Page 448 - Ray Dalio - Principles

judicial system for people to appeal to, and no enforcement
system, because we didn’t need them. I, with the help of
others, simply created the rules and enforced them, though

everyone had the right to appeal and overturn my and others’
judgments. Our principles were the equivalent of what the
Articles of Confederation had been to the United States in its
first years, and our policies were like our laws, but I never
created a formal way of operating such as a “Constitution” or a
justice system to enforce them and resolve disputes. As a
result, when I stepped out and passed the power to others,

confusions about decision rights arose. After conferring with
some of the world’s greatest experts on governance, we put a
new system in place based on these principles. Still, I want to
make clear that I don’t consider myself an expert on
governance and can’t vouch for the following principles as
much as I can vouch for the previous ones, because they are

still new as of this writing.

16.1 To be successful, all organizations

must have checks and balances.

By checks, I mean people who check on other people to make
sure they’re performing well, and by balances, I mean
balances of power. Even the most benevolent leaders are prone
to becoming more autocratic, if for no other reason than
because managing a lot of people and having limited time to
do it requires them to make numerous difficult choices

quickly, and they sometimes lose patience with arguments and
issue commands instead. And most leaders are not so
benevolent that they can be trusted to put the organization’s
interests ahead of their own.

a. Even in an idea meritocracy, merit cannot be the only determining factor in
assigning responsibility and authority. Appropriate vested interests
also need to be taken into consideration. For example, the

owners of a company might have vested interests that they are
perfectly entitled to that might be at odds with the vested
interests of the people in the company who, based on the idea
meritocracy, are most believable. That should not lead the