#85 Bethany McLean: Crafting a Narrative｜The Knowledge Project

There's this idea that the business world is hard and cold and rational.

It's not. It's incredibly emotional.

And everybody is biased toward belief because most people stand to make money if a stock goes up.

It's that great quote from the end of The Sun Also Rises, isn't it pretty to think so?

It's always prettier to think so than it is to say, to not think so.

It's particularly true in business because most people want to make money.

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Today, I'm talking with the remarkable Bethany McLean, who is one of the best investigative journalists in the world.

In this in -depth interview, we talk about the role of journalism in society, the investigative process, and Ron, what happens in the wake of exposure, the ways we're irrational and emotional, and so much more.

It's time to listen and learn.

Bethany, I'm so happy to get to talk to you today.

Thank you for having me.

You wrote one of the most fascinating books of this generation, which was The Smartest Guys in the Room.

Can you talk to me a little bit about how you hit on Enron as a fraud while you were working for Fortune?

I actually think that's one of the rare times in life that you get too much credit for something.

It doesn't happen often.

The piece I wrote, I have joked, should win awards for the meekest title in history because the title is Enron overpriced.

Yeah, it was bankrupt six months later.

I didn't know at the time I wrote the piece that Enron was a fraud.

I knew the numbers didn't add up.

It was shocking to me and it was such a lesson because so many people who were investors in the company couldn't answer the basic question, how does this company make money?

They just wanted the 20 % earnings growth that would spit out the bottom line.

The stock price jump that would happen when the company met or exceeded analysts' earnings estimates as it always did, but they didn't actually understand the business.

That in and of itself was shocking to me.

The core of that piece was really, wow, look at this company's valuation and yet nobody can explain how it makes money.

I always think breaking a story is really being able to actually get in there and explain what's happening.

I didn't do that degree of excavation on Enron, but this piece nonetheless, which started when a guy named Jim Chinos, who many people know, he's one of the longest running short sellers out there, came to me and said, how does Enron make money?

Tell me if you can figure it out.

I was several years out of a brief stint in investment banking at the time so I was able to at least look at the financial statements and say, hmm, I don't know.

Was there a moment where you realized you were on to something?

I think I was not cynical enough at the time, or skeptical maybe is a better word, but Enron also came at an interesting inflection point in the history of financial markets in the sense that there hadn't been a big fraud for a lot of years before that.

The idea that this company that was so celebrated that it just built this gleaming new headquarters in Houston, Texas, the idea that this could be a fraud was almost inconceivable at that point in time.

I think that's one of the reasons that Enron occupies such a place in the cultural consciousness because it was this inflection point where we all said, oh, we've had this blind belief in corporate America is going to invest in a company, and it's going to sink your retirement savings into it, and this is going

to fund your life. Enron was the moment where all of that suddenly became questionable.

For me, it was a slow unfolding.

If you told me when I published that story that Enron would be bankrupt six months later, I would have said, are you kidding?

That process or that progression wasn't something that occurred to me.

Why did it happen so rapidly?

Is that because you put a different narrative out in the world and then people were like, this narrative is more correct?

Or do you think it was a lack of information on other people or a willing blindness?

What was going on? I think there was a lot of willful blindness and a lack of understanding of how Enron made its money.

I don't think my story was a catalyst.

I don't think it caused anything.

I think it picked up on this underlying skepticism about Enron that was growing.

There were a lot of smart people who were short the stock for a while, and even though the information, their skepticism traveled in a very small circle, the broader circle of people didn't really understand how the company made money, and there was this gap between the information available in the equity

markets and in the credit markets because the equity markets were total believers in Enron, and the credit markets where Enron was issuing all this off -balance sheet debt were very skeptical, and the skepticism in the credit markets and from short sellers was starting to leak into the general view of the company.

Enron also came at its collapse, also came at the time of the collapse of the dot -com, the first dot -com bubble, second dot -com bubble now, but the first dot -com bubble.

I think that played into it because Enron's really hyped business was this business called Enron Broadband, which it's an interesting aside.

It really was Netflix before its time, but as the dot -com bubble began to collapse, people really began to look at what Jeff Skilling, Enron's CEO, was saying about Enron Broadband and say, wait, how can this be true when this is carnage that's going on over here?

I think the environment also, it was part of the reason that Enron's fall was so swift, but I don't think my story had that much to do with it.

I think my story illuminated some of the problems, but I don't think it caused anything, if that makes sense.

Talk to me a little bit about that information gap.

We're awash in information today, so it was really interesting for me to hear that you pointed out that there's a gap in the information because we're thinking, I mean, the information is everywhere.

It's available to everybody in a real -time basis.

Information is no longer an advantage.

Talk to me about your experiences with that.

Well, I think it is still an advantage.

I have this theory, although it's a little bit less true today than it used to be because of Twitter in some respects, and I'll come back to that.

But certainly years ago, skeptical information didn't leak into the mainstream of the business world, and I found that in covering business all these years, there's a weird three monkeys thing that prevails, hear no evil, see no evil, speak no evil.

In politics, you can get two sides of every story pretty easily, right?

In the business world, you can't because skepticism about business tends to travel in a very small circle.

Companies won't speak ill of their competitors, at least not publicly or very rarely will they.

Employees can't speak publicly without being fired from companies.

So there's this odd veil over the information that you most want to know.

And so that's part of the reason that certainly years ago, skepticism just traveled in a very narrow circle.

So Enron, for instance, there were a lot of people, very smart hedge fund managers, who were short the stock for years leading up to its collapse.

But that skepticism never ever made its way into the mainstream view.

The mainstream view was this company is a superstar.

And that played out also, as I mentioned, in the equity and the credit markets because the equity markets had one view of Enron's stock.

And the credit markets, which saw the immense amount of debt Enron was issuing on an off -balance sheet basis, and the documents that weren't publicly filed but would be circulated among bond investors that said, wow, this company has an insatiable need for capital.

And so it was a very different narrative in the bond market.

So I think there are two forms of information gap.

I think there's that, where sometimes the information you most need to know just isn't out there.

And that sea of information, or it's much harder to find than the information you don't really need to know.

And then some component of it is just perspective, right?

Everything is the prism through which you see it.

And so sometimes there is this moment where you see the information differently, and all the pieces fit together in a puzzle that is very different than the one you had seen before.

And sometimes it's just as simple as a shift in perspective, and you say, oh, this is it.

So I think those are the two forms of information, the ways in which the fact that a lot of information is available doesn't help us see things more clearly.

I want to come back to that in one second.

There was something there that you said that I thought was worth diving into a little bit more, which is we often don't hear two sides of the story on businesses.

Is that because people who stand to lose from the collapse of the business are seen to be profiteering?

Or are they like, why is that story not equally as valid or arguable, if you will, or put in the public as the story of this business is amazing, and we're doing all these great things?

It goes to the heart of what I think an illusion about the business world is because there's this idea that the business world is hard and cold and rational, and it's not.

It's incredibly emotional.

And everybody is biased toward belief because most people stand to make money if a stock goes up.

It's that great quote from the end of the sun also rises.

Isn't it pretty to think so?

It's always prettier to think so than to not think so.

And it's particularly true in business because most people want to make money, and most people make money if things go up.

And for some reason there's this mom America and apple pie thing about stocks rising and belief such that you would think in a rational world it would be exactly as you said, somebody who has a skeptical view, that view would be just as welcome as somebody who believes.

But it's not, there's this idea that short sellers are bad people somehow because they might profit if something fails.

And that was true back in the day when I wrote about Enron, even other journalists said to me, well, you took a tip from a short seller, how could you do that?

I thought everybody's biased, company management is biased, the analyst who has a buy rating on the stock is biased if for no other reason than confirmation bias, right?

And portfolio managers who own the stock are biased.

And so yes, a short seller is biased too, but everyone is.

But there is still this, you even see it on Twitter today in the Tesla battle that somehow short sellers are less valid human beings or their point of view is inherently evil because they don't believe in the company.

There's a direct line from that to sort of like people getting hurt or losing money, whereas the opposite is not equally true, right?

Where you're selling something that might hurt somebody in the future, but it's not as visible, it's not as tangible.

Maybe although the counter argument would be that a really overvalued company whose stock eventually collapses under its own weight is going to hurt a lot of people when that happens.

So why not have the view out there so that that doesn't happen and then catch up innocent people in that plunge?

Talk to me a little bit more about this bias towards belief that we have.

How does that affect people inside the corporation?

Is this why we don't have more whistleblowers?

I think it does. I've often thought about this because I left an investment banking job and went to Fortune and I guess 95.

And I thought, well, if I'd gone to an executive recruiter and they had said, there's this great energy trading company down in Houston, Texas, what about a job there?

And if I had ended up at Enron, would I have been a whistleblower or would I have been a believer?

And I like to think the former, but I suspect the truth is probably the latter because I think culture is so important.

And so if you're inside a company and your pay depends on that company, and that's that great up to Upton Sinclair quote, right?

You can never tell a man anything if his wallet depends on him not hearing it.

That's something like that.

If you're inside a company and everybody else believes and your economic well -being is dependent on the company doing well and the stock doing well, the idea that you're going to be able to again shift your perspective and step outside that and be able to see something that isn't in your interest to

see, I think that's beyond most of us.

There's a reason that whistleblowers tend to be outsiders, right?

That's a really interesting observation.

You also covered valiant.

Yes. Talk to me about the differences between valiant and Enron.

Can I start with the similarities?

Oh, yeah, please do.

So I think the way in which they're most similar is not super obvious because most people think of Enron as a giant fraud, right?

But it really wasn't.

Most of what Enron did was actually perfectly legal.

So I coined this term once, which I love, which is a legal fraud.

And that's what Enron was because most of the transactions they engaged in, even the ones that appeared to be the most problematic, actually met the letter of the law.

It was very much follow the rules sort of argument, but totally violate the spirit of the rules, managed to follow the accounting rules, but totally misrepresent the economic reality of the business.

And valiant in that way was very similar in that most of what valiant did was actually legal.

And that's why you didn't see any prosecutions after or very few prosecutions after the fact, just of a few lower level people in this subsidiary business.

So they're both equally problematic companies in different ways, but they have that in common, which is the way in which an ethical failing can actually be more damaging than a legal failing, if that makes sense.

Oh, and here's another way in which they were similar.

I'm doing better on the similarities than I am on the differences.

But I think about this a lot, that if a company makes a lot of enemies as it's on its way up, you have to be a lot more skeptical about that company than about an average company, because when the tide turns, it's going to turn viciously.

And what I mean by that is that everybody hated Enron because of their arrogance and their callousness in the way the company and its employees behaved other people, their competitors hated them, regulators hated them.

And so when the tide turned, it turned viciously.

And the same thing was true of valiant.

Everybody else in the pharmaceutical industry hated them, particularly after the battle with Allergan.

David Pyatt was beloved and Mike Pearson was not.

And so when the tide turned against valiant, it turned viciously.

And so I think that's an interesting, an interesting broader lesson.

The ways in which they were different.

I don't think the substance of the valiant story was accounting misrepresentation.

The way the way it was with Enron, you could actually see pretty clearly that what valiant was doing with its with its numbers.

There were a lot more of Enron shenanigans that were really hidden from from plain sight.

Valiant's wrongdoing, to me, really centered around the price increases the way they were increasing prices on drugs.

So if it was so transparent, what was happening with valiant?

Why did so many smart people get fleeced?

I still struggle to figure that out because that is actually a remarkable difference from Enron in that with Enron, when you got to what was commonly considered the smart money, people either weren't invested in Enron or they were short.

And it was largely long only funds and index funds and what we think of in terrible terms, but the dumb money that was that was invested in Enron and that was not true.

Some of the smartest investors we have from Sequoia to Value Act to Bill Ackman were big believers in in this company.

And I still can't quite figure it out.

I think a lot of it comes down to the power of personality.

And I think Mike Pearson, who like Jeff Skilling was a McKinsey alum, had just this incredible intellectual charisma.

And for both men, it was somewhat unlikely Skilling was kind of a dork who transformed himself into this maven.

Mike Pearson was this slovenly guy with everybody knew it, a drinking problem.

And yet for some reason, he had that same intellectual charisma.

I think they both had this in common that they took an old business that was problematic in the case of Enron Energy.

And in the case of Mike Pearson Pharmaceuticals and said, we're not just a company.

We're reinventing this industry.

We've got a better mousetrap.

And I think for people who think they're smart, there's something very alluring about a smart person saying we've figured out the system, we've cracked the code.

We know something nobody else knows.

We've cracked the code.

And then I think there's just there's a certain amount of confirmation bias in all of us.

Enron stock did really, really well for years.

Valiant stock did too.

So it wasn't just that the market was reinforcing the belief.

It was also that smart people could look at the crowd of shareholders and say, look at all the other smart people who are here.

And I think that the lesson from that is just because a lot of smart people believe in something actually doesn't mean it's right.

It doesn't mean it's wrong.

Right. And that's obviously a data point, but it doesn't mean it's right.

You spoke with a lot of the smart money that was in Valiant or you're familiar with them.

What happened after Valiant collapsed with those people?

Was there a retrospective and admission of, oh, I made a mistake or was it like, this is just the odds in investing?

I think it depends on on who it was.

I think it's been pretty devastating to a lot of people.

And I think the smarter, more thoughtful people have spent a lot of time trying to think about why they got it wrong.

I think there's still a little bit of defensiveness in that the viciousness of the way in which Valiant fell is reflective, I think, of the point I made earlier that this company made so many enemies that once the tide turned, it just turned.

But I think people have really tried to think about what went wrong.

And for me, one one part of that is when a company is doing something that might be perceived as highly unethical.

There's this odd, almost lag, because everyone knew that Valiant was taking existing drugs and raising the prices on them to unconscionable levels.

Everybody knew it. But for some reason, there was this weird inability to see that that what a big problem that would become when it became widely known.

I remember sitting with an investor in Valiant and he was talking about Martin Shkreli and how awful what Shkreli had done with Daraprim was.

And I looked at him and said, Well, why is Valiant any different?

And he thought about it and he said, Well, that's a good question.

And so there was an odd inability to take what was widely known and understand what would happen when it really was widely known.

I think it was research for this where you had a friend with Wilson's.

You had the they have to take the copper out.

They were on this dollar a day drug and Valiant had raised the price to three hundred thousand a year from a dollar a day.

And I thought that that really speaks to the human impact of some of this.

Now, the flip side of that is like they need money to do R &D.

And so where do you draw the line on that?

Like how do you think about that having done so much research into this?

Well, weirdly enough, I am actually more sympathetic to Martin Shkreli even than I am to Valiant, even though I'm not sure Martin Hetty had the time would really have done what he said he was going to do.

But he said that with the price raise and Darabrim, what he was going to do was funnel that money, those profits back into R &D.

And I don't know, I guess I'm 50 50 part part of me thinks he really would have done it.

And the thing is, Valiant wasn't doing that.

So their whole promise was their whole promise to investors was we don't need to do R &D.

So it wasn't an argument of we're going to take the profits we're making from this and invent new drugs that are going to save people's lives or figure out a better drug to take to treat this disease.

It really was their their argument to people.

And investors repeated this to me was, well, this drug even at $300 ,000 a year is still cheaper than the cost of a liver transplant.

And so as long as we're cheaper than the cost of a liver transplant, then it's fine that we do this.

So I think some of that speaks to just this murky moral line in in things in a way that laws can never legislate.

Right. I mean, drug companies just didn't used to do that.

That just wasn't the way they operated.

You had Merck famously create the drug that helped blindness right for almost as an altruistic endeavor because there was just this sense of a company as being an actor in this broader world.

I think as the focus has been on shareholder value and profits above all, it's just narrowed the prism through which executives see the world and it's become very tempting to say, well, if it makes money, then it's good.

Talk to me a little bit more about the company being part of an ecosystem.

What are the moral obligations?

What are the responsibilities that you see companies having or is it solely to the shareholder?

I struggle with this because I understand how in a very complex world, how appealing it is to have this bottom line ideology because it's clarifying.

Right. If you get to say, my only responsibility is to make money, if it makes money, then it's good.

Then you found your God.

Right. Then life is very simple and clear and complexity.

You can cut through the complexity with a single minded goal.

If you don't cut through that complexity and you say, well, if it makes money, maybe it's not good because it's hurting the community.

It's a lot more complicated.

And how and how do you measure that then?

Right. And that can become in and of itself, that belief that a company has a broader purpose can become a cover, an excuse for a lot of bad behavior too.

Right. Because fake altruism is almost worse than single minded profiteering.

Right. So I don't know.

I think it's really interesting when the Business Roundtable came out with that statement in the fall that a company's purpose is broader than a bottom line.

There were no metrics around it.

And there was no even thinking about how do we gauge this.

Right. I think the other part of it that's interesting is that when you look at the history of corporate America up until the dawn of the LBO era in the 80s, that was the purpose of a company.

It was supposed to be broader.

General Motors was mom America and apple pie and we'll take care of everybody forever.

And that doesn't really work either.

So I guess to summarize, when people think about the purpose of a company being more than a bottom line, most people think this is something new.

It's not new. It's old.

And it didn't work perfectly the last time around either.

So you can't just say that you actually have to think about how you're going to implement it.

And I think we're just at the very early stages of that.

It's interesting because we often think about that mostly with public companies, but private companies are also companies and they have a lot more freedom in terms of how they operate with social or other moral considerations.

Right. There was a book and I'm struggling to remember the name of it.

I did a review for the Washington Post on it by a professor.

I think he's at some one California school and he studied the history of companies that do try to have a broader social goal.

And it's it's not good.

Partly because those companies have ended up over time as leadership has changed, as the person whose spirit really energized the whole idea that they stood for more than 10 years, and the profits has passed away, the companies did become solely bottom line focused or they just lost sight of making

a good product that consumers wanted.

But the history of those companies is not particularly it's not like you look at them and say, oh, look, this is the way to do it.

Right. It's fascinating because I think about this often where we're trying to do a lot of social good things.

But then I also think about, well, if there's a recession and we start cutting back on those social good things in order to survive, like what is the perception of that?

Like, how do people perceive that?

Is it like now we're not doing good and we're focusing on money again versus like what is that narrative that becomes in the public?

You've spent a lifetime studying sort of like how otherwise good people end up doing terrible things.

Talk to me a little bit about what you've learned.

So I think about that a lot because when I started working on the book about Enron with my co -author Peter Alkin, I had this very simplistic belief that if bad things happen, then bad people did those bad things deliberately.

I remember being completely shocked when I'd call people up who worked at Enron and finally get something to talk to me and by the widespread lack of knowledge about what was really happening at the company.

And some of that goes back to this, the belief we all have, particularly for inside an institution with a really powerful culture, that it's really hard to add up the pieces and see them differently.

But I've really come to believe that very few white collar crimes or stories of business gone wrong are done by people who deliberately set out to deceive other people.

Usually it's this odd mixture of rationalization, arrogance.

Some greed, yes, but usually greed in service of ego rather than greed.

I want to go out and buy a new Lamborghini or whatever.

I don't know my cars very well, a new island somewhere.

Greed in the service of making me feel like a bigger person rather than greed for material things.

I find that a lot more interesting.

So you rarely find that moment where it would be really great if you could find that crystallizing moment where everybody decided to do the bad thing.

But those moments don't usually exist.

It's usually much more of the slippery slope argument.

Can you expand a little bit more on greed in the service of ego and maybe how the company's culture plays into that?

Yeah, I think it's less honestly the company's culture than I think it is the comparisons with other people in one's stratosphere.

I thought not to pick on him, but did you read The Financial Times did a really good interview with Lloyd Blankfein, the former CEO of Goldman Sachs.

It was a couple of months ago, maybe a month ago.

And Blankfein said in that interview that he didn't consider himself particularly well off.

And I thought it was his reference group.

Because his reference group was other people with hundreds of millions of dollars.

And in that narrow stratosphere, it becomes about, well, he has a private jet and a private island and I only have a billion dollars and he's got two billion dollars and I'm and I'm not particularly well off.

And so I mean, honestly, if you have more than I don't know what the number is, right?

But if you have more than a million dollars, you're doing really well, right?

You've got enough to feed your family.

You've got enough to put your roof over your head.

You've got enough to meet your basic needs.

And so none of it then money over a certain point if it's your goal is for sure not in service of material goods or making your life nicer.

It's just about comparing your balance to those of other people so you can feel bigger than than they are.

And that's what I mean by greed in the service of of ego.

If you have even ten million dollars, you can go buy yourself what you want.

Right. Right. I was having a conversation with someone the other day and I just sort of like just to put things in perspective, I was like, there's seven point nine billion people in the world right now that would change their problems for years in an instant.

Right. And when we find ourselves comparing, it's often a matter of perspective.

We're only seeing forward instead of seeing all around us.

Yes. And I think that's one of the very pernicious effects of a one percent society in a mobile global world, because those very, very wealthy people are much more likely to be connected to each other than they are to be connected to the great mass of humanity.

And so then their reference point becomes the others right in that narrow circle rather than the community at large.

So is that something innate in us?

Like, is that a hierarchy, a biological, like hierarchy instinct, that gets fed as we get more and more successful?

Or is it something that develops like is it revealed or is it created?

I don't know. That's really interesting.

I guess I think most I think human beings have always had a need to belong to the group but consider themselves better than the group at the same time.

So I think it's innate, but it probably gets fed.

If you get used to thinking of yourself as better than the group, then I think you don't have to confront that in yourself.

And so then it probably I think it's probably there at base, but then it gets it gets fed and in people and stoked.

So what are the other sort of like markers or characteristics of people that are sort of good but going bad?

Interesting question.

I think one of it is is an ability to to rationalize and I'm not sure I could do better on this front because the rationalization is very powerful and appears true.

And what I mean by that is that there's an enormous amount of pressure on people in business to produce profits, to please shareholders, to please their board of directors.

And so the rationalization becomes, well, if I can do this and bridge this failure for a little bit of time, I keep everybody happy.

And of course, the other way to look at that would be and yeah, that keeps your ego happy too, because you don't have to confess that you failed.

But it's it's a very powerful rationalization and it's true, right?

Because in this day and age, if you confess failure, say, look, profits are going to be down for a year because this new business I told you was going to be great isn't actually doing so well, you might well lose your job, right?

You're going to get pushed out and your stock is going to go down and that is going to hurt investors.

The most dangerous things in the world are always those that have a strong element of truth to them because it's so tempting to believe in it.

So I think that's that's part of it.

And then I think it's very hard to be the leader of a company.

I would think if you yourself aren't aren't a believer and aren't biased toward belief because you need as the CEO or the leader to be able to inspire other people right with your grand vision.

And so how if you're inspiring with people with your grand vision, do you not believe in that grand vision to write?

And and then I think that it becomes very hard then to acknowledge that the grand vision isn't playing out.

That really sort of like begs the question what separates the difference between a visionary and a fraud.

So I think I've made this argument that I think they're actually the same person.

And sometimes I think expand on that.

So so they're not the you would think that the visionary sat at one end of the spectrum and the fraudster at the other end of the spectrum.

Right. But I think it's one of those many things where they actually meet in the circle.

I sometimes think the only thing that separates them is that the visionary gets lucky and it all works out and the fraudster gets caught in the middle.

Right. Because a lot of visionaries from Thomas Edison through have have lied at various points in time and have said things that weren't true in order to keep their employees and their investors believing in them so they can keep getting the money to fund their dreams.

That's certainly true of Elon Musk wherever you believe he sits in that spectrum.

When you look at his history he's for sure lied at many points in time in order to keep funding his dream.

And so I sometimes think the fraudster is just the person who stops being able to convince people and the band aid gets ripped off or the curtain gets pulled back and everybody sees the inner workings and says oh my God no.

I mean I don't know could Elizabeth Holmes have pulled it off if she'd gotten another billion dollars and people had continued to believe in her?

Maybe. But thanks to John Kerry was great reporting.

The curtain got pulled back and everybody saw it for what it was before before she'd been able to make it work.

Maybe she never could have.

I don't know. But I think for some fraudsters it maybe it would have worked if they had just gotten more time and been able to keep getting money.

I think about that with Enron Broadband which as I mentioned earlier really was Netflix ahead of its time.

It was a visionary idea.

But maybe that begs another question.

Maybe the difference is execution.

It's not just the idea.

So maybe that's what separates the visionary from the fraudster.

The idea is the same.

The grand big beautiful idea that everybody believes in.

But maybe the visionary either knows how to execute or knows how to hire the people who can execute and the fraudster doesn't.

That's a really interesting point.

Take off your journalism hat for a second.

They would put on your sort of like citizen hat.

Is it a good thing or a bad thing on hold that we have people that have these grand ambitious plans that get funded because occasionally they hit.

I think it's a good thing.

Certainly selfishly because if we stopped having the big frauds and blowups I wouldn't have anything to write about.

So by all means that's terrible.

But I really do think it's a good thing.

And I think that's the inevitable frauds and blowups are the price we pay.

And I think it's good to have these big grand ambitious plans.

Life would be really boring if you didn't have that.

And I think reflexive cynicism about this sort of thing is just as bad as blind belief because it is it's these things that really do change the world.

That said I don't mean to blindly celebrate our current system because I do think either accidentally or deliberately our system has evolved to one in which the people who should be taking the really big risks and then reaping the really big rewards.

It's turned into a system where those people can reap the really big rewards but they've managed to push the risk onto other people.

And that I think is not fair or healthy.

Expand on that a little bit.

So Wells Fargo right is a great example of that.

Wells Fargo managed to institutionalize this culture where employees in their bank branches had to meet these really aggressive product sales goals.

And so the employees many of whom were barely making minimum wage working in banks had to falsify accounts in order to keep their jobs and get paid.

They were the ones taking the risks.

They are the ones who lost their jobs.

When the company figured out they were they were violating the rules in order to meet goals the company had put in place that were unachievable.

The top executives were reaping the millions of dollars in tens of millions of dollars in Wells Fargo stock price appreciation.

And after the fact it's the lower level employees who did whatever it was that was criminal.

And the top employees are protected by all the laws that are put in place to insulate executives at the top of the company from being criminally prosecuted if they didn't knowingly do something.

Look at Countrywide right.

Another example. Angela Mozzello the CEO ended up paying a relatively small fine to settle civil charges against him.

Countrywide was no matter which way you think about it responsible for the propagation of really risky mortgages all across the country.

And people paid the price for that.

The top executives at Countrywide didn't.

There's something wrong with that.

I think that's a corruption of capitalism.

The people at the top of the system if you believe in it should get the rewards that they should take the risks to.

How do you think that we should do that?

I don't know. If you could fix the compensation problem then you could go a long way toward fixing this issue.

But the history of attempts to reform compensation is the rule of unintended consequences writ large.

I mean just think about it what could have sounded better than stock options for aligning executives interests with with those of employees and shareholders and stakeholders.

Right. That would seem to be perfect.

There is this great number and I'm going to get it wrong but it was from the Joint Committee on Taxation which investigated Enron after the collapse and they calculated that the top 200 employees of Enron got a billion dollars from exercising stock options in the year before Enron when bankrupt.

Right. And there was a line in the report I don't remember it now though something along the lines of well that proves that stock based compensation doesn't necessarily align interests.

If you really could make top executives financial outcome oriented toward having the company be around in 100 years and be successful over the long term not over the short term then I think a lot of these problems would go away.

But as long as you have a system of incentives where people can get paid even if the company ends up bankrupt heads you in.

Tells I don't. Yeah.

I think it's I think it's going to be problematic.

It's interesting to me.

This is going to be controversial but I'm not a fan of stock options.

I actually think that if people want to invest in a company they should put their own money in.

And I do think executives at some of these institutions especially the more systemic ones like health care and banking should be required to have a percentage of their net worth invested in the company.

I think so too. And I think that that would encourage better decision making because now it would have a meaningful impact to you financially if you're doing things that shouldn't be done.

Right. I mean that's the investment bank debate writ large right that when investment banks were private partnerships where people had their own fortunes and their own financial well -being on the line you saw a very different behavior than you did in the years leading up to the financial crisis where they

were playing with other people's money because they'd all gone public.

Talk to me about the state of journalism today.

I think it's really frightening.

I think that there are sustainable business models that are emerging out of it.

There is the sort of winner take all model that the New York Times is pursuing.

There is the billionaire backer model that the Washington Post has with Jeff Bezos.

There is the not -for -profit approach that ProPublica is trying.

They all have their weaknesses and their strengths but there are models that appear to be working and producing really good journalism.

But most of the new business models that have come along and been hyped for a period of time have proven not to work any better than the old business models whether it was Vice or Buzzfeed or what Vox or whatever else has come along that people have said this is it.

They figured out the magic.

This is the way journalism works.

And then it's been well oh that's that's not really so clear.

And overall the state is abysmal.

I think local newsrooms have lost what almost 50 percent of their employees over the last decade.

Magazine journalism is in really tough straits.

And part of that is just that the economic model was it was always sort of a bait and switch and that's a little bit of a extreme way of putting it.

But people weren't paying for content.

Right. It was the advertisers who were who were funding it.

And once there was another seemingly more efficient vehicle for advertising the funding went away.

So it's not that the demand for content has has changed.

It's just that the business model is broken.

I'm not sure anybody has has figured that out.

And I think it's it's such a weird irony in a way because the problem is Google and Facebook.

Right. They're siphoning up most of the advertising dollars that used to go to journalism.

And yet Google and Facebook it will deeply impair their business models if journalism ceases to function.

Right. If there's nothing to Google what happens to Google.

If there's nothing for people to share on social networks what happens to Facebook.

And so I think those companies at least are belatedly recognizing that and are starting to fund local news efforts.

But it's just it's such an irony to me.

They were kind of parasites on the journalistic ecosystem and they were parasites that infected the host and killed it.

And now what happens to the whole ecosystem.

I don't know. I want to go back to something you said earlier where we're attracted to sort of these new and novel business approaches because this speaks to me about something we talked about earlier where we're attracted to somebody coming in and going like I know how to do this industry better than everybody

who's done it before me.

I think there's so much cult of personality.

It's one of the ways in which the business world is so not rational and is so emotional.

People are believers in other people.

And sometimes because those other people really have figured it out and sometimes because those people just have a really compelling way of presenting their vision.

And I think when a person like that comes along it's really appealing to believe in them and to believe that they've that they're somehow a secret sauce and that they've figured it out.

And that exerts a powerful hold on everybody's imagination.

It's a little bit off topic but not really.

But look at Adam Newman and we work.

Right. There was a great line in a Wall Street Journal story about how he was everything investors wanted.

He was charismatic.

He was tall. He was able to spin a really convincing story.

What about profits and and sense and building a good business model.

It was all charisma.

And I think we're particularly guilty of that today because the lure of the founder is is so strong.

And so there's this idea that the right charismatic person can build anything.

And so people latch on to that.

We all want to find that person we can believe in or that magic bullet that's going to fix the broken industry.

And that's much more appealing than actually doing the slog of saying how is this thing going to make money.

Talk to me a little bit more about the ways that we're not rational and emotional when it comes to business.

You said that was one of the ways.

I think that blind belief in a person is one of the ways.

I think confirmation bias is another huge thing.

Valiant is just a great example of that.

We tend to look around and say oh look other smart people are investing in this and oh look though the market is rewarding this.

It must be right. I mean look no further than financial Twitter and the Tesla debate.

One of the main thing Tesla bulls say is look at the stock.

So because the stock has done so well that proves that Elon Musk is a genius and that our belief is right.

I mean obviously it proves nothing of the sort right.

It's a really strange argument.

It's an emotional argument rather than a rational argument.

Another feature that underlies all of these stories of business gone wrong which is the great belief of the majority of people and something that after the fact is just clearly going to seem to be too good to be true.

Right. That was Enron.

And it was the financial crisis when you look back the simplicity of it is kind of shocking that everyone really believed we could make loans to people who couldn't pay them back and that that somehow was all going to work out just fine.

Right. Do we err on the other side like too bad.

Well we swing between extremes.

What's the difference between good journalism and bad journalism.

Oh that's an interesting question.

I don't think it's necessarily getting it right because I think really provocative stories may may prove to be wrong.

I think it's transparency and intellectual honesty.

So being clear about what the facts are and where things are coming from so that people can read it and it will provoke a discussion but they might still be able to say you're you're wrong.

But I'm not sure the great majority of people can can do that.

So I think I may be positing something that is hopelessly Pollyanna ish.

But I like to believe that if I've done a good story it may be wrong and somebody else may be able to say here's where I think you're thinking went wrong but they should be able to read it and see where my thinking went wrong.

Does that make sense.

So you're basically taking something and you're saying here's the well reasoned point of view I have.

But I'm going to show you how I established it and then if you pick it apart from there at least we'll know where I went wrong.

Right. Or at least we can have a rational disagreement about how I saw this versus how you see it.

But I'm putting my argument out there.

So how does that work in a world where if you're a journalist today you have to publish so many articles a year so quickly.

So I think that's it's really hard.

I don't have that issue.

I'm still you don't.

Yeah I'm still primarily a long form magazine writer and I have time.

I think it's really hard.

I am never more shocked than when I go back through my stories and the fact checking phase and realize how much I've gotten wrong and how much needs to be fixed.

And you're so meticulous about how you go about this crafting a narrative is always a distancing from from the facts to find the more universal story.

Right. So as you craft a narrative you inevitably let some of the facts slide and you don't do it deliberately.

Yes your human brain searches for the narrative that makes sense.

You allied some of the facts in the interest in arriving at a more universal narrative or a more coherent narrative.

And I do that constantly.

And then as I go back through something I realize the places in which I did it in which the nuance needs to come back in or the places in which the story doesn't fit that more universal narrative need to be pulled out and sharpened.

But it's always humbling to me as I fact check my own stories about where I get things wrong.

Is there a story that you've gotten particularly wrong that you're like damn it like I missed that I was blind to something.

Maybe somebody who's listening to this is going to be that one Bethany maybe maybe this is just my own bias that I've sort of tuned that out of my consciousness.

I can't think of one that I've been Twitter will tell Twitter will no doubt tell us.

I mean you could argue that I did a very tough piece on Elon Musk earlier this fall.

But I don't think even if Elon Musk proves to be the greatest visionary the world has ever seen and Tesla is what its biggest believers say it is and SpaceX takes people to Mars and establishes a colony there as Earth goes goes to hell.

I still don't think the piece was was wrong because what I tried to do in the piece I wrote was show Musk's flaws and show how he isn't always a truth teller and he can be a bully who is an a liar and someone who is going to lie in his own pocket and I think those are all valuable facts to know as we

think about Tesla bigger picture.

But you could also make the contrary argument that maybe those flaws don't matter.

And so in the broader sense maybe the piece will prove to be wrong because Musk will be everything his believers say he is.

Maybe they're both true.

Can you have somebody that does.

I'm struggling to think of an example of somebody who is exceptional at anything that doesn't also have incredible flaws in other areas.

And I'm not saying this with Elon but just in general.

Like we look at these these very exceptional people and often we're looking at one aspect of their life where they might be exceptional and the rest of their life could be falling apart.

Right. So they're not maybe not well rounded individuals in that sense.

That's so interesting.

Jeff Skilling used to say that he liked people with spikes.

And what he meant by that was that he didn't like well rounded genial average people.

He liked people with a really exceptional characteristic that defined them and that may come at the expense of other characteristics.

And I think we took that when we wrote Smartest Guys as a bad thing.

But your question makes me think about that and think maybe he was right.

Maybe there is something to be said about that.

But maybe as you think about people in a business context the trick is which flaws matter.

Right. Right. So in the case of Elon Musk doesn't matter that he doesn't always tell the truth.

It doesn't matter that he's a bully.

I'm not sure it would be really interesting to try to think through what what flaws matter.

I'm just thinking for what particular.

Right. I mean I think thinking locally here is I have friends who are incredibly successful.

But if you told them to like drive their kids to school they'd be like where's the school.

Like I have no idea.

Right. So they're not necessarily this well rounded family person.

But they are incredibly successful at what they do in part because they have this relentless focus on on that to the cost.

If you will. Yes. Yes.

But I think relentless focus on one thing to the exclusion of other things is a different argument than a character flaw.

Right. That said we we all have character flaws and sometimes I've thought just a little bit analogous to the visionary and fraudster argument that life sometimes turns on whether you end up in a situation in which your particular flaws are on full display.

Right. Because we all have them and some of us just get lucky and our flaws aren't pulled out and highlighted and other people just stumble in the limelight.

Other people just stumble into situations where their flaws become the pivot on which all else turns.

But we're all flawed.

Right. But in the in the context of a business as you look at it as a CEO's character or a leader's character what flaws matter to the success of the enterprise and which which ones don't.

I want to come back to that question.

I'm going to actually pose that on you.

But I was thinking as you were saying that that maybe that's not a character fault.

Maybe it is. Right.

Like if you're not there for your partner or you're not a good father isn't that or a mother or is that an aspect of character?

I know Steve Jobs would prove the lie to that.

Right. Could you be the exception.

Like are we to draw a rule from this or is this a he could be.

And part of part of what's gone wrong in modern Silicon Valley is that everybody believes he's the rule.

Right. So all sorts of character flaws have become forgivable because hey look at look at Steve Jobs and look what he did and flaws have almost become a good thing because that those sort of character flaws have become a marker of brilliance.

Right. You can't possibly be really good unless you're you really suck in all these other ways.

That's fascinating.

I hadn't even thought of it in that way.

Right. Like you can't be exceptional unless you talk to me about some of the flaws that we think don't matter if you're running a business.

So I think people tend to see this intellectual charisma or the ability to intimidate others around you into belief as a good thing because we all follow that kind of blindly.

But I think that's probably not a good thing at least if you believe that a collaborative environment and being able to second guess and question and hear doubts is what makes for a better outcome at the end of the day then that personality type would be utterly antithetical to inspiring the kind of collaborative

open environment that we all say we want yet.

So there is a hypocrisy in that or a conflict in that and that we all say we want this collaborative environment and yet we tend to follow people who don't foster that because their own cult of personality is so strong.

Do you get more skeptical as you dive into something when you see somebody with a strong cult of personality?

I do. I do. Just because I've seen it in so many cases where it hasn't ended well.

Other cases where it doesn't?

Well, well, Steve Jobs, right?

That's total cult of personality.

Maybe maybe again, maybe it comes back to your argument about I'm trying to think of another one though.

I'm trying to I'm trying to think of another one too.

I'm sure there are others.

Wasn't the founder of Genentech right?

I'm just blanking on his name.

I think he had a cult of personality.

I think Phil Knight, I think Phil Knight at Nike who arguably built an incredibly successful business.

I think he had something of a cult of personality.

I think Jamie Dimon does.

And I think he is a fantastic CEO, but I don't think I think I guess it's different.

I don't think from what I've seen of Jamie Dimon, he does actually foster an environment in which people ask questions and push back and are quite and are quite are quite open.

So maybe that's what it what it hinges on.

Are there other flaws in people that get you get your business like your writing side excited, where you're like, Oh, this is getting more and more interesting other than this cult of personality?

Well, certainly when people are obsessed with their company stock price, right, but that's an obvious one.

But that relentless focus on stock price and celebration of it to the exclusion of of all else is always interesting.

When people invoke comparisons to others like Warren Buffett, where they want to take something of somebody else's halo, and appropriate it in order to improve their own their own image.

I think that's one that's that's interesting too.

We were talking about that a little bit before we started recording where people intentionally try to perceive or intentionally try to make you think of the same narrative even if they don't draw it out explicitly.

Yes. When they use the same language talking the same way.

Yes. I think that that's another one where people are in this is a Mike Pearson one where people are cute with language, where they know how to say it's the old line from Alice in Wonderland about the meaning of a word that Humpty Dumpty says it means just what I what I say it means and nothing more than that.

And when people are very precise with language such that what they're telling you is true, but they're totally not telling you the broader truth, that's a really interesting characteristic to oh, that's really fascinating.

When they're super literal, yes, what they say.

Yes. So Mike Pearson, right had that argument, I'm going to get it slightly wrong.

But he said that most evaluations, profit growth was not coming from increasing prices on drugs, it was coming from volume.

And that turned out to be true.

If you looked at only their top 20 drugs, and you excluded any recent acquisitions.

So it wasn't true in the broader perspective, but it was literally true according to his definition of like a micro truth.

That's a perfect way of putting it.

Yeah, trafficking in micro truths.

Right. That's really interesting.

Oh, you have to write an article with that title now.

Yeah, I think it's yours not mine.

No, that's all yours.

How do you do collaboration?

There you go. How do you decide what goes into a story versus what gets left out?

Like, where's that line between and I have a follow up question, but I'll let you answer that one first.

So I struggle with that.

I struggled when I got to fortune a lot, I was not viewed as a good writer.

And there are probably a lot of reasons why it wasn't a good writer.

But one part of it was that issue.

Exactly. I didn't know what to leave out.

Because every fact seemed equally compelling to me.

And I still remember the senior writer at fortune saying to me one day, Bethany, facts are like lights on a Christmas tree, you actually can't have too many of them.

But it's still a struggle for me because I find everything so interesting that I want to put it all in a story.

And that part of that is also I have this theory, which is completely unscientific and utterly untested, but that people who are good students in high school and college often don't make for good writers, because you also want to show your teachers and show your readers that yes, you've nailed every

last fact and every last nuance of this.

And you don't know how to step back and say, I've nailed it all.

But I'm not going to show you that I have, I'm just going to tell you a story, right.

It's really hard for people who have been good students historically to let go of that.

Certainly, that was a huge struggle for me.

But now I, I really try to focus on finding the narrative and offering clarity.

And I do think that that's a hallmark of good writing is getting down to the clarity and the essence of a story and then figuring out how you're going to convey that.

And then some of the trappings of the additional, so you can, you can get rid of some of the additional sparkly little lights, right?

Because the sparkly little light sometimes mean if you have all of them, then you can't see anything, right?

It's just a blur of light.

How did you learn how to write?

Like, I don't believe that you're a terrible writer, but like, I was made better now.

Well, it should be an interesting question, right?

How did you go from your self perceived terrible writing to what now is widely considered one of the best investigative reporters or journalists in the world?

Like anybody, I still benefit from having an editor, some stories are easier to tell than others, I can write some things without being edited and other things, I still get hopelessly lost in the details.

And I need an editor to say, no, no, no, let's step back.

What's what's the story here.

So I am far from perfect today.

But I think I've learned actually a lot from working with Jonah Sarah, who edited Smartest Guys, and who was my co author on on All the Devils are here.

He helped me probably more than anybody learn to write by finding the story and by finding clarity, Joe's real real skill in reading any draft is to find the disconnects, the places where the story you're telling doesn't make sense.

And often in those disconnects, you find the story that you do want to tell because that's often where you're skipping over something because you don't understand it or because it doesn't make sense is often the gap where the story really exists because that's the place where everybody else is skipping

over. Yes, that's a place where everybody else is skipping over to it over it too.

And so his remarkable brilliance is being able to read something and immediately hone in on those places where it's where it's not making sense or where you're where you're skipping over the difficult stuff.

Because that is the observation that's going to make the story come together.

If you figure out why you're skipping over that that piece of it does does that make sense?

I've tried in a weird way to to exercise my math major brain a little bit more.

And what I mean by that is that in some ways, a story, at least a nonfiction story is kind of just a beautiful math proof in different language, but it should still have the same a math proof has a beautiful kind of gravity to it and that A leads to B to C to D.

And a story should have that same gravity because it should all hang together and make sense.

And if it doesn't, and A doesn't lead to B, then something's going wrong in the writing and in in your understanding.

What do you wish more people knew about writing?

That it's just work.

When you probably have this too, but when somebody says to me, I want to be a writer, I just love writing, I think, oh, no, you don't.

I mean, it's it's work.

It's a craft, the more you do it, the better you get at it.

But it's really hard.

I don't write anything and sit there and say, Oh, I love this.

This is so much fun.

It's work and it's very satisfying work in the same way.

A really great workout is wonderful, but, but hard, right?

It's, if it's, if writing is for you, this joyous act of words just flooding forth, I don't know, maybe you're the remarkable one in the million for whom then the end product is good, or maybe you actually shouldn't be a writer.

Do you have a routine around writing?

I don't really, my life is too random to have much of a routine.

I tend to write better in the morning when my brain is clear and to be able to do calls and processing work better in the afternoon.

But I am, I'm very, I'm very outline oriented.

I like to have everything that I think might belong in a story in one place before I write so that I've thought about all my material.

There are people I know who write beautifully who just sit down at their computer and start typing.

I hate those people.

I'm not one of them.

So if the micro question is like, what light bulb should be in the story or what facts should be in the story, the macro question is what should and shouldn't be reported?

I think everything should be reported, because I think the more you know, the more you can craft a story that is accurate.

It's a reason and perhaps this is definitely controversial in the practice of journalism.

But it's a reason why I've never had a problem with people telling me something off the record.

One is because I understand, particularly in the business world, people have to be off the record because they're going to lose their jobs if they're on the record, right?

There's a very good rationale for it.

It's not just that those people don't want to own their comment or that they're trying to feed you a story.

Sometimes those people are the ones who are telling you the truth, actually more often than not.

But I would always rather know, even if I can't use something, because that helps me get closer to the truth and what it is I do say, and to avoid outright misrepresentations or things that are wrong, not because I know they're wrong.

And I'm telling, I would never do that.

But because I don't know they're wrong, right?

I would always rather know.

I think everything should be reported.

And then the question becomes what belongs in the story?

Even if it's not corroborated?

Yeah. Or what is the burden of evidence then, if you're reporting something that could damage somebody?

Well, then before it makes it into the story, you better know that it's true and you have to give the person a chance to come and you have to let it have air so that if it's not true, or it can be refuted, you have to know that and understand it.

So the burden of hearing it is one thing of putting it in the story is an entirely different, much higher burden.

You know, old school fortune, and we had time.

And Vanity Fair too, and other other magazines, the fact checking process is really important, because that's the process in which you have to go back to people and say, this is really unpleasant, but this is what's going to be in this piece, unless you show me that it's that it's not true.

We always at Fortune and I still today have a belief.

I'd always, if I'm writing something about you, you will know everything in the piece that is unflattering before it goes to print.

So that we'll, we'll have it out before it's in print.

And I think that's the way things should be done.

Steve Balmer helped me with a story I did on Microsoft a number of years ago.

And it was a tough story about Microsoft.

And Balmer said to me, when we were talking, he said, Am I going to like the story?

And I said, I don't know.

I don't think you will though.

But I, but I promise you that everything that I say you're, you're going to hear before the story runs and we're going to talk about it.

There aren't going to be any surprises in the story.

And he emailed me after the story came out and he said, well, you were right.

I don't like the piece, but you did what you said you would back to your earlier question.

Maybe it's slightly off the topic of, of, but that's good journalism versus, versus not, not good journalism.

And I worry in our world today, too many people want to have the freedom of the press, the freedom to say whatever they want without the corresponding responsibility, which is to make sure that things are aired and people are given a chance to respond before something is put out there publicly.

That's really interesting.

Cause we used to have gatekeepers, right?

Like the New York times and the fact checking, infinity fair, and all of these people.

And increasingly like there's advantages to be able to get a message or truth out there.

And we're seeing it right now with this chrono virus stuff going around the world and getting more hands on information from people on the ground.

But there's also this, this loss of obligation about what you're reporting and the burden for like how you're.

Absolutely. Absolutely.

Everything is two sides of a coin.

Right. And so with this increased flood and access also comes decreased responsibility around accuracy.

I worry less about that side of it because I can see the benefits as well as the downside than I do about almost the bullying component, which is this idea that you can say something about somebody else that is horrible and hurtful and damaging, and that you don't have a responsibility to air it with them

before beforehand. Right.

That, that to me is not okay.

And that's when I do.

And I have had it happen a couple of times when I have not given somebody a fair chance to respond, not because I didn't mean to, but just because something fell through the cracks in the process of closing a story.

And those are the instances that, that, haunt me.

Talk to me about some of the tactics and techniques that you use to get people on the phone and get them talking to you.

I know one of them is you don't record conversations.

I've started to record a little bit more, but I think because so much of my journalistic training was around stories where people didn't want to talk and didn't want to talk on the record, that then you finally convince somebody who's very wary to meet with you or to have a conversation and you say,

and can I tape this by the way?

I mean, no, right. So, but I've gotten, I, I do tape more now if the conversation isn't one where somebody is already terrified.

Right. Because, because it's just better that way.

I also, in the past, and this is a little bit of an aside, my brain works better when I'm forced to take notes.

I stay with the conversation more.

There's something about the process of the hand, brain process or connection that makes me stay with the conversation more if I'm rapidly trying to take notes at the same time.

But I tend to believe that most people are either going to talk to you or they're, or they're not going to talk to you.

If you bring with your questions, real open -mindedness and real curiosity, you're going to get people's story if they're inclined to talk to you.

And so I try, I try to be that and to always be, be respectful and always willing to hear nuance, right?

Even if you're somebody who's been accused of crime, there's, it goes back to that, it's generally not a bad person setting out to do a bad thing.

I want to hear the story of how that happened and I am, I am somewhat sympathetic to it just because of my belief that we all have our flaws.

And then I think there's another, there's another subset of people who really don't want to talk.

And some portion of those are people who have been told by their lawyers, you cannot talk.

I'll kill you if you talk to the press, right?

You're not going to get through to those people most of the time.

And that subset of people who don't want to talk, there are also people who will talk once you have enough information to go back to them.

They may not talk at first, but once you go like, Oh, you figured it out.

So now I'll give you more information, but I wasn't going to put you on the trail.

Right. But once you go back to them and say, I know X, Y, and Z, how do you feel about this?

Then they're going to say, okay, so they're, they're, they're just different types of people in different scenarios.

What have you learned about asking questions to extract information from people?

I think it's just curiosity.

I think if you really want to know, I'm never more excited than when, well, that's a big statement.

Okay. I'm very excited when I'm working on a story and there's somebody I want to talk to who can help me uncover a piece of it, help me locate a puzzle piece.

And they're willing to talk to me.

Oh my God. That's so awesome.

Right? You get to figure out the puzzle.

If you're really curious in that way, and you really want to know and understand what somebody else has to say, and you're not bringing an agenda to it, you just want to know.

I think the questions come naturally.

Is there secrets to getting people on the phone that you've learned or getting them to comment or?

So I remember when I worked on the Enron book years ago, Peter Elkind, who is my coauthor is one of the best investigative reporters out there.

And he particularly at that time was far more experienced than I was.

And I remember thinking, oh my God, I'm going to get to work with Peter.

I'm going to learn all the shortcuts for getting people to talk.

This is so awesome.

And what I learned then is that there are no shortcuts.

You just have to call everybody and talk to everybody and be open minded and ask as many questions as you can.

And you actually cannot handicap either who's going to talk to you or who's not.

And you can't even handicap the people from whom you're going to get the best information.

You actually never know because you can find a low level employee of a company who is an incredibly acute observer.

And you can speak to and get much of what you need to know from that person.

And you can speak to somebody in the executive suite and find out that they were so monomaniacal or so blind or their ego is so caught up in things that they actually don't see anything or they simply can't tell stories and they don't know anything.

You're not going to get much from them.

It's just it's work, right?

Journalism is the antithesis of a productivity hack.

It sounds like a lot of brute force.

I think it is. Lantless pursuit of a story until you get a little nugget.

Yes. And you have to go down a lot of rabbit holes.

There are going to be complete wastes of time and you have to have a lot of conversations with people that in the end are not going to be germane to the to the story you tell.

But you have to do that because you can't find it otherwise.

I want to go off on a little tangent here about sources.

What does it mean to be a source?

What does it mean to be off the record?

Are there sort of like rules around this that are unspoken?

I think they're spoken, but I think they're slippery enough that people always you should always clarify at the start of any conversation what you mean and the other person means just so you're just so you're on the same page.

I always tell people that if they're speaking to me on on on background, I will come back to them with what I want to use.

And if they are somebody whose whose job is threatened, whose livelihood is threatened by by being outed, that they helped me, I won't use anything from them even in a background way without making sure that it doesn't inadvertently identify them.

But you just have to set all those rules, whatever they are, before you start the conversation so that everybody knows.

There was a recent article.

I think it was actually about Elon.

It was a journalist who sort of wrote about him.

And there was an issue of sourcing, where I think Elon had said, this is off the record and then said something that was then subsequently used in the article.

And I felt a little weird around that even reading it because and then the reporters argument in this case, and I forget the name of the person was, I didn't agree that it would be off the record.

Therefore, I can use it.

How do you feel about that?

It's do you know which article?

Yes, I do know which article you're talking about.

It's it's hard. I think I would I would not do that.

But I don't mean by saying, I would not do that.

I don't mean to sort of claim moral superiority, because my my set of incentives are also different than somebody who does have to publish daily news and does have a quota of news breaking that that's that's part of their economic sustainability.

So mine is not because I've traditionally been a long form magazine journalist.

If I were to get that that nugget, would it matter to my career if I were to publish it or not publish it?

Not not really. Right.

So it's easy for me to say I wouldn't I wouldn't do that.

So I don't think I don't think I would.

But I'm not claiming moral superiority when I say that I wouldn't.

Well, that article just has me thinking about like, what does it mean to be a source?

What does it mean to be off the record?

What does it mean to tell somebody something?

And then furthermore, like, what are the steps that you would take if you wanted to protect yourself as a source when talking to somebody?

So I do tend to err on the and this is this is a somewhat controversial viewpoint, because they're very respectable news organizations like the New York Times who don't want people to be ever to be off the record.

I tend to err on the side of protecting sources, partly because in covering business, they're just there really are consequences to people for for having their name associated with with something.

And I would never want somebody who tried to help me tell an accurate story, then suffer damage as a result of that.

I do I do tend to try to protect people.

But again, I'm a magazine journalist.

So it's it's different.

I can plagiarize freely.

And what I mean by that is I can have an off the record source or a background source who tells me things and I can put it in my own words.

And I have that freedom because I'm a magazine journalist.

And so it's very different than a newspaper journalist who doesn't have that freedom and has to have a source on the record.

We talked to me with that difference again.

I've never heard that before.

I think newspapers and I have not worked at one, but it's it's harder to claim knowledge or a fact if you don't have a source saying it and say, yes, yes.

And saying it on the record, whereas magazine journalism has always been a little bit more point of view driven than pure fact driven.

So I tell people all the time, fine, be on the background and say something really smart and I'll plagiarize.

I get to steal it. Right.

And pretend I actually came up with that.

That's awesome. It's just it's different in my mind.

These conversations often take place and like lawyers boardrooms or back alley is is that the truth?

Like how does this happen?

No, it's so much more boring.

That would be so nice if it were.

I don't know, a dark alley or a bar somewhere.

No, I'm sitting at home.

I'm sitting at home in my pajamas.

I'm shower. I'm talking on the phone to somebody.

No, there's nothing glamorous about the pursuit of the pursuit of journalism, at least not as I do it.

What's your favorite part of being a journalist?

It's getting to talk to people who are so much smarter and more interesting than I am.

I mean, really what could be better than to get interested in something and to be able to call people up and say, how do you think about this?

And what can I learn from you?

I mean, that's just that's an enormous huge privilege.

I mean, to put it in really sort of blunt terms, that would make sense.

I got to go spend a day with Warren Buffett in Omaha, right?

People pay God knows what to go have lunch with with Warren Buffett.

I got to spend a day hanging out with this this brilliant mind and asking him questions and learning how he thinks about the world and how he sees things.

And that's just one example, right?

If you're reporting on the coronavirus to call up top scientists and learn and learn from how they think about things, what could be more interesting than that?

Or even on this Elon Musk piece I did going to Buffalo and meeting employees who worked at the SolarCity factory there and hearing their stories, just human stories on a narrow micro level.

But human stories, that's the best.

What stuck out with you that you remember from eating Buffett?

The big thing that stuck out to me, this is going to be a little bit odd, was that it was a long day.

I was pregnant with my second child.

I think I had the flu.

I was utterly exhausted by the time we got to dinner.

And I was kind of running out of questions to ask him to be perfectly honest.

I was tired. And I remember thinking, oh, I can ask him about giving his money away to Bill and Melinda Gates.

And this is going to be awesome because all billionaires like to talk about all the good they're doing in the world and how altruistic and philanthropic they really are.

And he'll just talk, and I can just drink my milkshake and sit here.

And so I asked him and he looked at me and he said, well, I don't really pay much attention to that.

That's not my focus of interest.

I mean, I want to help the world.

I want to make the world a better place.

And that's why I'm giving away my money.

But I'm not really good at that, at figuring out where the money should go or about what projects are the most worthwhile.

It's not my passion.

It's not where I spend my time.

And I was like, oh no.

But it stands out to me because there is that, maybe it's back to that argument, that part of our conversation about people spikes, there is that figuring out what it is you are passionate about and relentlessly interested in.

And then you're going to pursue that thing with a passion and a creativity and an interest level that is different than things that you don't have that for.

And so maybe it made me think that maybe some of life is figuring out how you do the right thing in the areas that you're not passionate about.

If you're Warren Buffett and you have billions to give away, you don't say, I'm not interested, so I'm sitting on my billions.

You say, this isn't my passion, so I'm going to give my money to somebody who is passionate.

But you don't pretend to be interested in the things you're not.

You are very precise about where your interests and talents lie.

That's really interesting, especially given the diversity of the stories that you've covered from Enron to fracking to the housing situation.

Where does your interest lie?

Is it in uncovering a story?

Yeah, I think I'm far more, for better or worse, far more of a generalist.

I just like to try to figure things out.

So when I hear something that's interesting that doesn't make sense or that seems provocative, I just want to figure it out.

My interest is not specific to one area.

It's just specific to the general idea that there's this conundrum or problem or interesting thing that I don't understand.

Coming out of that, the Buffett meeting, did you change anything about what you do?

One of the things that I was thinking of there is other things in your life where you're just like, I spent a lot of time doing this, but I'm not passionate.

Therefore, I'm going to outsource it or give it to somebody else or just not pay attention to it.

I think I do that pretty naturally anyway.

I don't know how to turn on a stove and nobody with any sense would never let me get behind the wheel of a car and get in my car with me.

So I suppose I do that pretty naturally on some of the mundane aspects of life.

And that's not something you're trying to get better at.

No, I harbor this belief that one day I'm going to go to cooking school and I'm going to merge a master chef in my 70s or 80s or something like that, but not now.

No, I'm sticking with being takeout girl.

What would you say are other people's biggest misconceptions of you?

Of me? Oh, I don't know.

I've had people say to me, oh, you're much nicer than I would have thought.

So I don't know. Maybe there's that.

Because they read you and then just build you up into this thing that you're not.

I think maybe I have a tone in some of my my stories that sounds that isn't that maybe lacks, lacks humor.

How is your skepticism around businesses in general translated into what you do for investing?

I don't invest. I have zero interest in it.

I mean, it's almost pathological in some, in some ways, although maybe it's a good thing in that I've never had the temptation when I hear something really interesting going on in the world, whether it's Enron is a fraud or the subprime mortgages are going to blow up our economy or fracking doesn't

make any money in this industry is going to implode.

The last thing that crosses my mind is, Ooh, how should I invest my own money?

It just doesn't. I think, Oh, that's a great story.

I want to go tell that story, but it just for me does not translate into any kind of action I would take in a personal portfolio.

It's kind of admirable in a way, because then you have nothing to lose by reporting something that you believe to be the truth, right?

It's not admirable.

It just is, you know, it's not like I am interested in putting the idea I've heard to work and I don't do it because that's not the right thing to do.

It just doesn't even, it's not even interesting to me.

What's the next story you're working on?

So I am figuring that out.

Is there anything that's particularly got your interest?

Well, I'm back to looking at fracking because this idea that which is what captivated me about it, that the industry wasn't financially viable, despite the fact, I mean, there's this juxtaposition with fracking or this disconnect in that these two ideas exist simultaneously.

And they're both true.

They were in such conflict with each other.

And the two ideas where that fracking and the incredible levels of production of US oil and gas is changing the global economy and reshaping geopolitics.

And the other idea is that this industry doesn't make money and isn't financially viable.

And the idea that those two things could coexist was really interesting to me.

Talk about cognitive dissonance.

And that's now proving to be true as the industry is imploding, or the financial weakness is becoming the defining feature of this industry.

And you now see it imploding.

And so how that plays out and what that means and this whole notion of energy independence that, or energy dominance as President Trump called it.

I think that's really interesting.

What is fracking? Just to orient everybody listening to this.

So it is the process it's called the full name for it is hydraulic fracturing.

And it's not actually new, but it's the combination of two techniques that were around for a long time.

One was drilling horizontal wells instead of vertical wells.

And then the other was forcing a mixture of chemicals and water and sand into the earth.

A fracking entrepreneur described it to me this way.

It would be like sealing all the exits in a building and then yelling fire and seeing what starts coming out of the cracks, creating this enormous pressure such that things that don't otherwise want to come out start coming out of the cracks.

And that's what fracking is.

And it enabled us to extract oil and gas from places where we knew there was oil and gas, but you couldn't get it out drilling a well conventionally, a conventional vertical well.

But this technique of fracking allows these wells to actually produce a fair amount of oil and gas.

But the problem turns out to be that these wells declined at an incredibly steep rate.

So a vertical well, once you found it and it produced oil and gas, it would continue to produce for years.

A fracked well declines really sharply after the first year, which means in order to keep production levels up, you have to keep reinvesting.

So you're on this capital treadmill.

And that's why the industry has not been financially viable, because you have to keep reinvesting billions of dollars in order to keep production growing.

So all of this giant increase in US production has come with hundreds of billions of dollars sunk into the ground.

And so the question has always been, if these companies could only reinvest their own cash flow, if they had to be financially viable, what would US production levels actually look like?

And we're about to find that out.

And you say we're about to find that out in part because Saudi Arabia just started a price war on oil, just to orient people.

We're recording this March.

March of 2020, dear God.

Well, we're about to find out because even before this price war started, the capital markets had started to say, wait, wait, wait, this isn't making money.

We need to earn a return here.

We want to see you guys only reinvest cash flow.

And so the focus of the markets had actually already shifted to making companies produce positive cash flow.

But the wild card that had kept production growing was actually private equity money, because private equity has poured tens of billions of dollars, hundreds of billions of dollars into this industry.

And for a long time, private equity could get a return on the greater fool theory, they would fund these fracking entrepreneurs who would go out and drill wells.

And then they would sell that to a publicly traded company.

And the private equity guys would make a ton of money, but it was greater fool theory.

And now all the capital is drying up and the investors in private equity are starting to say, wait a minute, we don't know if we want to take this risk and the existing publicly traded companies can no longer go out and buy these money losing private equity funded startups.

And so the whole capital structure is collapsing now.

And obviously the price war and the economic collapse is lowering the price of oil dramatically, which makes it even harder for fracking companies to make money.

Because if you could make money at a hundred dollars a barrel, that doesn't mean you can't at 20, right?

Or 30 or wherever oil prices are going.

Are the costs for fracking, like on a per bill basis, the operating costs to extract much higher than sort of a vertical wealth?

Yeah. Yeah. And certainly over time because of that, that steep decline in production after year one.

So with a conventional vertical, well, you have years to earn back that return with a fracked well that all has to come.

It all comes instantaneously.

Because the capital commitments are just so large and like ever ever, ever growing, right?

Because if you're going to keep growing production, you have to keep committing more capital to it.

You never get the, you've invested the money and then you get the return, right?

You have to keep investing in order, in order to keep, in order to keep production growing.

And the operating costs vary dramatically per well.

So there are fracked wells in what are known as sweet spots regions where the oil and gas is pretty gettable that are entirely different than a fracked well in a place where there's not where it's not a sweet spot where the geology is the earth's geology isn't as obliging.

So in a crisis, the highest cost producing wells get shut off first, I would imagine.

And then it goes all the way down to the marginal cost per barrel.

Yes. What have you learned about the consequences of fracking outside of just the debt and the financials?

So I, when I wrote my little book, I didn't focus on the environmental issues in part because it was a mini book, not a maxi book there.

There just wasn't, wasn't room.

But I've begun to think more about the, and I was more of, I almost hesitate to say this, but I was more of a, I was less concerned about the environmental impact, partly because I, I live in Chicago and I like to eat my house in the winter.

And partly because, and I do think this is true, that those of us who live on the coasts are so, oh, I live in Chicago mostly now, but in urban environments, we're so disconnected from the stuff that makes our life possible that we take it for granted and tend to be critics of it without understanding

how much it contributes to our life.

So, you know, you plug in your iPhone and charge it.

That might be because of natural gas.

And you think your iPhone is this beautiful, clean, lovely, pristine device.

And it works because of fossil fuels.

That aspect of things made me kind of not as skeptical, but a little bit more of a pragmatist about the environmental issues.

Since I published my book and I've thought about it more, I've become more of an environmentalist in that the societal costs of what we're doing are high.

My friend, Eliza Griswold won the Pulitzer for her great book, Amity and Prosperity on the cost of fracking in Pennsylvania.

And it shows how some people are benefiting and some people are just being crushed by the environmental issues that come with it.

In longer term, there's a big issue here.

If oil and gas is going away as we shift to renewables or if fracking companies are going to go bankrupt, who bears the cost of the cleanup?

Well, all of us, right?

It's another case of capitalism gone wrong and that a lot of people at the top of these companies have made their billions and walked away from it.

And then the rest of society is left to clean up the mess because the companies are bankrupt and don't have the money to pay for it anymore.

And wait, why that's the definition of an extractive industry.

Not only has stuff been extracted from the ground, but the people at the top of the companies have extracted all the wealth and left society to clean up the mess.

And that I think is hugely problematic.

And the minute we sort of have viable renewables that people can see or feel and sustain, the price of oil goes into a freefall just like coal did.

Right? And it may bounce up and down, but it goes into secular decline.

And then that means bankruptcies of fossil fuel companies.

And I don't think we're being thoughtful about then what those companies obligations are for cleanup afterwards.

My understanding of history is that the wealth of nations also correlates in a lot of ways to energy production or fossil fuels.

Right. Well, it certainly has dictated geopolitical engagement for a century, right?

And so as we shift to renewables, how does the world change that?

I think that's a fascinating question.

Do you have any initial hunches that you want to...

I have no idea other than that it's going to upend everything.

If a nation's wealth and standing in the world is no longer dictated by geology, but rather by the innovation of its people and which is renewables, how does that change geopolitics?

I mean, dramatically, so much of our last century has been driven by excess oil.

Switching gears here a little bit as we sort of wrap this up.

I'm curious as to being a parent, so you have two girls.

What are the values that you try to instill in them?

Oh boy. I wish I were, maybe I am somewhat deliberate about it.

I always tell them when they leave for school, I say, be kind and try hard.

And my younger daughter looks at me and says, mommy, be kind to your computer because she knows that I lose my temper and sometimes I throw electronics while I lose my temper.

So she says, be kind to your computer and try hard at your writing.

So it gets, I love the way the lessons that you try to tell your children get turned back on you.

But I really do like the be kind and try hard thing because if you can actually go through life trying to be kind, but trying hard, then that's pretty awesome.

I try to make them passionate about books and they both are.

What does that mean?

I try to make them passionate about books.

How do you do that?

So I let them read whatever they want on the belief that you don't have to read particular books, but you do have to read.

So my older daughter is obsessed with any kind of fantasy novel and I let her read what she wants.

She wanted to read Game of Thrones and I said, great, read Game of Thrones.

And she made it through the first book and said, I don't think I'm going any further with this.

And I said, great, how come?

But I don't try to make them read good books.

I grew up reading science fiction, relentless reading at this age is way more important than sort of like you have to read this.

I don't think I read good books until college.

I mean, I read, I was the huge Lord of the Rings fan and Isaac Asimov fan.

And those were the books that Ursula Le Guin, those were the books that shaped my childhood.

I wasn't trying to read classics.

And when my mother tried to make me, I rebelled and hated them.

And so I don't try to make my girls read, read anything.

I just, I just let them read.

What other things stand out when I asked that question about how you parent, I think trying to be trying to let them lead the way rather than me trying to shape them.

And maybe it's just the children that I've had are not amenable to being shaped.

And so I've, I've had to be that way.

But I have not been able to choose activities for my girls or choose to make them conform in any, any way from the time I was never able to address my kids.

They, they from the time they were able to express an opinion, which is pretty immediately it would shriek when they were put into something they didn't, they didn't want to wear.

So I try to follow them and let them lead the way in terms of who they want to be rather than have a pre -existing idea that I'm trying to, that I'm trying to mold them into.

You mentioned before we started recording that they were in judo.

Yeah. What have you seen from judo?

And so that was, that was them as well.

My older daughter wanted to wrestle and wrestling is still a pretty male driven sport.

And we went to a couple of wrestling practices.

And I think she, she would have, she would have stuck with it despite the fact that she was the, the only girl, but we found judo.

And so we sort of migrated to, to judo, but I, I never had any intention or desire to be a judo parent, right?

I didn't, I followed her interests and then my younger daughter would go to judo practices with her and she wanted to do it too.

So for the time being, we're a judo family.

That's awesome. How long have you been doing it?

Only a couple of years, like three years.

Have you seen their confidence increase through that?

Yeah. Yeah. Yeah. It's really nice.

It's really nice to have that level of, to have your kids, especially girls in such a physical sport.

My kids are in a jujitsu and one of the things I like about it is that they're just failing all the time.

Yes. We just went to a tournament and both my girls got pinned and it's a little hard to see as a parent when another child comes at yours and her, you know, she go, they go down hard and judo, but, but that's good.

Right? Because that's that old lesson that you, you learn more.

I said to them afterwards, you, you learn more from your failures than you do from your successes.

Success is a lot more fun.

Right? But, but you don't think about it then.

If you won, you're usually like, I won.

Yeah. I'm great. Yeah.

Right. If you fail, then you have to say, why did I fail?

What went wrong? What do I go wrong?

What do I learn from that?

So I still can't quite, I'm still working on accepting this in my own life despite the fact that I intellectually know it's true emotionally it's hard, but that really is true.

Right. Failure is a victory because failure gives you the chance to, to learn something new in a way that victory doesn't.

And that's the same when I submit a piece of writing and the editor hates it.

And I, I learn more than I do if I turn something in and they say you're fabulous.

I'd still prefer the latter, right?

So emotionally speaking.

So I'm still working on, I'm still working on accepting this emotionally, but it's, but it's indisputably true.

Right? Do you, do you share those failings with your daughters?

Oh, all the time. Oh, all the time.

I think it is very freeing for children to see their parents struggle with things and fail because I think the worst thing you can do for kids is set up this unachainably perfect image in life for them, because then they always feel that they're falling short when things aren't perfect in their own

life and they struggle with things and they fail.

And then they look at their parents and their parent never seems to fail and never seems to have an issue and their life is perfect and checks all the boxes.

Then the kid says, what am I doing wrong?

And if instead parents see you struggling with things and things not working well, then they know that's life.

And my dad used to say, he was a, an eye surgeon in Northern Minnesota and he used to talk about his fears about going into the operating room and fear that he would screw up fear that the surgery hadn't gone well, what he didn't like about his job.

And so I didn't grow up with this unrealistic idea that I would find a job where everything would be perfect and happy.

Right? I grew up knowing that's, that's life.

You find something you love that gives you a lot of satisfaction, but there are things that you really hate and that are going to be really painful and hard and that you're not going to like every day.

And I think that kind of realism is not depressing.

I think it's freeing.

I think that's a perfect place to end this.

Thank you. Thank you so much for talking to me.

This was an amazing conversation.

Thank you. Thank you.

Hey, one more thing before we say goodbye.

The Knowledge Project is produced by the team at Frontenham street.

I want to make this the best podcast you listened to and I'd love to get your feedback.

If you have comments, ideas for future shows or topics or just feedback in general, you can email me at Shane at Fs .blog or follow me on Twitter at Shane a parish.

You can learn more about the show and find past episodes at Fs .blog slash podcast.

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[비즈니스 세계의 환상과 진실: 베서니 맥린과의 대화]-[#85 Bethany McLean: Crafting a Narrative]

📋 Summary

비즈니스 세계의 감정적 이면

엔론과 밸리언트: '합법적 사기'의 실체

정보의 격차와 '지적 카리스마'

기업의 목적과 도덕적 책임

저널리즘의 역할과 성찰

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📖 Transcript