Duff McDonald: How To Fix the Broken Elite Institutions

Jamie Diamond, and JP Morgan Chase. His second book was The Firm, The Story of McKenzie and its secret influence on American business. And what's shocking about that book not only that McKenzie is as influential as it is in government and finance and business in general, but given their storied history and their power and influence, this was literally the first book ever written on mackenzie. That that's pretty shocking.

Full disclosure, I myself have referenced Duff's work, and about half a dozen years ago I wrote something called is Mackensey the Root of All Evil? And the answer turned out, in my opinion, to more or less have been yes. His book is really a deep and detailed UH read into the storied firm, and it's quite fascinating. His most recent book is The Golden Passport, Harvard Business School and the Limits of Capitalism and the Moral Failure of the

NBA Elite. It is also a deeply researched and highly critical, UH look at one of the most significant institutions in the world of filling the blank, government, finance, business, etcetera. UH. What I love about Duff's work is that it's not

just opinion or vis rule, like or dislike. These are really deep dives, richly researched pieces of work into an institution, the people involved, the impact it's had on not only the world of business and finance and government, but just how it fits into the overall um skew of society and including things like what's the impact of our business school on economic inequality? And he approaches this from a

very very objective, nonpartisan approach. I found all of his books to be absolutely fascinating, and I think you'll find the conversation we had quite interesting as well. So, with no further ado, my conversation with dof McDonald's my special guest today is Doff McDonald. He is a contributing editor at The New York Observer. He has previously contributed as an editor at New York magazine, Fortune and other fine publications.

He has written pretty much for every major business publication, from Fortune, Business Week, conde As Portfolio, g Q, Wired. He has won numerous national magazine awards and is the author of numerous books. The one that caught my attention was The Firm, The Story of McKenzie and its secret

influence on American business. But he has also written Last Man Standing, The Ascent of Jamie Diamond and JP Morgan Chase, and his most recent book is The Golden Passport Harvard Business School, The Limits of Capitalism and the Moral Failure of the NBA Elite. Duff McDonald, Welcome to Bloomberg. Thanks for having me. Let's start out talking a little bit about your career in journalism. What attracted you to writing about out business? It's funny you should ask. I went

to Wharton as an undergraduate a little unwittingly. I was from Toronto and I did not have a sense of Wall Street at the time. I was interested in, uh, being a businessman was which is what I told my guidance counselor. So he told me to go to a business school. So I did, and I did well enough there and got a job at Goldman Sacks out of undergrad. It's not that you wanted to, but it's the law. You come out of Wharton and there there's a line. You could go to Goldman Sacks. Here, you could go

to McKinsey. There, there's a whole bunch of options exactly, although I kind of stumped to my classmates, I only got one job offer from a real Sacks and apparently if you get one from Goldman, you're supposed to have gotten one from everybody else too. But I worked there for two years in corporate finance, and while impressed with the quality of the talent and the you know, they know what they're doing there, it wasn't for me. And I actually tried to get a job in book publishing

first and couldn't get hired. So there was nothing available in steam engines. You were looking into businesses that were soon going to collapse, exactly, So thank you publishing industry for not hiring me and merely hiring me later. And then a friend suggested journalism, and I looked into so you had never really been thinking about writing. Has there

been previous authorship, any writing casually? Not on the side, like I was a capable writer, But I know, I don't think I ever once said I want to be a writer. And so back to your question, how did I get into business journalism, It's because to get into journalism, I need I needed to write about business. So that you and, UM, that's that's pretty fascinating. What does your process look like? How do you figure out what you want to write about and how do you begin covering

a specific topic? The areas you have written about, both in print and in books is pretty broad cross section of American finance. Yeah. I basically tend to follow my interest, you know, wherever it lands. Um, you know, maybe I shouldn't say that my my choice of topic is somewhat random, but I after a point in my career, got to a point where I could, uh, you know, I knew enough editors that I could get assignments with good story ideas.

So it was just about a good story and we were pitching ideas to them and most of the time they liked it. Yeah, and I and and in the other direction, So you know, it's following. Uh, just sort of my interest. But if you look at the three books, uh, they all sort of follow each other. Jamie Diamond was the first one because I had a cover story in New York Magazine after the fall of bear Stearns, which we we sold as a book, and then Mackenzie followed that.

Because Jamie himself, who's uh and no notoriously anti consultant. It didn't resonate enough with me at the time that I thought, oh, that's my next book, but enough that it was in the book about Jamie and my editor said, what what what about what he said about Mackenzie? What do you think? And I looked into and I was like, I can't believe no one's written a book. I was about to say, it's astonishing that they've been around as long as they have been and are as influential as

they are. No one has really called them to test. I think it's because they probably never cooperated and uh, did they cooperate with you? They did? They did not. At first We used the age old this book is happening anyway, thing that we use in magazine journalism. You could either help shape it or just come out and you can read it with everybody else, and I promise you won't be happy. And the shocker is that Mackenzie

came around. And then you get to the third book, Harvard Business School, and that came about just because you know, Mackenzie and Harvard have been connected for a long time, for a long time, and they are the only one of the three subjects that refuse to speak to me at all. That's interesting is your process. I know some people research research, research, and then they finished the research and they write right right, and other people research right,

research right. How do you approach covering a subject I mean broad like McKinsey and Harvard Business School to fairly giant subjects. I'm more of the former, where I sort of try to frontload the research. I found through the three books that the hardest part of writing a book, at least for me, is the middle part, organizing what you know and getting ready to write. Because reporting, if you enjoy it and have a whatever capability at it's

not that hard. You're just talking to people and you're doing a thousand words and it's a fairly clear structure. On the other hand, a hundred thousand words so like, so the first time I did that it nearly you know, broke my mind. I was like, I don't even know how to like take this word file and start cutting and pay. Like the sort of just manual challenge was was uh so terrifying. But um and you know, so I I do do research at first organization than writing.

But you know, you by the time you're writing is when you know the most about the subject, So you know, you do go back and look into things that you stumble on at that point in the process. How how much of Harvard Business School is part of that group that the national populist movement around the world is tilting against. Before I looked into it, I would have I I think I if you'd asked me, I would have guessed that HBS was, you know, dominant in both business and

government leadership positions. One of the things that's really interesting about them, as opposed to say Harvard Law School or or other places, is there are precious few Harvard m b A's that ever have a career in government. You know, they go in at the top, like Hank Paulson or something like that. But like, if you look at the top one thousand people in the federal government, you'll probably

find five Harvard NBA's. Yeah, so they are not. They are not part of the governing elite, except if you, uh, business that corporations are essentially ruling this country well to a large degree they have, Yeah, so in that regard they are. I think the FT came out with a survey, its latest survey of the five thousand largest companies in the world or the thousand or something, and MBAs were not dominant as c as a percentage of CEOs, But of those CEOs that were MBA's, Harvard was totally dominant.

They had more than twice as many as the closest one, which I think was Stanford or Inciot. So uh. They have a long history of accelerating people's climb to the top of whatever greasy pole they're climbing. Let let me throw a quote of yours at you and see what you have to say about this. Harvard Business School has not only proven an enormous failure, but it's very success

has made it positively dangerous discuss. I think that one of the things that they have consistently failed to do is to teach their students that hierarchy and success does not equal. That does not mean that you are right and does not mean that you are wise. And part of that as to do with the fact that you can't pitch yourself as a graduate school of Harvard where your where, your mission is to make boatloads of money.

So what they sell themselves as as educating enlightened leaders, and these enlightened leaders are convinced of their own destiny as leaders from the get go, and they confuse all sorts of other inputs for their essential correctness and rightness, and then you know, make decisions based on that. And it's uh, it's like they've confused the ability to make money with wisdom. So let me throw another of your

quotes back at you. Harvard Business School has contributed to pretty much every bad thing that has happened in American business and the economy over the past century. Now is that a fact or a slight execut Uh? That's that's on paraphrases. Okay, So I wouldn't want to like, you know, a couple of reviewers have said that I blamed the recent financial crisis on them. I did not. Yeah, And in the book what I took issue with was Dean Jay light in the media aftermath of the crisis saying, uh,

we won't. We don't want to spend time looking to fix blame. That's not interesting. But we must be part of the solution. And if you look at the list of HBS grads who are in positions of authority in the lead up to the crisis, you have George W. Bush, you have Christopher Cox, you have Hank Paulson, you have Jamie Diamond, you have down whoever. I'll take Coldman sax So Lynch, John Thayne, John Paulson. So you have it like that. In no way was I like it's their fault.

But it's like, wait a second, when we're making a list of people to figure out how to not do this again, I don't think you have earned the right to be uh at the head of that line. You were at the head of it leading into this thing. The metaphor I I like is when a surgical procedure is botched, you always send in a fresh surgeon to fix it, who is not looking to cover up the previous snaffo. He's just going in or she's just going

in to do what they need to do. When you send somebody to fix something where they may have had hand a hand in the creation of the problem you're not going to get And and that's been a pretty fair criticism of having Geithner and Larry Summers as part of the clan up crew. Are they there to clean up? Are they there to clean up their reputation? It's hard to tell. Yeah, And Hank Paulson, you know, credited with stabilizing a clearly precarious situation, but he that was not

his only motivation at the time. He was motivated to save Goldman sacks. He was motivated to Uh, there were sweetheart deals with gold all over the place. So again, was it their fault? Who's you know who? We can't really blame anyone, but they certainly weren't without fault to say, to say the least. So here's a question that I'm curious about. So you you reference Stanford, you went to Wharton, There's the Booth School at Chicago, Columbia, talk at Dartmouth.

You go down the list of high ranked MBA programs, it seems like there's a lot of competition. Is is Harvard Business School still it or have some of these other really well regarded entities cut a little bit into their space. I can answer that question with a quote that's in the book. I can't remember who said it, so i'm I apologize to its source now. But they said, um, if you want your grandparents to be impressed, uh, go to Harvard Business School. If you want your grandkids to

be impressed, go to Stanford. That makes a lot of sense. Yeah, I read recently there are seventy six thousand Harvard NBA alumni, with a third of those living outside of the US. That's a pretty potent network of for any graduate school has Has Harvard Business School graduates become the new Illuminati? H I think I I'm I say in the book that it may be the most powerful alumni network that

ever has been right. They are uh uh. They have significant representation among the world's wealthiest and among leadership at uh. In the corporate world overseas, they are in more government positions because that, you know, people tend to send their kids to the States to get that snamp of credibility. So let's talk a little bit about Jamie Diamond. Warren Buffett has described him as one of his favorite CEOs.

What what's your take on Mr Diamond. Readers of the book, we'll see that I was impressed with him Uh, he's one of the most charismatic CEOs I've ever met. He clearly endears people to him, and you know, loyalty is one of his strong suits. I think his management of JP Morgan Chase pretty much, you know, stands for itself.

I know that you haven't always you know, you've been a critic in the past, but as as far as as as managed as if your job is not so much a critic of him as the banking industries begging to be bailed out? How fortuitous was it that they had their big sub prime disaster years before the financial crisis? It so when they had a liquid date, there was a bit there for them to get out. It wasn't selling into the panic or am I giving them too

much credit? You know. One of the things that I criticized the case method of teaching at HBS four is that they allow corporate executives to claim foresight when it was just circumstance and luck. I think, uh, in Last Man Standing at talk about the fact that they were just they were trying to get the pieces of the conveyor belt all moving at the right time, and uh, we're a step behind. Uh. Some of the other players like Meryl and uh uh so, yeah, there was luck there.

But at the same time, I had numerous people tell me from inside the company that Jamie and and the people who work with him had sort of suddenly feeling on alert a little before everyone else. Well, I'm doing this from memory, and in my book, when I was researching bailout Nation back America was a disaster, Merrill Lynch going down less countrywide Morgantown. Notably missing from the parade

of terribles was JP Morgan. And when you do the deeper dive, you find out, well, they had a derivative snaffoo when they had these problems with C d O s. But it wasn't right in the middle of the O eight oh nine where the bids went away. I want to say it was three or five years earlier. So when they had to clean that up, the housing market was still there. They were able to go out to the market and work their way out of whatever it was.

And I apologize if I'm getting that wrong of doing this for memory, but clearly their derivative snaff who predated Bear and Lehman and A. I. G. And everybody else. It's always better to sell into an upmarket than into

a panic. And also you know and their their next derivative snaffoo, the London Whale was after and I think it might be out of a little nivete on my part, But what Jamie said, and what Sandy while had said before him, is their focus on the Fortress balance sheet to be able to stand anything to or buy when the streets are running with blood or whatever it is. Uh, it's you know that that was a stated intention long

before they did so. And look what they did. They picked up bear Sterns Sterns for a song, originally two dollars, ultimately ten dollars a share. They ended up getting that brand new bear Sterns building, which was probably worth at that point more than the rest and and and Washington Music if you remember was it was it city. Someone was maneuvering to get WOMBO and somebody who had a let's call it a dubious balance sheet, And when JP Morgan showed up, it was yeah, you guys are done.

We're going there. And I will tell you from personal experience at the time, we had a Washington Mutual account, my a t M credit card where I used to get charged a dollar or two dollars that chase. I want to say the deal took place on like a Saturday or Sunday. By Tuesday or Wednesday, the fee was gone from you. It was in forty eight hours, and they were often running. It was a pretty seamless transition,

and that was a pretty substantial purchase. And that was when in October it was like it was still in you know, Lehman frenzy. A lot of people rained a lot of hate down on the guy as as as their favorite you know, boogeyman from the financial crisis, but as a manager and as a you know, just from what I know him as a person and stuff like,

I couldn't be more impressed. A couple of people wrote online that how do I square a positive biography of Jamie Diamond with a searing critique of Harvard Business School? And it's simply not everybody who comes out of there is Yeah, that's the point. It's like, I'm not saying everyone out of there is evil, and everyone out of there doesn't know what they're doing. Is they're clearly very good at teaching people of things they need to do

to get to the top. But as Henry Mintzburg at McGill says, getting to the top is what matters to the student and the school when it's selling itself to prospective NBA students. What matters to the rest of us is what they do once they're there. And in that group I'm in, clearly is a standout. How secret is Mackenzie's influence? Yeah, I got mocked and from a couple of quarters for that saying it's no secret, uh, to which I responded, Um, we're trying to sell books and

and the two points were honest. The secret part about Mackenzie's influence is that when it is not for public institution or governmental body or something like that that has to disclose it, none of their work is disclosed by anyone, by the client, by Mackenzie. So uh, some of it comes to light when there is scandal or when people want to brag about it, but the large proportion of their work is happens in complete secret. And hence the

Mackenzie mystique you write about. Absolutely. Yeah. So these guys are behind the scenes interviewer or behind the scenes consultants who I make a point in the book that they what they do is they sell credit to their clients for their ideas, right, So mckensey that again, they sell credit for their ideas. In other words, they'll give the client the idea and say, hey, you can take credit.

They never claim credit for it, right because no CEO wants to hire them, say tell me to do acquisition A or B, and then they do A and mackenzie is over there saying that was our idea. Then that doesn't happen. But the trade off is that mackenzie says, we will take no credit, but we will also take no blame, no blames. So let's talk a little bit bit about that blame. You and I were chatting, Um,

I not looking to sell books headlines. A column one's called from two thousand eleven is McKinsey and Company the root of all evil. I must have read something you had written before you had written the book. Tell me if this quote sounds familiar. McKenzie, the global consulting firm, has created dubious strategies for all manners of companies, ranging from Enron to General Electric. Indeed, wherever there has been a financial disaster in the world, if you look around,

somewhere in the background, McKenzie and Company is nearby. And let me throw some of these out at you and you tell me your thoughts, side pockets and off balance sheet accounting, leading it to become known as the firm that built en Ron. Jeff Skilling was Mackenzie also, right, Yeah, before Enron, so he hit for the cycle. Yeah, hbs Mackenzie and then Enron and then Jail perfect right, that's the full foursome. So and and while he was at Enron, he continued to use Mackenzie to the tune of ten

million a year in fees. They hired MBA's mostly Harvard NBA's and had Mackenzie consultants at right, fawning articles and books like The War for Talent and and uh stuff about their off balance sheet accounting, talking about how this new asset light company was the company of the future and they were cheerleading all the way. Mackenzie argued that New York City was losing derivative business to London and therefore should more aggressively pursue derivative underwriting. How did that

work out? And in the firm I talked about in the fallout from the crisis, Mackenzie was advising almost every single institution that collapsed. So back to the secret part. We don't know what their advice was, but it certainly wasn't go in the direction of less not more. It's not just financial firms they've advised that collapsed. They gave some advice to British railway company rail Track. The advice was spend less on infrastructure, which led to a series

of fatal accidents and eventually rail Track collapsed. Swiss Air implemented a m Z strategy, which was very helpful in eventually pointing them to bankruptcy. Now we could argue is that just a coincidence or not. All State did a auto claims payout reduction. It was a Mackenzie and Company strategy. It wasn't that they were helping them manage how to do their payouts. They were reducing their legitimate claimants payouts. And they lost a bunch of business over it, and

and had some states. Look, I don't remember the outcome in the book, but there was states that had reviewed all States State and that I I talked about that in the book. That is that's probably the most disgusting piece of consulting I came across from. Well, the one that I think had the most the biggest financial impact and we'll come back to all state. So ge followed their advice before the crisis and lost a billion dollars.

But the one that blows my mind a little company called Bell Labs out of a T and T. Eventually they changed their name to Loosen invented the cell phone, but they didn't pursue it because mackinsey advised them ain't no future in mobile phones. I mean, stop and think about that. How is that not justify a corporate death sentence When you managed to say to somebody like if your advice is this whole mobile future technology thing ain't going anywhere? Who would ever hire you again with that

sort of expertise? It's a great question. I make that point in the book that there's there are ten reasons or to hire Mackensey. Only one of them is the advice that they give you. What are the other nine? Give us? Give us some highlight. Let me see if I have nine. One is to show that you can afford them, so they are a luxury good. Okay, it's a signaling. That's funny. If you are the CEO, uh and you aren't sure what to do, You're not gonna ask your number two or at least you're not going

to display your level of uncertainty. They are a great use of corporate money for personal, you know, decision making help. If you are the CEO of a company who needs to get rid of your number two because you're feeling him getting a little close to you, they are a wonderfully effective way of having a knife stuck in their back that does not have your fingerprints on it. You can restructure that person out with McKenzie's advice. If you've made a decision, you need to get it by your board.

Mackenzie told us to do it if you want to have the McKenzie works for everybody, right, so if you want the benefit of that knowledge that I'm sure they don't go around sharing one client stuff with another client, right, that would be we have some insight into They have insight because they're talking to everybody else. So if you're the only one who's not talking to them, you're the only one who's not getting the best advice to me.

It sounds like if someone could say, as a corporation, like why do I feel that Apple and Amazon don't listen to mackenzie or am I technologically naive? Uh? No? You know, the companies that know what they're doing and or sort of know what their plan is. Yeah, they don't need them as much, except if you want to use them as the great in their most modern incarnation,

which is the great rationalizers. They are the people you bring in to cut costs so that you can point your finger and say, I didn't want to do this mackenzie. Really Yeah, So as an investor, why would I want my company to spend all those millions of dollars to doing what the management has been hired. That's a good point. That was what I was saying that Jamie was talking

about when he was criticizing general use of consultants. But no, it's what Mackenzie's business model is about personal relationships, right, They have relationships with the CEO. Uh. Yes, they burrow into companies, but it's very it's about personal things. So you're absolutely right that if you're a shareholder like I I say in the book, no CEO is an idiot for hiring them for all the reasons I just listened,

Why wouldn't you somebody else's money? But yeah, shareholders, unless unless you know it's one of those situations where you need the hiring of Mackenzie to signal that you're serious about your reorganization or your cost cutting and you want the market and to know that you really mean it because you're gonna spend the money and then you're not just giving lip service. Hey, and this time we mean it. Yeah.

So what's the relationship with Mackenzie and Harvard which goes back Harvard Business Review was where they were publishing early on. How how did that dynamic develop? Marvin Bauer, who was the you know, longtime spiritual godfather and leader of Mackenzie after James Mackenzie died, was the one who had the

insight early on. Consulting firms hired experienced professionals. So if you're an airline company you want advice, they had like a retired airline CEO on the staff and you'd ask him because he knew what he was talking about, and v our his contemporaries. In the maybe forties or so, we're like, wait a second, why don't these NBA schools are popping up all over the place. Why don't we

hire them? They're cheaper, way cheaper. We can mold them into our own image and create this army of whatever the case studies and we can have them learn on the clients dime, right, So why why wait till they retire? So mackenzie was one of the first companies to really hire out of HBS with in earnest and ever since then has been in some there is no company that

has hired more B. S. Gradson, Mackenzie Goldman. I think would be second, maybe not, It might be like Ge or something, but Mackenzie's number one, and they hire them because the case method is the perfect education and preparation for being a consultant. You're supposed to stand up in front of a group of people and talk about something that you don't really know a lot about and sound convincing.

We have been speaking with Duff McDonald's. He is the author, uh most recently of The Golden Ticket about Howeverard Business School, and previous to that the firm The Story of McKenzie. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Check out my daily column at Bloomberg View dot com. You can follow me on Twitter at Ridholts. I'm Barry Ridholts. You're

listening to Masters in Business on Bloomberg Radio. If you're having a business dispute, the process can be slow and drawn out, especially if you rely on litigation. In the courts, you can wait for years before your case is resolved, and the longer your case proceeds, the more your case can cost. Not with the American Arbitration Association. Arbitration or mediation with the American Arbitration Association is faster. In fact, nearly fifty of our cases settled prior to hearings. Ad

er dot org resolve faster. Welcome to the podcast. You know what question I forgot to ask you during the broadcast. If people want to find your work they could go to Duff McDonald dot com. Yes, as well as Amazon and find bookstores everywhere. Yes. So you have a list of all of your publications and everything else. I have my I have my books there and I have my greatest hits journalism wise. There you go. So let's let's go over some of the stuff, some of the stuff

that we missed. You know what I didn't get to ask you that I wanted to chat about was the ascent of CEO pay and who would you blame for it? Is that Mackenzie as some people have said, and I have a quote from you somewhere here about Mackenzie, which is, uh, is Mackensey to blame for skyrocketing CEO pay? You go back to the early um pay consultants. It seems that Mackenzie was back part of that. Yeah, there was a consultant at Mackenzie who who did a CEO pay study.

And it was post World War two. I think back when the ratio between CEOs and the lowest paid people on the factory floor. Yeah, yeah, in the double digits. And the one study that they did found that, ah, executive, over some trailing period five years or something, executive pay had had risen more slowly than worker pay. And suddenly that study was in very high demand by corporate boards, and that led to the Harvard Business Review publishing an

annual study. And there you get your perpetual motion machine being built. And now we're up to four hundred or so to one, and you have UH compensation committees made up of fellow CEOs who think that they are worth fifty million a year. So they are for why shouldn't in this guy be and I call it in the Golden passport? Ah, And we may have to cut this for the censors. The one of the most intricately designed circle jerks in business history, because everybody is is log

rolling for the future. Everybody is. I remember back in the day when Spy Magazine would show log rolling in our Time, and it's Duff McDonald says, Ridholtz's book is great, and Ridholtz says, Duff Duff McDonald's book must read. And they would always show the matching blurbs. And that has stayed with me for all these years. Log Rolling in Our Time. I'm old enough to remember when Spy Magazine was actually, you know, the Onion before the Onion was,

so that that's kind of interesting. There's a really fascinating NPR Planet Money about how a Clinton tax basically change the dynamics of CEO compensation and led to people saying, all right, let's give a lot of stock options because that doesn't cost us anything. I talked about that in the in the Golden Passport too, as uh one of uh the greatest examples of unintended consequences ever. They tried to put a cap on ceo pay cash pay cash pay.

Was it like a million dollars ten million and above that the taxes became onerous, right, So what two things happened from that? One is, uh, average CEO pay was not ten million at the time, but it quickly converged on a million and stock options, so which became enormous. Which became enormous. So a well intentioned moved by Clinton blew up in you know, the country's face. So you have the tax policy and then on top of everything else, you have the fast by accounting that basically says, well,

stock options really aren't a cost. You know, just because you have to actually go out and buy it in the market doesn't mean it's a cost to the show. And if they are, you should you might be able to reprice them anyway after the fact. It's so that was just one of those things. And when people look at how CEO pay has run away, that's one factor.

But there has to be. The consultants are one things that the tax changes is something else, the account and treatment is something else, any other factor H B. S M. I lay some blame at their doorstep for helping be build the CEO fame machine. Right, So the case method is teaches from the perspective of the CEO, what would you do how would you save this company? You? You? You?

And then Fortune magazine Mackensey Harvard and and what we're about to say about Fortune, then Fortunate puts on their cover and tell you that you are the world's greatest person because you uh know how to price pharmaceuticals properly or something, right, You just crank them up towards a hundred times more what you paid for them. And there you go. Right, it's buy some patent protection from your got to modify the pharmaceutical every year, so you extend

that your lipan you're and this is tricky stuff. So you deserve the fame for doing it if you Now, how do you explain that in Europe and in Asia, we don't see the same uh enormous pay packages. They might be starting to tick up, but they're noing near what we do here. And I think so, I think Martin Sorrel is overpaid. He's a w p P. Sorry sir, Martin Sorrow. Well, once you're united, then whatever you deserve

it all. Uh. I think it's because, like as some historians business historians point out, one of the ones who I found particular incifles a guy named Robert Locke, who's been living in Germany for l C k E. And he talks about the fact that UH, the you know,

there's there's there's two oppositional stances in American business. One is business versus government and one is management versus worker right, and uh um neither of those has to be and in other variants of capitalism, like Germany, neither of them is nearly as UH polarized as it is here, and management values the input of their UH employees, I think a little more than they do in the States, especially if they've gone through the fame machine of a place

like HBS, where you're convinced that you are the reason for all six sess and you blame government or or unions for your failures. So UM, I think UH in at least the Japan as well as Germany, UM, they're a little calmer about what constitutes success in what its origins are, and they're not so obsessed with trying to take credit for it. So they they're easy, they're better at sharing it. That's that's that's quite fascinating. I know, I only have you till about six for another half hour.

I'm gonna I'm gonna see what else we skipped before getting to my ten favorite questions. You know, we kind of blew through the journalism portion of of our first segment. Let's let's talk a little bit about journalism and you explain how you sort of serendipitously happened into into writing. What what are some of the things you really like about writing books? And what are the things that perhaps you are not so enthralled with. Uh. It's great for me,

at least as a freelancer that this is a practical answer. H. Freelancing got really I had a I sort of had a nice three or four year run of freelance magazine writing before the crisis, and it was really fun. Uh. When money got tight, freelance got a lot more difficult. UH. And writing books UH is uh is easier on UH from a cash management persupative. So you you put out three books in ten years? Yeah, And what's the next

book that's coming out? Where my agent is hounding me to get it to the publisher now, because the reviews for the Golden Passport are so good. You've been, by the way, you've been everywhere the past by the time this broadcast the past month or so, really nicely reviewed in all sorts of major public occasions. So they want to strike when the iron is hot. Is that the business side? Yeah? So so so financially it's been and it's worked for me. As far as what do I

like about it? Um from the actual process itself. Uh. If there is a criticism of of the latter two books that I just don't care about, it's that they focus a little too much on the history. I love the history. Yeah, I think it's I think it's fascinating. Just tell me what happened Tuesday. Who cares? That's a different Yeah, that's Bloomberg right right, And but that's for two million companies, So it's it's a lot of volume. This is one company. You want it to be a

mile deep. Yeah, and uh, I love uh, you know the reporting part of it. Uh, there was a point in my career I think it was at Money magazine. You know, when you're writing personal finance, it's hard to get that motivated for it. I remember when I would be when I would be calling people, I would actually be hoping they didn't answer their phone. That's a that's a warning sign that you're doing that. You're in their own job. Now it's like once I'm on to a subject.

I like, just all you're doing is reading and talking to people who are introducing you to other people who are introducing to other people. It's great, Like, all you're doing spending your time learning stuff, and if you're interested in it, you know what a way to make a living writing the writing stuff. I've gotten more confident with each successive book. This last one is a little uh in places, uh in temperate, but uh that wasn't the

firm somewhat intemperate throughout? Yeah, Although I was amazed, there were people who were confused about what my true opinion of mackenzie. It's like, do you the root of all evil? How confusing is that? When you say route? Do you mean like, have you never read between the lines? But for I thought it was pretty clear that it was. That's what I thought too. But so in this book, I try to make sure that didn't happen in this When you say they're terrible, do you mean they're like

pretty good? Or what do you mean by terrible? I mean you did you really get pushed back on McKinsey boy. There were people who said he asked a question are they worth it or not? And he doesn't give a satisfactory answer and my response and bullet points as do. It's like it depends who you are, right, If you are the CEO, yes, If you're the shareholder maybe, if your society probably not unless you rate efficiency as the highest value of all. Is that really what they do?

Are they really the efficiency masters? Yeah? All they do is come in and optimize stuff for you, regardless of consequence. Yeah. And you know they have a sort of a boilerplate approach to problem solving and thinking that works very well in process situation. And if you want someone to come in who is outside of your organization, so who doesn't come with baggage and can do stuff without uh you know,

personal bias, no ties, no roofs, and move on. It's like hiring samurai to just okay, kill everybody their corporate samurai, right and then leave. Yeah, that that's pretty interesting. So journalism today, how do you feel about or think about the rise of fake news? And is there anything we could do about it? Ah? I think I think it's horribly depressing that um ah, we are were able to elect a president who uh so willfully it's like trampling the press. That what just sort of the essence of

like what is truth? Like, Yes, we can all have different opinions, right, but we should but not different facts. We should be able to agree at what day of the week it is, or what the temperature is outside. And the fact that we've ended up, you know, in a situation where nobody believes anybody who's they have decided is not trustworthy. It's horrible. There was just an interesting article I'm trying to remember who where I saw it. It was either a p or McClatchy that said his

tweets have lost influence. The president's tweets, they no longer move markets, They no longer disrupt things. Even when he comes out as he did a month or so ago and said, yeah, we should break up the big banks, the market sputtered for about ninety seconds and then quickly recovered all its losses. At one point in time, his sort of free form, disruptive machine gunning had an impact.

Because everyone's freaking out that we managed to elect him. Well, you know, it's if you look around the world, what's been happening. You have the Brexit vote, you have the Lapin vote, you have Donald Trump, the rise of popularism, populism around the world has ramifications. You've railed against the financial elite. Many voters both here and abroad are doing

the same thing. And so what's kind of surprising is a lack of pivot from Trump once he's elected, to say, all right, I have the wind on my back, let's do ABC. And instead it's this sort of odd alright, let's check out Spicer gets great ratings, let's keep them. Wait that you haven't figured out what your new job. You have a new job, figure out what you're supposed to do, and try not to blow us all up. That doesn't that transition doesn't seem to have happened. I

think it's because he never expected to win. Any couldn't agree with you more. That's why there are so many unappointed positions. Normally you go in with a list of these three thousand people, and here are top hundred that didn't happen. I think he's as surprised as anybody, you know. Back to the journalism thing and the fake news thing.

One thing that has occurred to me though, is like the Internet has allowed us to be aware of more people's opinions than the media's opinions, which you know, historically or whoever was on TV and stuff. What does that do for us? Well? It oh my My point is just we might not have actually gone through such a significant change with fake news, that we may have been

in this state before but didn't really realize it. So you have more opinions, some of which are paid hills for one side or the other um, some of which are just clearly click hungry Macedonian teenagers but putting up and websites, and some you know not every when two people are having an argument, one says, well, the earth is an obliq s vieroid. Any other person says, no,

the earth is flat. That's not a credible debate. And on top of everything else, our cognitive systems are set up so that even when someone is wrong, they don't and you correct them, they don't remember the correction. If anything, it hardens. There are erroneous view and there's all sorts of crazy. You know, it's funny. Is on that point I say that one of my points in the Harvard book is that they have spent so much time telling themselves that they have moral righteousness to their leader there

as an aspect of their leadership. It's like you telling the story of something that happened so many times that suddenly, like on your fiftieth telling a thing that you weren't sure that sure about the first time you told it, you're suddenly it's a fact now because you've been to my wife. She doesn't understand how the story gets better each telling, And I'm like, that is editing, of course, and in all seriousness when they do studies on memory

and witnesses. When you tell a story to the cops or whoever becomes your truth right the second time you tell that, you're not recalling what you witnessed. You're recalling the previous discussion. And so the more you tell it, the further and further gets away from the original experience, which is why you're supposed to take contemporaneous notes and blah blah blah. So I could talk about this sort of stuff forever. Let's let's get to my favorite questions

so you don't end up keeping you here all night. Um, all right, so you told us what you did before working as a journalist. You were Goldman Sacks for two years, nothing in between. From there, you went straight into writing. My first job after Goldman was at Derivatives Week so you're covering derivatives as a journalist, as a journalist during the U when I think it was air products or something,

one of the first big deritives blow ups in ninety four. Yeah, and I the guy there said to me, um, what are you doing? Uh? Every all of our the people who work here want to work on Wall Street. You're the first person who's ever come from Wall Street to Yeah. And and then he said, he said, how do I know You're not going to go back to Wall Street? And I said, I'm not going back to Wall stret Six months later, I left for Money magazine and he which was a Dow Jones publication, time in so he

pulled my Yeah, he pulled me into his office. He said, you told me you weren't going to leave. And I said, I told you I wasn't going back to Wall Street. I didn't tell you I wasn't going to go to a better publication. Um. So I then was at Money for five years and realized it was time to quit

when I had written the exact same story twice. Because service magazines, if if you're actually good at what you do with a service magazine, you should write the same story Price Jason's wife that his job is to write the same story weekend, week out and not let his readers or his editors know that he's doing totally. I worked with Jason and uh uh at that point I got uh an offer. Red Herring Magazine was growing during

the nineties. Yeah internet one point oh, and they hired me as their New York bureau chief and um public markets editor because they were all VC in private equity. So so tell us about some of your early mentors. I can come up with three. One was a guy named Michael Civy at Money Magazine. Is familiar writer, writer slash editor, but he was sort of the central financial writer for years. Uh. Fascinating guy. Uh a uh and um.

He his his method of writing. It could you know, could bore you two tears given its repetitive aspects, but it was very effective. So he was the one who taught me sort of the simplicity and clarity were key. Uh. The next one was Jason Ponton, who was the editor of Red Herring Magazine. He's at M I T. Tech

Review now and he uh brought a flare to Red Herring. Uh. That was eye opening for me coming out of a service magazine like Money, and you know, he sort of prayed at the altar of the Economist, and um he made me realize when I just when I wasn't even sure of it, that writing could be like a joyous experience as opposed to a mind numbing one. And then the next one was, uh, someone who just died. Actually

Christopher Byron, who was he was at The Observer. I had the good fortune to follow in his footsteps writing a similar column in The Observer. I hired him at Red Herring to write for us because I thought it was so great. And he was the one who, um uh showed me how to write with attitude, when without fear, and taking aim at uh the right targets. You know, I spent most of my early career, uh, you know, doing positive stories. Here's something you should do, it's a

great idea. And at red Herring, here's some great technologies, here's a great trend. These are all fascinating and awesome things. And it turns out it's just as fun to call people to account for fun. Yeah, it's more fun. And I don't I can't think of another writer who inspired me more with his writing than Chauser. Byronn't even comes close. That's that's really interesting. Um, tell us about what other

journalists influenced how you write, Byron? It would be number one. Um, I'm not sure I have you know the guys who Grayden Carter has headed Vanity Fair doing business writing. It's used to used to be the publisher of Spy and that's where the phrase short fingered vulgarian was published. And that has to be years ago. Yeah, and and he is and it's a great like you know, it's like any publication has its ebbs and flows, but he is a great He's one of the great editors. And he

hires great writers. I mean only fair as a monster. Yeah, you know, Michael Lewis is there, Bethany McClean is there, William Cohen is there, Brian Burrow is there. Uh you know what else? Who else? You need me? Great? And I'm available? Um so uh um. The way that they do business stories at Vanity Fair, I wrote for them all. Yeah, I did like a decade's worth of work with them, Gray and gave me, you know, it was awesome enough to give me a lot of work for a while

when I was freelance. Um, that's how you do a good business story. Those guys do it better than anybody. They put a lot of I was quoted by them in something. I think three different fact checkers called me. It was nobody uses that does that sort of depth of And if you read that stuff and put it up side by side with fortune, like the people had fortune where I've been a contributor, they should be embarrassed of themselves. So you're not gonna be a contributor. Uh

Like that's real storytelling, so Graydon. But then if there is like one name who I read, not with an eye too trying to write like him because it will never happen, but who I read just because it brings me a euphoric something is Adam Gopnik at The New Yorker. He is the greatest, in my opinion, He's the greatest writer all the journalists. No kidding, Yeah, I get the New Yorker. I've seen his. By the way, they have a killer line Ryan Leason and go down just right.

The former Bloomberg person who just had the book out on hedgephone. Um sharks something I forgot the name predators something. Um, well, we'll figure out what that is. They just have a monstrous lineup. The problem is that the magazines don't stop coming. You can't. You can't get your vanity fair as monthly? Is that right? New Yorker is like every other day? It seems yeah, I used to, I used to. I had given. I stopped subscribing to the New Yorker because

the piles would give me guilt. I just want the online access. Stop mailing me. Get that, get the um the app that you know. There's an app called Texture. It's amazing. It's fifteen bucks a month. You've got every magazine there is. Really Yeah, I'm done with getting don't get this straight up from them. Get it through Texture. It's awesome. Usually I hate the expedious slash you know, hotels dot com. I want to go directly. It's awesome. This is all right. I will definitely check out Texture.

Um let's talk about since we're talking about writers, let's talk about books. That's Charlie Pellett, voice of the subway when you hear stand clear of the closing doors, that's him. Um let's uh, by the way, for people who are listening, we're in a glass uh terrarium the studio, and there's an endless parade of people walking by, and some of them wave and you. I'm trying not to be distracted, but you know, to famous people like us in right stairs. Um,

so let's talk about books. What are some of your favorite books? Who are some of your favorite authors? By the way, this is the single most requested question. So uh um. Before I was a journalist, I would say the balance of my reading was probably ninety percent fiction, ten percent nonfiction. And even these days, if you don't include the reading I do for work, it's probably seventy thirty fiction. So give us some fiction names and give

us some nonfiction. Uh fiction Eileen to people like Boorhs uh it, Tello Calvino, uh now some book titles. Borhes's book Labyrinths short Stories, It's fantastic it Tello Calvino's book If on a Winner's Night of Traveler, Invisible Cities, um, uh, Nabokov everything, Um. David Foster Wallace, I was a fan

of I thought the sort of verbal pyrotechnics there were great. Uh. In recent years, I rediscovered Stephen King from when I just had a long conversation I read I took into under the Dome on a trip A couple of years ago. It's like his latest fat one, but like the size of the stand and stuff, he's still got it. Matt Wallert is a former principal at Microsoft Ventures and what

he we were talking about Stephen King. He said he likes to every now and then find an author and just devour the entire I used to do that all the time straight. I used to do that with science fiction. My brother does that, right, We'll find an author and go all right, I've now read. I used to. I used to do that with fiction writers, and then I realized that I didn't want to do it anymore because it's like you use it all up and you want

to save her some of it for later. I like, um, oh, there's a couple that are obvious ones that are what about what about nonfiction? I'm not, you know, considering that I've read a written a biography, I'm not a huge reader of biographies. I thought The Power Broker, uh was one of the greatest on Robert Moses. You know, it's a kind of composing book, but it is awesome. I planned literally decades, you know what. I It was on my shelf too, and then when I sold the Jamie

Diamond book. I was like, I should read a biography, and I took that out to a friend's house and emiganst by myself for a weekend and read it. At the end of it, I was read that in a weekend. Uh no, sorry, I was out there for a couple of days a month and uh I was. As soon as I finished, I was like, oh my god, what have I done. I can't do that us. I can't write anything close to this won the Pulitzer Prize, it's been it's been lauded as one of the biographies of

all all time. Yeah, I'm more. I do more like uh, I veer more into science and maths stuff than story or give us, give us a few books. Um, you're talking right in my sweet spots. I am you know stuff like um all the pop science stuff like the History of Zero or um. Did you read The Information by James Click? I have the Information by James Click. I haven't read it. Probably the best book I read in the past decade, uh, Consciousness, explained one of my

favorite books, Daniel Donne. Best book I've ever read in the last decade was an Adam Gopnick book called Uh. I don't know if this is the name of it, but it's if Lincoln and Darwin or Darwin and Lincoln, and it is like a dual biography palle parallel lives, more like parallel thought and parallel uh. Changes in the way they helped the rest of us change the way we think through the way they did what they did.

And I told people afterwards, I was like, I never would have read a biography of Darwin or of Lincoln, and I certainly wouldn't have read a joint one except it was Gothnick and it is one of the greatest books. Really. Oh well, I'm gonna add that to my list for sure. That's a decent number. Give me one more, because I see you're thinking, oh, my favorite I think multi book reading experience UH in the last twenty years or so was Neil Stevenson's Baroque trilogy, UH, with each of those

books with a thousand pages long. And I was reading one of them when I moved UH at some point, and the book ended up in a box in the attic, and I forgot about it and found it a decade later and then finished the trilogy. And it is just picked it up where you left off, and just I don't know. I think I might have started again, but there was There's so much in it. He is a hilarious writer. Uh, it's all about money and the money

book he wrote, he wrote cryptonomicon neuromanswerh uh. And but the Baroque cycle, the three of them, that is like it is uh. He he could have just set the pen down and retired. It is a piece of greatness. That's amazing. Let's let's move forward past books. Um, we've already spent enough time talking about journalism as an industry. Um, here's another reader question. Tell us about a time you

failed and what you learned from the experience. You know, I was thinking about that one because you sent it to me. Um, these are the ones that require recall. This one doesn't require what's recall? I like, I don't really have too many uh like career failures. I failed in a marriage and I failed like I drank too much alcoholically at the same time. And no coincidence there, not not a random correlation. No no, And um, what

did I learn that I better grow up? And like, you know I treated her I did not treat her well at the end of our marriage. And it was just a colossal personal failure on so many fronts about like responsibility and and doing the right thing and not blaming other people for the things that bother you. Luckily, my my ex wife is a forgiving person and um, so things things are okay. But it was like I just learned that how to not be a horrible person.

And my last two and favorite questions, what sort of advice would you give to a millennial or a recent college grad who came to you and said, I'm thinking about being a writer. That's a good one. Um, you know, if you have you know you're not going to accidentally end up in the situation I have, you know, been lucky to end up in uh anymore because I don't think that happens again. And and and it's not because I can do something that I just think that the structure

of the interstate everything's changed. You if you have a passion and a facility for writing, uh, you know, you got I think it's got. My advice would probably be targeted, you know, you how to figure out your thing? Uh? You know that hopefully the New York Times and and you know whoever will be around for a while. But um,

the price paid per dollar spent or sorry. The price paid per word is in free fall, and the only thing that is going to um retain its value is a great scoops and be great writing and see great storytelling. So you got to refine to do great storytelling about any particular thing, you got to know enough about it to be able to do that. So, UM, you know, you got to figure out what your thing is and

hone it. Although I don't think I should be in a position to be telling aspiring journalists what to do because I never was one, so I don't really UM, I don't know how they think, because I don't know how they thought back then. And a final question, what is it that you know about writing today that you wish you knew twenty or so years ago when you were first starting out? This is an easy one and and I could I could claim that I learned it,

but my brother actually just said it to me. Uh, Like two years ago, I was getting ready to write the Harvard book and I was spewing out, you know, some endless rant about Elton Mayo, who was, you know, a father of human resources, also a fraud. Um, And I finished telling him the story and he said, he said, all right, don't take what I'm about to tell you the wrong way, please, and he goes, you should write less like you currently right and more like you speak.

And the lesson there was I've been trying too hard. Not not that I've been trying to too hard to like sound smart or or right in a specific way. I just it wasn't coming out as easily and fluidly as loosen the grip a little. Loosen the grip, yeah,

and and uh more natural, sound more natural? And storytelling tell stories the way you tell stories, and don't you know, um change it because you're you know, in putting it in written form, and you know, part of that has to do with the legacy of who you're writing for, like various publications will won't let you write in certain ways. But the main point was just like, relax, man, and say it the way you want to say it, because when you're effective that way and so find your true voice.

Is that a good way to say it? Or uh yeah, or you know, just don't. It's not not take the job seriously. It's it's like, not get all wound up in what you're doing. Just do what you're doing and be easy about it. We have been speaking with Duff McDonald, contributing editor at The New York Observer and author most recently of the Golden Passport, Harvard Business School, etcetera, etcetera.

If you have enjoyed this conversation, be sure and check out iTunes, SoundCloud, and Bloomberg dot com and you could see any of our other hundred plus conversations. I would be remiss if I did not thank my head of research, Michael Batnick, and our producer, Booker Taylor Riggs for helping us put these conversations together. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I'm Barry Retults. You've been listening to

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