#169 Musings Beyond the Bunker (Thursday October 14)
Good morning,
Last month I had the pleasure to spend time with Charlie Munger. He and his partner, Warren Buffett, rightly are considered among the great investors and commentators on U.S. business of our time. Charlie and Warren are investors with principles. It seems today that we have accepted that the sole purpose of a corporation is the pursuit of profit (under the misguided premise that their singular objective is “shareholder value,” which miraculously seems to result in executive fortunes), rather than a principled justification for being in the business or other “greater” purpose.
I think many of us still cling to the quaint that there is something more than sheer profit motive that drives people toward their careers. Most doctors enter the profession to heal people. Many lawyers want to help people achieve their goals and/or seek justice. Engineers, architects and others (to say nothing of musicians, artists, authors, and directors) pursue their careers for the love of the industry, as well as for profit. I’m not so sure one can make a similar claim regarding those in the health insurance business, or the leveraged buy-out business…
Now and then there are people of principle who tell companies that “enough is enough” and that they can no longer countenance the bad behaviors of corporations. Here are the salient excerpts from a letter, a matter of public record, sent at the height of the “S&L crisis” (the effect of which reverberated through the economy through the 1990s):
May 30, 1989
Gentlemen:
This letter is the formal resignation of Mutual Savings and Loan Association from the United States League of Saving Institutions…
Mutual Savings does not lightly resign after belonging to the League for many years. But we believe that the League's current lobbying operations are so flawed, indeed disgraceful, that we are not willing to maintain membership.
Our savings and loan industry has now created the largest mess in the history of U.S. financial institutions. While the mess has many causes, which we tried to summarize fairly in our last annual report to stockholders, it was made much worse by (1) constant and successful inhibition over many years, through League lobbying, of proper regulatory response to operations of a minority of insured institutions dominated by crooks and fools, (2) Mickey Mouse accounting which made many insured institutions look sounder than they really were, and (3) inadequate levels of real equity capital underlying insured institutions' promises to holders of savings accounts.
It is not unfair to liken the situation now facing Congress to cancer and to liken the League to a significant carcinogenic agent. And, like cancer, our present troubles will recur if Congress lacks the wisdom and courage to excise elements which helped cause the troubles…
In the face of a national disaster which League lobbying plainly helped cause, the League obdurately persists in prescribing continuation of loose accounting principles, inadequate capital, and, in effect, inadequate management at many insured institutions. The League responds to the savings and loan mess as Exxon would have responded to the oil spill from the Valdez if it had insisted thereafter on liberal use of whiskey by tanker captains.
It would be much better if the League followed the wise example, in another era, of the manufacturer which made a public apology to Congress. Because the League has clearly misled its government for a long time, to the taxpayers' great detriment, a public apology is in order, not redoubled efforts to mislead further.
We know that there is a school of thought that trade associations are to be held to no high standard, that they are supposed to act as the league is acting. In this view, each industry creates a trade association not to proffer truth or reason or normal human courtesy following egregious fault, but merely to furnish self-serving nonsense and political contributions to counterbalance, in the legislative milieu, the self-serving nonsense and political contributions of other industries' trade associations. But the evidence is now before us that the type of trade association conduct, when backed as in the League's case by vocal and affluent constituents in every congressional district, has an immense capacity to do harm to the country. Therefore, the League's public duty is to behave in an entirely different way, much as major-league baseball reformed after the "Black Sox" scandal. Moreover, just as client savings institutions are now worse off because of the increased mess caused by League short-sightedness in the past, client institutions will later prove ill-served by the present short-sightedness of the League.
Believing this, Mr. Warren E. Buffett and I are not only causing Mutual Savings to resign from the U.S. League of Savings Institutions; we are also, as one small measure of protest, releasing to the media, for such attention as may ensue, copies of this letter of resignation.
Truly yours,
Charles T. Munger
All the best,
Glenn
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