle and report the fraud in the betterment of the entire company.
  • The culture in the company should be such that everyone has an equal chance to speak up and express their ideas. Ray suggests a rule of listening for 2 minutes. Here he states that every manager should at least give the employees 2 minutes of time, uninterrupted, before the manager can express his/her views about the employee’s suggestions.
  • Being transparent doesn’t mean to speak out every secret of the company. However, things that are non-confidential or are important for the organization on the whole, should be spoken in a very transparent manner.

2. Cultivate meaningful work and relationships

  • Maintaining good relations within the organization is easy when the organization is small, however for larger organizations it becomes challenging.
  • Organisations must treat employees who are loyal to the company.

3. Create a culture where it is acceptable to make mistakes and learning from them

  • Managers must realize that making mistakes is a part of work. However, if one is not learning from the mistake and keeps on making the same mistake again and again is an indication of close mindedness and should not be tolerated.
  • Don’t play the blame game. You must have heard or experienced instances where the credit goes to the manager while the blame towards a work badly done is borne by the employee. This spoils the culture of an organization.
  • Mistakes should be celebrated. This means that when an employee makes a mistake it should not be seen down upon. Instead, a team activity should be created around it in order to share the learnings and solutions. Pondering on one mistake and taking learnings from it is called “Reflection”.
  • Remember, Pain + Reflection = Progress

4. Believability weighted decision-making process

  • It is better to give more importance to the opinions of capable decision makers than less capable ones. Therefore, once the idea is pitched, it neither should be one person taking the execution decision, nor should be the team at large, rather, execution of the idea should be kept in the hands of few capable decision makers who will argue among themselves independently and reach to a conclusion.
  • Feedback  is extremely important in the decision-making process. The people who disagree with you are the best teachers and should not be shooed away.
  • Sometimes inexperienced people can have far better ideas than inexperienced ones.

5. Hire right people

  • Organization is a machine. When you plan to hire, create a mental image as to how the employee should be in order to suit the job. Don’t design jobs to fit the people, instead find the correct people for the job.
  • 3 C’s: Character, Common Sense and Creativity
  • Teams are just like sports where different skills are possessed by different people and it is very difficult to find one person with all the skill sets.
  • Check the track record of the person you’re planning to hire.
  • While planning the compensation, provide both stability and opportunity.

6. Train people you hire effectively

  • Judge the candidate within a year of joining. The commensurate promotion should be given as per the capabilities judged.
  • Be fair on the compensation. Stability of the employee should also be considered.
  • Don’t hesitate to fire an employee if it is not well suited for the job.

Did you like this unit?

Units 11/13