B000U5KFIC EBOK (19 page)

"Charlie wanted a slightly different version of the law than what was
written. I refined it to change it," said Rickershauser. Several years later
they met at a party, and Charlie helped recruit Rickershauser for Munger,
Tolles. Of the young lawyers brought aboard in the early years, Ronald
Olson and Robert Denham have become the best known.

Ron Olson graduated from the University of Michigan School of Law
in 1966, spent a year at Oxford, then in 1968 clerked with U.S. Court of
Appeals Judge David Bazelon in Washington, DC. He had decided to stay
in Washington when his appointment was over until a law school classmate suggested that he come to LA and join him at Munger, Tolles.

"Two weeks before our son was born I told my wife I was going out
to California to take a look," said Olson. °I came back and told my wife I
thought we ought to go. Why? I never met a more interesting group of
people. Charlie was not with the law firm. But his values were very much
part of it. I heard stories about him when I was recruited, and to this day,
recruits who come through this firm hear Charlie Munger stories."

When Olson eventually met Munger, his first impression was typical
of what others saw. "Gee, he's an old man," thought Olson. "He was in his
40s. For years his mother probably told him, `Charlie, you should act your
age, meaning you should be more mature.' Charlie, from the first day I
met him, was the most wise, most mature, most sensible man I ever met.
Now his chronological age is just catching up with the wisdom lie accumulated very early in his life."

To be sure, said Olson, "He can be maddening. He can talk over the
best conversationalist I know. His opinions are never hidden. Our political opinions are quite different. He's a conservative Republican and I'm a
Democrat and we differ on how to solve a social problem, but in the end,
we come out the same."

California Lau' Business once described Olson, who grew up in a
small town in Iowa, as one of the country's top "rainmakers"-a partner
who lures new business to a firm. Olson won recognition for arranging a
$400 million settlement between his client Merrill Lynch and Orange
County in a famous case involving junk bonds. Not had, considering that
the county was seeking $2 billion in damages. Olson advises clients such
as Atlantic Richfield Company, Universal Studios, and Michael Ovitz, the
former Walt Disney president.' In 1998, when California lawyers ranked
themselves, Olson took the top spot in the list of most influential lawyers.

Katharine Graham, a regular member of Buffett's inner circle, was
impressed with Olson when they met and had lunch in Washington. 'He is dynamic. A really fabulous guy. He was Warren's securities guy for a
long time. The most prominent deal maker in Los Angeles. Wasn't that
$90 million Ovitz settlement amazing?"

Graham was referring to the settlement package of Michael Ovitz,
former number two executive at Disney Inc., who left after a falling out
with top executive Michael Eisner. The Ovitz's package is sometimes valued as high as $140 million or much lower, depending on the price at
which Disney's stock is trading.

Robert Denham, who served as Munger, Tolles managing partner
from 1985 to 1991, gained national prominence when Buffett and Munger
called him and Olson to New York to help sort out the bond-trading scandal at Salomon Brothers, Inc. Denham was in New York for seven years
and before lie left, lie became Salomon's chairman.

Denham grew up in West Texas and learned about Munger, Tolles
when he was a student at Harvard Law, where like Munger, he won a Sears
Prize. "In 1969 to 197(), Rod [Hills] taught at Harvard. Carla was writing an
anti-trust book. Very interesting people. The Hills had my wife and me to
dinner. Molly [Munger] was there. Molly was a senior at Radcliffe."

After talking to Hills, Denham decided to give Munger, Tolles a onceover by working there in the summer of 1970. He was impressed with what
lie found. "The firm stands for value oriented toward business. It stands for
integrity. The same thing Charlie stands for, this firm stands for."

Denham first encountered Munger the summer he worked as an intern. "My earliest impression was of someone who was very smart, very
focused, had a lot of really close human relationships, who cared a lot
about his friends. As I began doing legal work for him-in 1971 or
1972-that gave nee a much better perspective on him. He is an unusually smart client. He understood legal work quite well and the business
issues. Working for him was hard, demanding, but it's the best work
you can do, because you learn a lot from it. Any good law firm is fundamentally in the business of selling judgment. That's a critical part of the
way Charlie practiced law. Solid legal skills and understanding of business issues."

Thanks in part to Munger's name and his connections, explained Den-
ham,"We've been able to recruit very, very well. Part of that recruiting success is that we can recruit into elite declination. Lots of very able people
get turned down. This is an intellectually elite institution." One applicant
went so far as to describe it as "elitist, snobby, and competitive."i

The hiring rules are strictly followed, no matter who the applicant.
Not long after she graduated from Harvard, Molly Munger applied at
Munger, '1'olles for an associate's position. She interviewed with Carla Hills, but Hills did not offer her a job, allegedly because Molly had not
made the Harvard Law Review. Apparently in Hills estimation, that meant
Molly's credentials weren't quite up to Munger, Tolles's standards.'

When new graduates are interviewed at Munger, Tolles, they are told
that grades are the main criteria by which they will be evaluated. "Even
your undergrad record is picked over," said one applicant. "God help you
if you only graduated cum laud Isic], rather than magna or summa."

Of its 130 lawyers, 17 are former U.S. Supreme Court clerks. MTO (as
its members call Munger, Tolles) added seven new partners in the year
2000, graduates of Georgetown University Law Center, the University of
California at Los Angeles (UCLA), the University of Southern California
(USC), the University of Michigan Law School, Stanford Law School, and
Yale Law School. While most law firms have two associates per partner,
with the associates carrying the heaviest work burden, Munger, Tolles
partners have to do more of their own work, since only about half the
lawyers on the staff are associates.

Perhaps one of the most nurturing things Charlie Munger did for
MTO was to bring in a small group of companies as clients, it group that
later became Berkshire Hathaway Inc. As Berkshire grew in size, influence, and prestige, so did Munger, Tolles.

"Berkshire-Hathaway has had a huge impact on the firm ... the ability to work for Warren Buffett and the opportunity to be the lawyer for
Berkshire-Hathaway?" noted Hal Borthwick. And I'm not saying, by the
way, that Berkshire's business produced massive amounts of gold. Its
consistent work, but by and large Warren and Charlie run that business so
as to stay out of trouble. At the same time, in the early days they bought
businesses that had troubles they thought they could fix. Blue Chip
Stamps was a case in point where they took over control of a company
that had, I don't know, 10 cases against it? Their calculated judgment was
that they would win or cheaply settle all the cases. They did. It cost some
money, took a long time, but they got a good deal, right? But it's a tremendous amount of help to have something like Berkshire built into the client
base. It's a stamp of approval. Some general counsels will say, 'You know,
if they're good enough for Warren Buffet, I think they're okay for us, too.
Give 'em a call.'"

Because Berkshire's business grew at a steady but manageable rate,
Munger, Tolles was able to keep pace, adding staff and expertise as required. Today, the offices of Munger, Tolles & Olson occupy several floors
in a russet marble wedge, one of it pair of skyscrapers on Bunker Hill. The
offices are across the street from the Los Angeles Museum of Contemporary Art, in a part of town that has magnificent edifices, but is only blocks from areas that look like the back streets of Mexico City. A short distance
from the cappuccino shops and elevators filled with people dressed in
exquisitely tailored suits, the streets are redolent with the aroma of taco
stands, the sounds of sidewalk vending stalls and Latin music.

Munger, Tolles & Olson now specializes in corporation, securities,
and business litigation, labor relations, anti-trust law, taxation, real property, trust, probate, and environmental law. The firm has a particularly
large business litigation practice.

In addition to being Berkshire's chief counsel since the 1970s,
Munger, Thlles has represented the Philippine government in its efforts to
recover funds from Imelda and Ferdinand Marcos. They represented the
Alyeska Pipeline Service Co. in disputes arising from the Exxon Valdez
Alaska oil spill. They were legal counsel in the restructuring of Vons Cos.,
a western-states grocery store chain. They have done substantial work for
the Northrop Corp., Litton Industries, Southern California Edison, Bank
of America, Unocal Corp., and MCA Inc. MTO performs pro Bono work
for numerous groups, including the Western Center for Law and Poverty
and for the homeless of Los Angeles.

Munger, Tolles is known for creating a democratic and fairly unique
compensation system designed to make the firm a meritocracy. As a result, when conditions are right the highest-paid partner can earn at least
five times more than the lowest paid.

Every January the partners-there are now 62-get a ballot listing
the names of all the partners with a blank after each name. The firm's net
income for the previous year is printed at the bottom of the ballot. Each
partner fills in the amount of money he or she thinks every participant
should make, with no rules other than that the numbers must add up to
the net income for that year. 'T'here are no points, no shares, no extra
credit for seniority. When the partners vote, they can take seniority into
consideration, but they also consider a person's ability to find business
and represent clients successfully.'

"We vote on disbursement, then everybody gets to see how everyone
else voted," explained Olson. "There isn't a compensation committee-a
lawyer-by-lawyer pitch on how valuable he or she was to the law firm. It's
a whole different dynamic. Rod, Roy [Tolles], and Charlie together were
the ones who came up with the process. It's a yearly check on how you
are perceived."

After the ballots are in, the firm then plots the numbers and names
on a grid, allowing each attorney to see how he or she ranks in the eyes
of every other, by name. The compensation committee reviews the
numbers, talks privately with each partner, and then settles on a final compensation figure. The system, claim the partners, encourages good
manners. People think twice before riling anyone who will influence
their salaries.

"People have said this must be very brutal," says John Frank, a
Munger, Tolles partner. It is open, but it's not brutal. You can't give a
whole lot of money to one person without taking it away from others,
which imposes a certain civility on things."'

"They think of themselves as a more intellectual bunch than most
law firms," said Anne Larin, a former associate who later joined the legal
staff at General Motors Corp. "And I liked that."'

Although he has not worked there for years and his name is no longer
on the brass plate, Rod Hills claims, "Pound for pound, it is the best firm
in the country."

CHARLIE WAS STILL PRACTICING LAW, though not full time, when he, Jack
Wheeler, and later Al Marshall were running Wheeler, Munger. The
Wheeler, Munger offices at the Pacific Stock Exchange were so cramped
that if Charlie got a sensitive call from a client, he asked Al and Vivian,
their secretary, to step outside so that he could maintain confidentiality.
Al and Vivian would stand around in the hall, on one foot and then the
other, and wait.

Within three years of founding Munger, Tolles, Charlie dropped out.
He finally left the firm in 1965 because he believed that he would never
again need to rely on legal fees. He transferred his remaining balance at
the firm into the estate of a partner who died young. Clearly, Munger had
been plotting his escape from law for quite a while.

Al Marshall said Charlie once summed up practicing law this way:
"Too often, if you absolutely kill yourself over an impossible client and
get a ten strike, your reward is you get to do it all over again for an equally
impossible client." Despite his love of his father and grandfather and respect for their work, it was a relief to Munger to quit the law.

"I hire lawyers, oversee lawyers, it's not that I don't use law or
lawyers. But I was entirely willing to give up working for other people as
a lawyer," said Munger. "I had a huge family. Nancy and I supported eight
children.... And I didn't realize that the law was going to get as prosperous as it suddenly did. The big money came into law shortly after I left it.
Also, I preferred making decisions and gambling my own money. I usually
thought I knew better than the client anyway, so why should I have to do
it his way? So partly, it was having an opinionated personality. And partly,
it was a desire to get resources permitting independence."

Munger hoped to use his wealth, when he felt secure with it, to emulate his childhood idol, Benjamin Franklin. "Franklin was able to make the
contribution he did because he had (financial) freedom." Munger came
to understand that in order to be truly wealthy, a person needed to build
ownership in a business.

"It was a classic thing my mother-in-law talks about," explained Hal
Borthwick. "She says, it's always the lawyer who has the wonderful
lifestyle, with the kids in the schools and the nice home in the nice neighborhood. She says, of course, you are living at a level your clients are living at, right? What you forget is your clients are building capital where, as
an attorney, you're not. There is no capital value to your practice, so
when you do retire one day, your income disappears. You have nothing
other than maybe your house and so you sell the house and move to the
desert or whatever."