How Companies Go Awry, Journalism Business Models, and Advice for Writers | Bethany McLean on The Knowledge Project

Check out The Knowledge Project Episode Page & Show Notes

Key Takeaways

  • Many people have a simplistic view that companies that end up doing illegal activities are run by bad apples who are deliberately making bad decisions, but that’s often not the case
    • “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” – Bethany McLean
  • There’s a thin line between visionary and fraud
    • Perhaps Elizabeth Holmes could’ve succeeded in creating a breakthrough medical product if she had another billion dollars
  • How could companies prevent bad behavior?
    • Provide stock options for top executives with the goal of the company being around for the next 100 years
  • If you’re thinking of writing a story and you’re reading about something you don’t understand, that’s often where a good story is hidden
    • “That’s the place where everybody else is skipping over too” – Bethany McLean
  • Writing is just work, that’s it
    • “The more you do it, the better you get at it but it’s really hard” – Bethany McLean

Intro

Books Mentioned

The Fall of Enron

  • Bethany McLean was one of the first people to be skeptical of Enron and question how the company made money 
    • She wrote an article about Enron and 6 months later they went bankrupt 
  • Why was no one aware of Enron’s failure earlier?
    • “Skepticism about business tends to travel in a very small circle, companies won’t speak ill of their competitors…employees can’t speak publicly…so there’s this odd veil over the information you most want to know”Bethany McLean
  • “Sometimes there’s 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.” – Bethany McLean
  • The business world is a lot more emotional than people think
    • If you were working for Enron back in the day and your economic well-being was dependent on the company doing well, the idea that you would be a whistleblower or notice something was wrong within the company is tiny
      • “There’s a reason whistleblowers tend to be outsiders” – Bethany McLean
  • When examining companies, be aware of confirmation bias
    • A lot of smart people were saying Enron and Valeant were great companies because their stock prices kept going up but both companies soon came crashing down
      • “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”Bethany McLean

Good Apples Gone Bad

  • Many people have a simplistic view that companies that end up doing illegal activities are run by bad apples, deliberately making bad decisions, but that’s often not the case
    • “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” – Bethany McLean
      • Usually, it’s an odd mixture of rationalization, arrogance, greed, and ego
  • Ego plays a huge role in business
    • In a recent interview, Lloyd Blankfein, the ex-CEO of Goldman Sachs, said he didn’t feel he was well-off even though he worth around $1 billion
  • Rationalization also plays a role 
    • CEOs are under immense pressure to produce profits for shareholders and sometimes rationalize their morally-questionable decisions by saying they had to do it to make money
  • There’s a thin line between visionary and fraud
    • If you look at Elon Musk, he’s lied several times to keep funding his dream and keep his company alive
    • Adam Nuemman from WeWork was extremely charismatic and loved by investors until they found out the company wasn’t as profitable as originally thought
    • Perhaps Elizabeth Holmes could’ve succeeded in creating a breakthrough medical product if she had another billion dollars
      • “I think for some fraudsters it maybe would’ve worked if they had just gotten more time and been able  to keep getting money” – Bethany McLean
  • Badly aligned incentives also play a role in a company doing something wrong
    • Wells Fargo gave their employees a really aggressive product sales goals which employees achieved by falsifying accounts in order to keep their jobs and get paid
      • The employees that made fake accounts got fired for their bad behavior but the executives kept their jobs and made millions of dollars from those employees
  • How could companies prevent this type of bad behavior?
    • Provide stock options for top executives with the goal of the company being around for the next 100 years
      • This will force them to think long-term, not over the short-term
        • “As long as you have a system of incentives where people can get paid even if the company ends up bankrupt, I think it’s going to be problematic” – Bethany McLean
  • Shane’s solution: Top executives should invest in the company they work at and have a meaningful chunk of their net worth in that company

Business Models of Journalism

  • There’s the winner-take-all model that the New York Times is following
  • There’s the billionaire-backer model that the Washington Post took
  • There’s the not-for-profit model that ProPublica is trying
  • All of the new business models for journalism haven’t proved very successful
    • Vice, BuzzFeed, and Vox are all struggling
  • Local newsrooms have lost about 50% of their employees over the last decade
    • Magazine journalism is also struggling
  • Journalism was funded mostly by advertisers but once social media platforms came along, advertisers took their money from newspaper and put it towards social media
    • “The problem is Google and Facebook right, they’re siphoning up most of the advertising dollars that used to go to journalism”  – Bethany McLean

Advice for Writers

  • Facts are like lights on a Christmas tree; you can have too many of them in an article
    • You want to tell a story as a writer, not just recite facts
      • “Good writing is getting down to the clarity and the essence of a good story and then figuring out how you’re going to convey that” – Bethany McLean
  • If you’re thinking of writing a story and you’re reading about something you don’t understand, that’s often where a good story is hidden
    • “That’s the place where everybody else is skipping over too” – Bethany McLean
      • If something doesn’t make sense, it’s worth investigating because other people probably also don’t understand what’s going on
  • Writing is just work, that’s it
    • “The more you do it, the better you get at it but it’s really hard” – Bethany McLean
  • Before Bethany publishes her articles, she sends it to the people who contributed to the story so that they have a heads up about it
  • As a journalist, people are more likely to talk to you if you don’t record their conversation
    • Instead, take notes during the conversation 
  • As a journalist, you have to be curious and constantly reach out to people for comments
    • “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.” – Bethany McLean
  • What’s Bethany’s favorite part about being a journalist? Getting to talk to a ton of smart people
    • People pay ridiculous amounts of money to spend a day with Elon Musk or Warren Buffett; Bethany gets to do it for free

Additional Notes

  • A lot of incredibly successful business leaders aren’t well-rounded individuals and usually have big character flaws
    • Just look at Steve Jobs or Elon Musk, both are considered geniuses but they’re also known for pushing people too far
  • Bethany’s next article will cover fracking and how it’s not as profitable as most people believe
    • There are also a lot of environmental problems caused by fracking 
      • “The people at the top of the companies have extracted all the wealth and left society to clean up the mess” – Bethany McLean
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Notes By Alex Wiec

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