B000U5KFIC EBOK

by Janet Lowe

  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."

  As Munger pressed toward those goals, said Borthwick, there were bad feelings and damaged relationships. "The breakage was not unlike the breakage that you get in a takeover of a company, and you do things differently from the previous management. A lot of people trained in their old ways can't adjust and they have to leave."

  After a long, bitter battle with other board members and some staff doctors, Munger and his supporters prevailed. "Ten years later, I hate having had to go through the heartache and tragedy, but I love many of the people I now work with," said Munger.

  Munger personally has recruited many physicians to the hospital staff, which is unconventional for a lay chairperson of a large nonprofit hospital. Charlie is intrigued by the technology of medicine and gets a big kick out of working with the doctors.

  By the time Leeka took charge of the medical center, good relations existed between the staff and the board, but the business side was still a mess. The hospital had such a large backlog of uncollected bills that in the first year of his administration, Good Sam took a staggering $20 million bad-debt write off. But from then on things got better. Leeka had become accustomed to Munger's personality and they clearly were on the same team.

  "I see people who just don't understand him," said Leeka. "They think he's zoning out. He's not. He's sitting there looking at cash flow, return on investment three years out, then back filling to see how he can make it work."

  Leeka says that Munger insists on running the hospital with one purpose in mind-serving the community in the best way possible. "There are tricks a hospital can do to squeeze extra revenue from low-income and Medi-Cal billings, but Munger won't allow that," said Leeka.

  Following the Northridge earthquake, said Leeka, other hospitals in the area tried to maximize the funds they got from the Federal Emergency Management Agency by claiming every old crack in their cement was caused by the earthquake. After the Good Sam buildings were examined and it was decided there was no significant damage, Munger would not file a FEMA claim.

  "He won't do anything just for money," said Leeka. "He'll go into a business (health care special services) even if he knows it will lose money, if it is the right thing to do."

  Good Samaritan is now a base for various specialty practices that draw patients from all over Southern California, the western states, and even from abroad. These specialties include California's largest cardiology program; Southern California's second largest cardiothoracic surgery program; new treatments for brain disorders; women's health services, including obstetrics, gynecology, neonatal intensive care, urogynecology, breast cancer and fertility services; orthopedic surgery, especially joint replacement and pelvic reconstruction; opthalmological care, including a very large retinal surgery practice; an oncology program; an advanced digestive diseases program, and one of the largest kidney stone treatment units in Southern California.

  Perhaps the most gratifying sign of the hospital's turn around was when it was chosen one of the best hospitals in the country by U.S. News & World Report in the July 27, 1998, issue.

  There are still many physicians in the area who do a slow burn over Munger's reorganization tactics. Nevertheless, Good Sam is on far better medical ground than it has been. However, its financial condition is still shaky, despite substantial cash reserves. Although there has been progress, Munger said that there are always a lot of questions and "ifs" at a major inner-city hospital. Even with the best laid plans, long-term success isn't guaranteed.

  "I have a lot of respect for Good Samaritan Hospital, but it's a very tough hand to play," said Hal Borthwick. "And if you ask Charlie why he does it, one of the things he'll say is that he doesn't want all the hands that he plays in life to be easy ones."

  In the decade that he's been chairman, Munger has become a familiar figure at the hospital. Leeka says staff members all have their favorite "Mungerisms," stories or aphorisms or jokes that Charlie has told, perhaps more than once. Each year, Nancy and Charlie attend a dinner at the hospital's institutionally plain auditorium to hand out 5, 10, and even 40-year pins to faithful employees. One year Leeka asked Charlie to come to the podium to say a few words. Charlie clambered to the stage, but went to the wrong microphone, one that was not turned on. He began talking, but the audience could only hear a muffled mumble.

  Nancy shouted "Charlie, the mike's not on," several times, but Charlie paid no attention. The engineers rushed around behind the scenes for several minutes trying to get power to the microphone, which they finally accomplished. The sound boomed into the auditorium just as Munger wrapped up. "Thank you for working at Good Samaritan," he said, and turned and left the stage.

  A BREEZE RUSTLES THE NORWEGIAN pines and Cass Lake laps a little more aggressively than usual on the shore on the beach in front of the Munger house. Charlie is at the head of the breakfast table, as a small group of family members polish off eggs, turkey bacon, and rewarmed homemade biscuits from last night's dinner.

  Charles, Jr. came in late the evening before to join his wife and three children at Star Island. He's a late arrival, flying in from Sacramento, California, where he was working with a state commission on rewriting the kindergarten through twelfth-grade science and math curriculum for California schools. The conversation is focused on education as Charles, Jr. explained what his committee of college professors is trying to accomplish.

  Charlie, Sr. has some ideas on higher education that he would like to express, but at the same time 2-year-old Nan, Barry Munger's daughter, also has something to share. As the adults talk right on, she sits at her grandfather's side and at the top of her lungs sings the alphabet song, from A all the way to "now I've said my ABCs, tell me what you think of me."

  As if in duet with the little girl, Charlie, Sr. is saying that he'd like to create a true liberal arts college in which students have no major and few elective courses. They would have a set curriculum in which they learn enough about math, sciences, economics, history, and so on, to he truly well-educated for today's world. No specialization would be allowed until graduate school. The problem with many of today's young people, Munger argues to his unconvinced offspring, is that they specialize too early and never learn some subjects they can't live well without. They don't know enough about the world. As if to prove her own versatility, the laughing toddler Nan has moved on to "Twinkle, Twinkle Little Star." Same tune as the alphabet song, different words.

  THE MITN(;ER CHILDREN RECEIVED A public school education until they reached middle school (except the youngest, Philip, who attended private school beginning in the fourth grade). All five sons graduated from Harvard-Westlake, a private school in Los Angeles that was named around 1900 when the founder, formerly from Boston, wrote to Harvard University, and asked permission to use the name Harvard for his new secondary school in Los Angeles. Emilie Munger, like her mother, went to Marlborough School, and Molly and Wendy, who were living in Pasadena with their own mother, attended Westridge School. Molly eventually departed and enrolled herself in public school.

  The entire family is passionate about education. Nancy Munger has been a trustee both for the Marlborough School and her college alma mater, Stanford University. In 1997, Nancy and Charlie Munger donated $1.8 million to the Marlborough School's Campaign for a New Era in Ex- cellence.j They also gave a major capital gift to the Green Library at Stanf
ord and funded a Munger Chair, or professorship at Stanford Law School, so that business can be taught within the law school curriculum.

  Charlie has served as a trustee for Harvard-Westlake for more than three decades. He is an active trustee and for part of the time was chairman. He's so fond of the school that he hopes some day his memorial service will be held in the chapel there. At the school, Munger has been able to blend his dedication to quality education and his admiration of science and architecture. He and Nancy donated more than $7 million to build the Munger Science Building and Charlie himself was involved in almost every aspect of the building's design. Before Harvard School and Westlake merged, Munger believed the science laboratories were too limited. After the merger, there were twice as many students studying science in the upper grades. Munger declared that it would have been educational malpractice not to have expanded the science facilities.

  "The problem with most buildings is that they don't build enough flexibility into them. We tried to assure that the science facility will work, and work well, for the better part of a century. I see no reason why it should become obsolete," Munger said at the dedication ceremony.'

  The state-of-the-art building is nestled on a hillside overlooking Coldwater Canyon. It includes a dozen customized laboratory-classrooms, a conference room, a computer center and a theater-style lecture hall with each of the 110 seats wired to accommodate laptop computers. Some of the features of the building might not be obvious to a casual observer. Benches in the biology, chemistry, and physics labs, for example, are different to accommodate the different kinds of lab work. While Munger left many of the decisions on the building to the teachers, he insisted on top of the line ventilation and heating systems, and that the building far exceed current earthquake standards.