by Janet Lowe
Brill, who was 36 at the time, moved north and acquired the stodgy 3,200-circulation San Francisco Recorder for around $9 million. Since 25 percent of the Daily Journal's subscribers were in the Bay Area, the move brought Munger to full attention. Brill then began raiding the Daily journal's newsroom. After pumping up his writing staff, Brill sent them out to dig up stories of dissatisfaction and misconduct, or other juicy tidbits in the legal community. He also promised readers he would expand coverage to Los Angeles and the southern regions, and hinted that he might start a Southern California paper within three years "so that you won't have to look anywhere else for all the California legal news you can use."14
A newspaper war was underway. The Daily Journal Corporation garnered forces by snapping up smaller San Francisco-area legal newspapers, redesigning popular features and shoring up coverage in the northern part of the state. Working with Daily Journal President Gerald Salzman, Munger bought the San Francisco Banner and the Marin County Reporter, which together had a circulation of only 800. The journal already owned the Sacramento Daily Recorder and the Oakland-based Inter-City Express.
When asked if the Daily Journal's expansion in the Bay Area was a response to Brill's arrival, Munger said, "It's always hard to know what your motivations are when they are mixed. We had been thinking for a long time of doing a better job in San Francisco."''
Munger added that he was not worried about Brill, "because we've coexisted with the Recorder with respectable profits for many decades. I don't expect the whole thing to escalate into insanity."
"STEVEN BRILL-HE'S BRAVE, EGOCENTRIC, brilliant, and has done a yeoman's service for good journalism," said Charlie Munger more than a decade later. "There's a lot of competition in San Francisco. He sold out and is gone."
Brill told the Wall Street Journal in 1997 that it had been maddening to go up against someone too rich to care if he lost "bales of money." Brill added, "If Charlie spent even 20 percent of his time running his legal papers, we probably would have been crushed.""
Munger's reply no doubt was delivered with a chuckle, but in print, it sounded harsh. "Why would I want to crush a gnat?"'_
Steve Brill's company had been predominantly owned by Time Warner Inc., and eventually Brill and a Time Warner subsidiary jointly created Court TV. When Ted Turner merged Cable News Network into Time Warner, Turner, who once had come up against Brill as a cable television competitor, began to play a role in Time Warner activities. Soon afterward Time Warner bought Brill out.'s
Brill sold his shares of his legal publishing empire and his interest in Court TV to Time Warner for about $20 million. His next project was the $20 million 1998 launch of Brill's Content a print and online magazine covering and critiquing the news media. Brill's first issue contained a controversial story claiming that independent counsel Kenneth Starr had admitted leaking information about the presidential Whitewater investigation to reporters."
Later, as consolidation continued in the publishing industry, Brill's former publications, which included the San Francisco newspaper, the American Lawyer and several law journals in other parts of the country, were sold by Time Warner to the investment banking firm Wasserstein and Perella for $300 million.
In 1996, the Wall Street Journal reported that the San Francisco Daily Journal had cost the Daily Journal Corporation $2 million a year for the preceding 10 years, a high price for outlasting Brill. Munger disagrees with the numbers and maintains he will never close the paper down.
THE DAILY JOURNAL CORPORATION HAS been sued on various theories by a swarm of small California newspapers, up and down the state, including the 100-plus-year-old San Diego Daily Transcript. Jeff Barge, publisher of a startup Seattle newspaper, in 1996 claimed that Salzman traveled to Seattle and feigned an interest in purchasing his newspaper, Washington Lau,, but after obtaining its trade secrets, started a competing publication and engaged in predatory pricing. Salzman said he didn't acquire Barge's newspaper because the publisher was nearly bankrupt and was in arrears in turning over employee withholding taxes and other money to the Internal Revenue Service. And anyway, said Salzman, Barge stopped publishing before Salzman launched the Washington Journal.20 The Seattle suit was filed in several courts around the country, and has been dismissed in all, over the objections of the plaintiff.
Most contentious of the Daily Journal's competitors has been another gnat, the 2,000 circulation Los Angeles Metropolitan News, run by attorney Roger M. Grace. Thus far, the Daily journal has prevailed in most, though not all, of the lawsuits.
Part of the rivalry between the Met Neu's and the Journal stems back to 1986, the year the Journal's longtime editor, Robert E. Work, died quite suddenly. Rather than promote Work's second in command, Munger gave the job of president to Gerald L. Salzman, the newspaper's accountant and chief financial officer. The offended number two man, John Babigian left two years later to become the Metropolitan News' vice president and general manager.
Babigian accused the company of age discrimination, which Munger denied. As for choosing Salzman, "That's an accident of Salzman being so talented and so honest," said Munger.2'
Salzman, a baldheaded man with large, expressive eyes, seems trustworthy and competent in the business arena, but he is not a fire-in-thebelly journalist. He has been with Munger since he and Guerin took control of the New America Fund. An accountant with a Big Eight accounting firm, Salzman left consulting to join the Fund to help with the financial details. Later he consulted with the Munger, Tolles law firm. As he is prone to do, Munger decided to stick with a known, tested, and trusted person when choosing a new chief executive officer for the Daily Journal Corporation. Additionally, Salzman owns about 1 percent, or between 16,000 and 17,000 shares, of the company.' Salzman's wife is the company's personnel director and three of the Salzman children, including the Daily Journal's webmistress Sherrie Salzman, work there.
The entire company is something of a family deal. In 1982, Emilie Munger worked at the Daily Commerce, an afternoon real estate adjunct to the Daily Journal. She did reporting, editing, and page layout before returning to Stanford to earn her law degree. Barry Munger, a professional freelance photographer in New York, also did a stint with the company.
The Metropolitan News is particularly critical of the 1990 Daily Journal acquisition of the California Newspaper Service Bureau, specialists in placing public notice advertising in publications throughout the state. The Bureau gets a block of legal notices, usually from some government agency, then places all the ads in its own newspapers-if the Daily journal has a publication in the proper jurisdiction. When there is none, the legal notice is placed in another newspaper for a 15 percent commission. Clients for the service include Fannie Mae, Child Services for the County of Los Angeles, and other agencies that are required to place legal ads.
Alleging predatory practices in one of its suits, the Metropolitan charged that the Journal priced its legal notice ads below cost in Los Angeles specifically to drive the Met News out of business. The Metropolitan News further claimed a Daily journal's deal with Fannie Mae, the mortgage giant, and other agencies to carry legal notices in California at less than cost, violated state law prohibiting so-called "loss leader" tactics in advertising. Munger said the suit's charges were erroneous because the Daily Journal does not subsidize the profitable Fannie Mae account. Some of the offenses in the suit carried treble damages that legal experts said could have pushed the Journal's liability to more than $30 million.
The Metropolitan News case ended in a hung jury in January 1998, after a three-week trial. Grace said Munger's "arrogant" and "dismissive" behavior on the witness stand was a great boon to his case. Nevertheless, Munger said he would testify again in the retrial. "We won't lose," he responded. "The Daily Journal did nothing that violated any laws." ,23
Still, reported the National Lau' Journal, "Mr. Munger acknowledged that the paper beefed up its defense team when the case went to court for retrial in June 1999. Ronald Olson, the biggest name to c
ome out of Mr. Munger's firm, will be overseeing partner Bradley S. Phillips, who was in charge the first time around."2
The second time, the Daily Journal successfully defended itself against the charges. The jury voted eleven to one in favor of Munger's newspapers. However, within a few weeks, the Metropolitan News not only appealed the ruling but filed an additional suit.
In the meantime, the Metropolitan News-Enterprise has made controversies between itself and the Daily Journal the subject of oversized headlines in its own newspaper and on its Web page. In most cases, the stories emphasize Munger's wealth and include a photograph of Charlie in which he seems to be smirking.
"Since the time in early 1997 when the Metropolitan News Company added Munger as a defendant in its action against DJC for unfair business practices, Munger has accumulated more than $1 billion," wrote publisher Roger Grace. "And yet, the 75-year-old magnate seemingly has as his mission, if not obsession, the crushing of MNC-which, I regret to say, is considerably smaller than Munger's competing company. -25
The Met News did win a major victory in the newspaper war in 1998, when the City of Los Angeles put up for bid the bulk of its legal-notice business, which for 50 years had gone to the Journal. The $450,000 annual contract went to the News. The Journal hired an attorney to try to overturn the council decision in court, but Superior Court Judge Robert H. O'Brien ruled in favor of the smaller paper, throwing out the Journal's suit.u' Judge O'Brien has since been reversed after an appeal by the Daily Journal Corporation.
IN PART BFC;AI sE OF LEGAL wrangles, and in part because of changes in the culture and in the economics of the business, newspapers aren't as lucrative as they once were. For one thing, the nature of news has changed. As television and the Internet expand, readership is declining. Those problems aside, the legal advertising business has always been cyclical, rising during a recession when bankruptcies, foreclosure, and liens are more prevalent. In a long, strong economy, a legal newspaper invariably suffers a decline in revenues.
Legal advertising still provides the base for profits at Munger's papers, but they are a slowly shrinking revenue source due to a trend toward fewer required legal notices. For example, nonprofit organizations once had to advertise their status annually, but the law no longer makes that demand. A number of government agencies across the nation are seeking changes in the law to allow them to put pro-forma advertisements on the Internet. Courts are giving those requests serious consideration.
As a precautionary measure, said Salzman, "We try to be as independent of legal advertising as possible." The Daily Journal-owned newspapers have tried to beef up their display, or commercial advertising lineage, and the company has expanded into new but associated lines of business.
In addition to its two magazines, California Lawyer and House Counsel, the Daily Journal does significant trade in printing court rule books, judicial profiles and other guidebooks, directories and manuals related to the legal industry.
Recently, the company bought Choice Information Systems, a company that provides software for case management to court systems. The Daily Journal changed the company's name to Sustain Technologies, Inc. Sustain Technologies, which looks like the Daily Journal's most promising new enterprise, created a software program for the joint justice system for Toronto and the Province of Ontario and so far has placed similar software in court systems in three countries and nine U.S. states.
Because of new businesses, and some centralization of its California publishing activities, the Daily Journal Corporation is nearly doubling its office space by constructing another building adjacent to the Los Angeles office.
Despite the operating difficulties, the Daily Journal has increased in net worth substantially since Munger and Guerin acquired it for $2.5 million in 1977. It has been estimated that the modest media chain now is worth about $65 million. Revenues in its 1999 fiscal year were $37 million, up from the previous year. Its net income was $1.9 million, down 40 percent from the year before, due to a year of extremely heavy litigation expense.
Though there has been interest from potential buyers, Munger says the Daily Journal is a vehicle that allows him to be "socially constructive" and has interesting financial prospects. Guerin says he and Munger are in the business both for love of journalism and for the money the company earns. "A combination of both. We're lucky enough to be in things because we want to be. None of us (Charlie, Warren, or himself) have to do anything we don't want to do. Charlie and I love owning it. It's great fun. We think we're serving the justice system, if you will. It does make money and is gaining in value every year. We try to make it better," said Guerin.
He then added, "Money is not everything to Charlie. We do hope we've advanced civilization an inch. ,27
While Munger keeps close tabs on what's happening at the Dail), Journal, he says he spends 5 percent or less of his time at the newspaper. Although he tries to be available as needed, his main job is to stay out of Salzman's way and let him run the company.''
"I'm plenty active though," said Munger. "I don't have a good half speed. I'm quite active in the newspaper but not on the editorial side."
Each fall the company has a breakfast meeting with the board of directors and all of the publishers, editors, and heads of the sections. Munger and Guerin attend to get reports on what the company's managers anticipate and plan for the year ahead. Salzman said that Munger and Guerin both make a considerable contribution to the discussion. "Rick can get to the real issues as fast or faster than Charlie can. It's pretty fast. I don't have a lot of educating to do."
THE DAILY JOURNAL OFFICES ARE just beyond Los Angeles's Japan town in an industrial area where many high action and car chase scenes are filmed, including sequences of the Batman movies. The 10-year-old Daily journal corporate and editorial offices are pleasant, modest, and within easy striking distance of the courts and various government buildings. In the entry area flows a fountain, full of field stones and brass sculptures of sea otters. If Munger had his way, the foyer would display a nice bronze statue of his hero, Benjamin Franklin.
During his lifetime, Franklin worked as an editor, author, legislator, scientist, inventor (Franklin stove and bifocals), diplomat, Revolutionary War hero, and was a founding father of the nation. "Franklin's story can scarcely ever be told often enough," Munger told a Rotary Club audience in Santa Barbara. "Born into poverty and obscurity, his father was a tallow chandler-lie worked with rancid fats. He was the fifteenth of 17 children, only went to school two years. He died 84 years later and perhaps was the most famous man in the world, if not, close. ,21
Munger's love of Benjamin Franklin, said Guerin, sometimes clouds his common sense. "When we built the new Daily Journal Corporation building-we found out later that there is a requirement that you spend 3 percent of the cost of the building for art or make a contribution to the city's art fund. Charlie said, 'let's commission a head of Ben Franklin, looking affable and wise, and engrave his great sayings on the pedestal.' I said, 'Charlie, that's horse manure. Our employees don't want to be preached to.. I said, 'Let's do something cheerful.' He thought about it for a while and said, 'I think you're right.' We commissioned an artist to do sea otters and a fountain."
But that wasn't the end of Franklin for Charlie. "Having the idea of a Ben Franklin bust already in his mind, Charlie commissioned an artist to do about 20 copies," said Guerin. "I took one. He took one for his office. He gave the Marlborough School and the Harvard School copies. Then he gave copies to other people as gifts."
C H A P T E R N I N E T E E N
DOING GOOD AT
GOOD SAMARITAN
HOSPITAL
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.