Uncovering Businesses Like Enron & Tesla Gone Wrong (w/ Bethany McLean)
VINCENT CATALANO: Where do investors go for insight into companies and their leaders? To Vanity Fair? Not likely. Yeah, that's exactly where investors should consider going to. There, you will find insights from our next guest. Insights into companies like Microsoft and Tesla, into leaders like Bill Gates and Satya Nadella and Elon Musk. Her Twitter account describes Bethany McLean as a journalist and co-author of several books on business gone wrong, including The Smartest Guys in the Room, The Rise and Spectacular Fall of Enron, All the Devils Are Here: The Hidden History of the Financial Crisis, and Saudi America: The Truth About Fracking and How It's Changing the World. Bethany, welcome. BETHANY MCLEAN: Thanks for having me. VINCENT CATALANO: Thank you. Can you give us a little bit of a background, because you really have quite an interesting background in terms of the work that you have done in the past and at present that you're doing? BETHANY MCLEAN: I suppose I have a bit of an unconventional background for a journalist or at least I certainly did. I think they're more of me now, but I worked in banking out of college, actually. I didn't go into journalism and I was a math major as an undergrad. A Math and English major, which is how I ended up in investment banking. I wasn't a kid with a defined path in life. I stumbled into a banking job and after three years of doing that, decided that, really, I'd always wanted to write about business. I joined Fortune back in 1995, which is scary to think that I've had an almost 25-year career covering business, I like to say almost 25 years instead of a quarter of a century, the 25 years sounds a little bit better. VINCENT CATALANO: Very good. It isn't just business that you cover because you do cover other topics, too. BETHANY MCLEAN: I do, although most things do have a connection to money somehow. Business writ large is a really, really, really big topic. A lot of things lot under the topic of business writ large. VINCENT CATALANO: True, exactly. Now, in 2014, in Vanity Fair, you wrote a piece about Microsoft, and I want to get into that a little bit because your timing for the article was about as prescient as it could be. Stock, shortly after that, did extremely well. Prior to that, to some degree, was not so much. What brought you to Microsoft and why did you want to do that story at that time? BETHANY MCLEAN: It honestly began as a personality story, a very well-placed source who was off the record had told me that Bill Gates and Steve Ballmer weren't speaking anymore, and that they were in a feud. It began as me trying to figure out what had gone wrong between Gates and Ballmer. As part of the process of understanding that, I had to understand Microsoft. As part of the process of understanding Microsoft, I had to understand who Satya Nadella was as a leader. At the time, as the sentiment on Microsoft was incredibly negative. This was a company that people thought crash and burn. It was really clear in getting to know the company and getting to know Satya Nadella that he was about as bright a future as they could have, that he was going to be a very different leader. The tenor of the piece ended up shifting from being a piece about the past, about Ballmer's arguable failings as CEO and about the falling out between him and Gates, which is part of the story, but it ended up shifting to have a forward emphasis, too, on Satya Nadella in contrast to both Gates and Ballmer. VINCENT CATALANO: Now, it's interesting because the story took on, as you describe it, a very different direction from where you started. Yet if at the time I was reading the article, I would say, okay, well, this is the person who co-authored this book on Enron and also the financial crisis and yet, here we go with a story that goes into a dramatically different direction. How did the evolution of that work out, as you're conducting the interviews, as you're speaking with different people, as you're researching it, is that what gets the story to mold in a particular direction that your ear picks up on? BETHANY MCLEAN: Absolutely. I try to start not knowing anything and not having a point of view and then let the reporting try to shape my point of view. I think the best stories start with a question rather than with an answer. If they start with a question, then you're open to hearing things that may be different than whatever preconceived notions you have. I certainly I suppose it's not fair to say I had totally open mind, I definitely had a preconceived notion that Microsoft was a company that was in trouble and that it was Steve Ballmer's fault. In reporting it, I came to have a far more nuanced view of that and view of the mess that Gates and the mistakes that Bill Gates had made and the mess that he had handed over to Ballmer. I also I think, because I knew so little about the business, was open to learning and it became very clear that Microsoft got exactly the leader it needed in Satya Nadella. Then the question is they still had a lot of business issues. What's Warren Buffett's old line about the management team versus the quality of business, you'd rather have a great management team and a bad business than a great business and a bad management team. Not that Microsoft's business was bad, but if you talk to people in Silicon Valley, Microsoft was done for. It was the old world. It's interesting how that is proven not to be so true. VINCENT CATALANO: Sure. Exactly. Now, Gates got re-engaged. BETHANY MCLEAN: He did. VINCENT CATALANO: That wouldn't have happened with Ballmer, very likely. Would you say? BETHANY MCLEAN: Well, I think because the relationship between the two of them had become so tense that no, it wouldn't have and so Satya Nadella becoming CEO was also an opportunity for Gates to start fresh in terms of his involvement in the company. VINCENT CATALANO: Now when you are when you're looking into opportunities, areas, ideas, topics, what is that process like? Is it from general public reading or is this something where you go, that looks interesting, and then you want to pursue a particular area? BETHANY MCLEAN: Well, all of the above. I think to be a journalist, you have to be pretty omnivorous in your interests. You can't just say, well, I'm only interested in this, I'm only interested in that. I guess my core motivation is mastery. When I write a story, I want people who really, really know it to read what I've written and say, that's right and maybe even that's smart, or maybe even at the best that made me think about something that I hadn't thought about before. The last thing I would want would be to write a piece that people who really, really know well will say, well, that's wrong, or that's stupid. That's what I'm trying to avoid at all costs. I rarely write with an investor in mind, because I'm not trying to make a stock call one way or the other. I'm a journalist and not an investor for a reason. I could have taken that path, but I actually don't have much interest in it. I just want to learn the topic and I want to figure it out as best I can and figure out what the narrative is. Life is storytelling. If you could figure out what the right narrative is, and then convey that and share it, that's what I'm trying to do. VINCENT CATALANO: Now, do you turn to expert subject matters, subject matter experts to be spot on on your-- BETHANY MCLEAN: Yeah. I talk to everybody who will talk to me as my basic mantra. I'll talk to everybody I can, I'll try to talk to employees, I'll try to talk to former employees, I'll try to talk to the company, I'll try to talk to people who really understand the business. Microsoft was honestly a challenge for me, because I've never been a tech writer. I was as basic as trying to understand the difference between Microsoft Office and then the operating system. I really, I didn't know. I really had to educate myself from scratch. Luckily, over my years in the business, I have a lot of people who are patient with me who will spend hours on the phone talking through what's going on in the cloud. How does it work? Why is this important, and so that I feel like I can come away from it and be credible on it. VINCENT CATALANO: Your writing style strikes me and I mean this as a compliment. Your writing style reminds me in a lot of respects of Michael Lewis. BETHANY MCLEAN: Well, that's a huge compliment. Thank you. VINCENT CATALANO: In the sense that the stories read like, or the books or the articles read like you're in the room, like you're hearing the conversations that can then lend itself toward a screenwriter coming along and putting together a story for fulfillment, that type of thing. Has anyone ever said that to you? BETHANY MCLEAN: Well, the Enron book that I wrote with my friend and former colleague, Peter Elkind became a documentary movie, but I don't write with-- I think that's impossible to predict so I don't write with a screenplay in mind. I try to write whatever the story is. I don't even know when I'm writing, if I feel like I have a choice on how I'm telling things, I feel like the story after I've done all my work presents itself to me as this is what it is. I don't know then, there's a whole lot of choice in it. I don't know that I think, well, I could write it this way or I could write it that way. I feel like, by the time I've done my work, I feel like this is what it is. I don't know if that makes sense. VINCENT CATALANO: No, no, that makes perfect sense. Now when it comes to the topics that you explore, and it doesn't have to be bad businesses, it doesn't have to be a problem. They do make for more interesting stories, don't they? BETHANY MCLEAN: Well, they do and I joke that I have this expertise on tales of business gone wrong. It really is accidental, but it began even before Enron and I just, to me, I find the human stories behind stories of business gone wrong endlessly interesting, because from a very simple point of view, at least from my old math major point of view, it was well, bad things happen then bad people knowingly did that x. That's the way it works. Then the more you delve into these over time, the more you discover, no, that's actually not what happened. It's a mixture of self-delusion, maybe a little bit of greed, maybe some ego, maybe some venality, maybe some corruption, but it's this really interesting mixture of very human failings, and it's what makes business tales almost Shakespearean in so many ways. That's what, it's the human nature aspect of this that draws me to stories and that keeps me interested in doing this. VINCENT CATALANO: Would you ever consider exploring the political arena? BETHANY MCLEAN: I have a little bit. I did a piece for Vanity Fair on Jim Comey on that brand a couple of years ago, it was while he was still serving as the head of the FBI before Trump had fired him in essence, but when there was this huge controversy about what had happened in the election and with his investigation into Hillary Clinton, and it was an interesting story. I'm proud of how it came out but it definitely made me realize that subject matter expertise is worth something. What I mean by that is that I didn't know how to evaluate as well. I didn't know how to get to certain people, I didn't know how to evaluate as well what I was being told and what the motives behind people who are telling me things was because I haven't worked in DC and in politics. Whereas in business, I not only know who I at least want to get to whether I can ask another question, but I at least know who I want to talk to. I understand implicitly what people's motives are and why they might be sharing certain things with me. It's just the benefits of having done this for a very long time. I did feel a little bit out in the wilderness, to be honest, in that regard. Look, politics is amazing and fascinating, but there's no shortage of things to write about in the business world. I always say it proves the old adage that truth is stranger than fiction over and over again. From Enron to the financial crisis to Elizabeth Holmes to Elon Musk, you can't get to the latest WeWork story with Adam Newman. You cannot make this stuff up. Literally, if somebody told you that they were going to come along and write a screenplay about a guy who was bilking investors to the tune of whether the number end up being $30 billion, I don't know why and it was a Ponzi scheme and they would be Hollywood be like no, not that that couldn't happen. There was, Bernie Madoff. There's so much richness in the world of business that I've never felt like I'm bored, I need to branch out. VINCENT CATALANO: Sure. Truth being stranger than fiction. BETHANY MCLEAN: Yeah. VINCENT CATALANO: Yeah. Do you have to have a person? Does there have to be an Elon Musk? Does there to be a Mr. Nadella? Does it have to be a person at the center of it or could it be about a given topic which is like a little bit of All the Devils are Here but-- BETHANY MCLEAN: That was built around people. Characters work better, they make for more compelling storytelling because they're more relatable. That said, I've certainly done my share of completely numbers based pieces. My first story that I wrote about Enron for Fortune, which is what started the book process was called as Enron Overpriced and it basically could have been written by a skeptical Wall Street analyst. It was just dissection of Enron's balance sheet and cash flow statements. There was no character in that piece other than Enron itself, the company and its dubious accounting, but it was definitely not a character driven piece. Some of my other favorite pieces have been very, very quantitative, but I guess as I get older, I am more driven to characters and certainly, writing for Vanity Fair. A hardcore straight up accounting story is not really going to fly. VINCENT CATALANO: Okay. Let's go on to Elon Musk. You get the impression from the article that this is a guy who's really playing really on the edge, if not over the edge, very, very often. This story about SolarCity involving the governor of New York, the city of Buffalo, Buffalo Billion Dynamic that's there. First, tell us a bit about that story. BETHANY MCLEAN: I was like everybody, always interested in Elon Musk. One of my ongoing topics of fascination is the line between a visionary and a fraudster. I'm actually convinced that they're, in many cases, the same person and sometimes the visionary just gets lucky and catches the break that the fraudster doesn't and the fraudster gets caught in the middle, but it takes that same personality type. The I'm going to do this, even though you say I can't. People say this isn't working, but I'm going to persevere right through it. I think a willingness to break the rules. I think sometimes a willingness not to be totally candid with other people, if being candid is going to destroy your dreams. I'm fascinated by that. I've been thinking about Musk for a long time through that lens. Which one is he? Is he both? I was looking for a way to tell the story and a longtime source of mine said, well, are you paying attention to what's going on in Buffalo? I said, Buffalo? I didn't know that there was anything in Buffalo. VINCENT CATALANO: There it is again. Just like with the Microsoft story. In one direction, you find out along the way, and then it takes you somewhere. BETHANY MCLEAN: Yes. I found it fascinating that people had forgotten about this whole SolarCity fiasco. I think the SolarCity story, what I find so interesting about it is that it is very clear evidence to me, not in a legal sense, but in an ethical sense of Musk's self-dealing his overpromising and underdelivering his cavalier use of taxpayer funds. The facts are not debatable. What you could debate, you could say, if you're a total Tesla believer, you could say, well, yeah, yeah, that's irrelevant. I don't care if he did a mess of SolarCity because Tesla's great and SpaceX is great, or you could say, this is what happened here and this is relevant. This is something I should know and understand about this man. I think also partly because I grew up in a mining town in an economically depressed part of the country so the idea that's not dissimilar from Buffalo in the sense that it was a town built on steel industry, and the fact that the hope of $750 million investment from the state of New York in jobs and not just jobs, as one person said to me, but careers, high tech careers coming to an area to remake it. I feel the pathos of that intensely and it makes me angry that it could have been wasted. VINCENT CATALANO: The political dimension of this, which is again, I the complex area and all of that, is that fertile ground to explore a little bit further? BETHANY MCLEAN: Well, it's fascinating because despite the fact that taxpayers gave Musk $750 million to build and equip this factory, you as a citizen, of course, I'm not a resident of New York anymore, but you can't get in there. They won't let anybody in. You can't actually, despite the fact that it is a gift from taxpayers, taxpayers can't see what's going on there. The original people who were in charge of building it have all been indicted. It was basically a pay for play scandal, and it's been taken over by Empire State Development, and neither they nor the governor's office would even so much as get on the phone with me on the record and explain what was going on there and what their point of view was, it's just it shut down. That just begs for more work and thank goodness, after the story ran, in a large part, I think more due to the great reporting of a couple of Buffalo reporters, including a guy named Dan Telvock who did really good work on this, but the state controller's office is opening an audit to figure out what's going on with the plant there and how the money is being spent. Thank goodness. VINCENT CATALANO: For sure, I would imagine that an investigative organization or division, investigative unit of a major news organization, 60 Minutes, Are You Listening, that perhaps they might. BETHANY MCLEAN: Well, you can't get in there, Musk won't let you in. All you can do is talk to the former employees, which I did. This is something where I think the press needs to shine light on and then the government agencies that can do something about it need to answer the questions. VINCENT CATALANO: Now, you did mention in a piece that SolarCity could even pose a threat to his, Elon Musk, entire empire. How do you see that happening? BETHANY MCLEAN: I see it in a couple of different ways. One is the lawsuit there. A Tesla shareholder sued after the acquisition of SolarCity, saying that the board was controlled by Musk, and that this was essentially self-dealing on Musk's part because he bailed himself and his cousins out of some loans they had made to SolarCity. VINCENT CATALANO: Excuse me one second, the acquisition was done when? BETHANY MCLEAN: It was done in 2016. VINCENT CATALANO: '16? BETHANY MCLEAN: Yeah. A judge allowed the lawsuit to proceed. A non-redacted version of the complaint just got filed and made headlines for some of the allegations in it. Depending on what the settlement figure is, Tesla doesn't have a lot of cash on hand. That's potentially a problem. The bigger problem to me is the reputational one. If one part of Musk's empire fails, and well, let me back up. The other part is that SolarCity has unquestionably been a cash drain for Tesla. This is not a company that can afford to be losing more cash than it already is. The acquisition of SolarCity has put, has added to the pressure on Tesla's balance sheet which Tesla would have more breathing room if it weren't for SolarCity. A couple of people in the piece, there's a very vocal group of Tesla skeptics and short sellers who are very active on Twitter under the hashtag TeslaQ, which is a stock symbol followed by the Q for bankruptcy. A lot of them said to me, we wouldn't have gotten interested in Tesla if it weren't for SolarCity. We watched what happened with SolarCity and the obvious self-dealing involved in bailing out this failing company. We said, wait, is Musk a genius, or is it, what's going on here? It really caused the level of scrutiny of Tesla, the company, to raise to a level that it would not have otherwise. VINCENT CATALANO: Have you ever been approached by institutional investors for insight into let's say, a company or areas or industries that you have done work? The reason I bring that up is because if I wanted to get to a better understanding of Tesla, I would want to know more about the head of the company, and you provide that exploration of that. BETHANY MCLEAN: I haven't. I think I would be wary of saying anything privately that I wouldn't say publicly. I think that just gets into murky terrain. Again, I don't know, I haven't been asked. I haven't had to think through that. Maybe it would be perfectly fine, but I think as a journalist, when you write things, what you're willing to say should probably be what you're willing to say publicly. VINCENT CATALANO: Right. Well, I would think if I were an institutional investor, major company, had to position in or was thinking of our competitor position, here's a person who has some pretty good insights. BETHANY MCLEAN: Well, maybe a better way to think about it is because of what I do, if I have an insight, I'm going to share it publicly. I'm not going to have all these great insights that I'm just sitting on. VINCENT CATALANO: Right. Yeah, but people who are watching this get a better insight into you beyond or in addition to reading the article. BETHANY MCLEAN: That's probably fair. VINCENT CATALANO: Yeah. Nice theory to touch on, what are you working on now? Anything you can give us any insight into? BETHANY MCLEAN: Nothing super exciting. I launched my own podcast called, Making a Killing, where I am actually interviewing other people who have written what I view is great business stories or great business books that I think are really important to do this, to try to get under the surface of the story even more than the writer has. As you know probably from doing this, that's a fair amount of work. It's something I really enjoy doing because it makes my world bigger. It makes me have to pay attention to other people's stories in a more than cursory way and really dig into them. As a result, I've read things that I wouldn't have otherwise read probably from my friend Katherine Eban's marvelous book, Bottle of Lies, to book about the opioid crisis that I might not have delved into otherwise. That's occupying a fair chunk of my time. Then I am actually attempting to write a story about the city I live in Chicago, which is I've been told since then that stories about cities have done in many writers and I understand why because it is extremely difficult to figure out how to boil something as complicated as Chicago down into a narrative, but that's what's keeping me busy. That's a different project for me. VINCENT CATALANO: Any interest in artificial intelligence? BETHANY MCLEAN: Just for health and augmenting mind, yes, definitely. As a kid, I was fascinated. I grew up without a TV. All I did was read science fiction, Isaac Asimov in particular, so I'm fascinated by artificial intelligence. I just don't know what the right story is. Yeah. VINCENT CATALANO: Sure. Interesting. BETHANY MCLEAN: Now, that one may turn out to be Musk, too, if you believe what is his thing, the neural link where he can seamlessly upload something or another? I can't remember what his promises on that particular one are. VINCENT CATALANO: Well, it does seem to be the potential of being transformative. BETHANY MCLEAN: Yes. Well, but in a really frightening way. VINCENT CATALANO: In a frightening way, sure. BETHANY MCLEAN: As we were talking about earlier, one of the most hopeful things I heard in a while was a conversation that was a while ago between Richard Kepler, who ran HBO, and the head of Instagram. They both said that they could not predict what made a show go viral, or what made a particular image go viral. They just-- they didn't know. There was no algorithm for figuring it out. I thought, thank God, because the most hopeful thing I've heard in a long time, because as long as we remain unpredictable, we're one step ahead of the robots. VINCENT CATALANO: Excellent point and just last area, again in the tech area, but it's very much in the news dealing with cybersecurity. Now here, you have publicly traded companies, privately held companies and government. It's like a nexus of many, many different dynamics that are there. Is that? BETHANY MCLEAN: Right. It's totally fertile ground. Again, I haven't found the right story yet. I probably should have a more scientific process for deciding what it is that I'm going to pursue next. I really don't, I tend to, yeah, something comes to me and hits me and I say, oh, that's what I have to do now for whatever reason, and it's more of a gut instinct than it is a process. Sometimes, I think, especially as I get older, an opportunity cost becomes a bigger issue that I should have a set of really important things going on in the world and be actively looking for stories in them. In a way, that belies my early experience, because when I wrote about Enron, I didn't think it was going to be a big story. I didn't think it was going to turn into a corporate scandal of the decade. I just thought, wow, this is really interesting. Since that's worked for me in the past, it's a hard that that gut level, just this is interesting, I haven't really adapted that approach yet. VINCENT CATALANO: Well, your instincts have served you extremely well. BETHANY MCLEAN: Thank you. VINCENT CATALANO: Well, thank you. Thank you for being here. BETHANY MCLEAN: Thanks for having me.