B000U5KFIC EBOK (44 page)

The early Charlie Munger is a horrible career model for the
young, because not enough was delivered to civilization in return for what was u'rested.j'rom capitalism.'

Charles T. Munger

T WAS RELUCTANTLY THAT ANDREW LEEKA traveled the fearsome freeways,
right through the writhing core of Los Angeles, to meet with the hoard
of directors of Good Samaritan Hospital regarding the position of president. The traffic wasn't what worried Leeka.

Good Samaritan is one of Los Angeles' oldest and most relied upon
hospitals and although Good Sam had a reputation in the Southern California medical community for delivering quality care, it also was known
for having constant financial problems and high turnover among staff and
management. In fact, recalled Leeka, contention and disorganization were
such that, "This place was like Bosnia."

Part of the problem, Leeka's contacts told him, was chairman of the
board Charles T. Munger, who held an executive committee meeting
every few weeks and gave the chief administrator very little peace. Nevertheless, following his heart more than his head, Leeka reported to a
small conference room on the hospital's first floor, where the executive
committee had gathered. Suddenly the door burst open, and Munger
strode in and seated himself at the head of the table.

"Charlie came in and I don't think he really looked up to see me," recalled Leeka. "He said `well, this hospital has a lot of problems and they
are thus, thus, and thus.' He went on for 35 to 40 minutes. Finally he
asked me a question, but didn't give me a chance to answer."

A few minutes later Munger stood up, and Leeka stood as well, extending his hand to shake. Munger simply ignored him, turned, and
strode out the door through which he'd entered.

"I said to the other board members, 'I don't think he liked me.'" The
members in unison replied, "No, no, he loved you.'"

"Then why didn't he shake my hand?" asked Leeka.

"He couldn't see your hand," explained one of the board members.
"He's blind in that eye."

Despite that explanation, Leeka felt sure he was out of the running,
and remained doubtful about wanting the job anyway. It would seem that
Leeka and Munger had little in common. Leeka could hardly be described
as an Ivy League type. As an undergraduate, he attended a school near
his home, the University of California at Riverside, a slightly scruffy but
academically competent school on the smoggy eastern edge of the Los
Angeles basin. Leeka then earned an MBA and a master's in health care
administration at California State University Northridge, and went on to
spend 16 years in nonprofit hospital administration. He owns a showquality Harley-Davidson motorcycle and holds a black belt in Karate. The
only apparent connection between the two men is that Leeka also was
born in the Midwest and knows and cares about hospitals.

Leeka had several other job interviews scheduled the week he went to
Good Sam. But before he could leave that day, he was asked to stay and
meet certain key staff members. Leeka was pressed to cancel an afternoon
appointment, then urged to return the next day for more interviews.

Soon afterward he met with Munger again, who got right to the
point. He wanted to hire Leeka, this would be the deal, the salary, and so
forth. The offer was generous. What was Leeka's answer?

"I said, usually something of this magnitude I like to discuss with my
wife," Leeka recalled. Munger said nothing; he simply stared at Leeka.
After an awkward silence, Leeka relented. "In this situation, I don't think
I need to."

"Good," said Charlie. "That's why I'm hiring you."

Despite Munger's idiosyncratic behavior, Leeka knew right away that
he liked Munger, and felt that he could learn a lot from him.

"Health care is such a tough business," said Leeka, "you just have to
believe in it. I fell in love with the hospital itself. I felt I belonged here."

It didn't take long for them to agree that Munger would hold executive committee meetings less than once a month, after which Munger
walked out and left Leeka to do his job. Micro managing, any more than he
has to, isn't Munger's style, though he never hesitates to call employees at
his various enterprises and share ideas as they occur to him. Munger was
only holding biweekly meetings because he felt it was necessary.

Munger was asked to join the board by the Episcopal Bishop of Los
Angeles and by a personal friend, Dick Seaver. "I had enough sense to
know it would be like tar baby. Once you got in, you would become
stuck," said Munger. But it is Charlie's philosophy that a first-rate man
should be willing to take at least some difficult jobs with a high chance of
failure. And just as he decries making money "with lily white hands," he
believes that giving time, talent, and risking his reputation is just as important as contributing money.

He involves himself in community causes to ease his guilt over having accumulated so much money, to clear his own conscience for having
more wealth than he thinks he deserves. John Maynard Keynes "atoned
for his portfolio management `sins' by making money for his college and
serving his nation," said Munger. "1 do my outside activities to atone,
and Warren uses his investment success to be a great teacher."'

Munger has given some of his Berkshire stock, a few hundred shares
each to Good Samaritan Hospital, Planned Parenthood, Stanford University Law School, and the Harvard-Westlake School. Both Charlie and
Nancy Munger spend hours each month on community work, most of
it in Los Angeles. In addition to his long stint with Planned Parenthood,
Charlie has served on the boards of the Harvard-Westlake School, the National Corporation for Housing Partnerships, and other groups over the
years. The Housing Partnership was a 1980s private-public attempt to increase the inventory of low-income housing in the United States. But
Munger grew impatient with the way the work was going and eventually
resigned from the board.

It is Munger's habit to choose just two or three public causes that
seem important, then concentrate on making a difference there. Just as
he and Buffett stay within their "circle of competence," or areas that they
truly understand when selecting investments, Charlie has developed it
circle of competence in his charitable work. He has focused primarily on
reproductive choice, health care, and education.

Nancy Munger, who herself is a devoted watercolor painter, has
added the arts to her circle. She serves on the board of the renowned
Huntington Library, Art Collection, and Botanical Gardens in San Marino,
about 10 miles from downtown Los Angeles. The Huntington specializes
in Anglo-American civilization and contains an immense research library
plus one of the most comprehensive collections in the United States of
British and American art of the eighteenth and nineteenth centuries. The
Huntington is home to the famous duo, Blue Boy by Thomas Gainsborough and Pinkie by Thomas Lawrence. The Mungers have helped fund a
major 1999 to 2000 exhibit commemorating the 150th anniversary of the
Gold Rush and California's statehood.

Munger takes seriously the obligation of the fortunate to support the
needs of society that cannot be met by market capitalism. Moreover, he
argues that it is unfair for top officers of a company to allocate money to
their favorite causes, while the real owners, the shareholders, have little
or no voice in the matter. In 1981, Munger came up with a novel corporate charity plan for Berkshire Hathaway. For each of its roughly one million shares (then trading at $470) Berkshire would contribute $2 to a
charity of the shareholder's choice. For example, a person who owned
1000 shares could designate $2000 to go to the Salvation Army or the
American Red Cross, or whatever other nonprofit the person selected.
The plan was extremely popular with Berkshire shareholders, many of
whom have much of their wealth tied up in the company. The charitable
giving plan allows them to donate money without cashing in their stock,
an anathema to many long-time Berkshire shareholders.

Munger's feeling about public service no doubt is related to his upbringing. Stan Lipsey, publisher of the Buffalo News, was born in Omaha
and lived there until he went to Buffalo to take charge of the newspaper.
"In Omaha, you get up in the morning and say, `What am I going to do for
my city today?' There is a value system, structure of the family, a culture
where it is expected that you serve your city," said Lipsey.

Some of Munger's charitable work has had contentious elements
to it, especially his activities with Planned Parenthood, and in recent
years, Charlie's service on the board of the not-for-profit Good Samaritan
Hospital.

Good Samaritan, a massive stack of white buildings, sits in a neighborhood that once was one of Los Angeles's most refined. Not far from
the Ambassador Hotel where Bobby Kennedy was assassinated, Good
Sam's neighborhood, to put it politely, is in transition. `I don't think it's
yet found its destiny," said Munger's stepson Hal Borthwick.

An area that used to be dominated by high-priced department stores,
restaurants, and apartments now has many empty buildings. It has evolved
into part of Korea Town, although many of the residents are in fact Hispanic or low-income Caucasians. Many are elderly. Yet Good Sam, with its
408 beds, 650 physicians, 550 nurses, and 1,800 employees, is well-rooted
in the Los Angeles community and many old families of solid financial
standing still receive their care there. Nancy Munger was born at Good
Sam, as was her son Hal and his son after that. It was the hospital where
Charlie underwent the cataract surgery that went awry, leaving him blind
in one eye.

The hospital was established in 1885 when Sister Mary Wood of the
Episcopal Church founded a nine-bed nursing ward. The following year, St. Paul's Episcopal Church entered into an agreement with the California Diocese to assume control of the facility, then known as the Los Angeles Hospital and Home for Invalids. From early on, Good Sam has
trained nurses and interns studying at the University of Southern California (USC).

Soon after he joined the board, Munger came to believe that the facility was mismanaged because the board always backed decisions of the
medical staff and these decisions frequently protected the economic interests of certain doctors, rather than that of the patients or of quality
medicine.

"The existing chairman did not agree with me. I proposed a resolution reversing a ruling of the organized medical staff on the ground that
the staff was endangering the health and safety of our patients. With
some doctors on the board voting yes, it passed 17 to 2," said Munger.

After the board vote, the chairman resigned. "He was an able man,"
said Munger, "and understandably was reluctant, as a layman, to reverse
what purported to be medical decisions." Because Charlie had started
the trouble by pushing for reform, he felt obligated to accept the job of
chairman.

The problems that set the whole episode off occurred in the cardiovascular department, which then was rife with political intrigue, turf
protection, and not enough attention to medical issues. Before he took his
contrarian position on the medical procedure that would be followed,
Munger studied, with the help of a physician friend, the mortality and
morbidity rates for different systems of surgical care. It seemed clear to
him that the medical staff had made wrong decisions, choices Munger felt
were motivated by "old guard" physicians against the more progressive
staffers.

"Hospitals are not unlike universities in the sense that you have these
tremendous struggles for ownership, possession and control," explained
Hal Borthwick, whose wife now serves on Good Sam's board. "Basically
Good Samaritan had kind of a community practice for a number of years
with a number of people that ... I'm not saying they were without ability,
but there was no particular reason to go to Good Samaritan, other than
your doctor practiced there. Charlie recognized that for the hospital to
survive it had to have virtues of critical mass and of excellence."