Stephen’s Posterous

Here's the Story on Berkshire's Munger by Scott Patterson, WSJ.com

Warren Buffett is synonymous with Berkshire Hathaway Inc., getting credit for billions of dollars in big deals that have made him an icon to investors around the world. But on the one day a year when he faces his shareholders, at his side will be his longtime partner, Vice Chairman Charles Munger.

On May 2, 2009, the partners will take their decades-old act back to the stage in Omaha, Neb., telling thousands of loyal shareholders that they see huge opportunities amid the financial crisis that drove Berkshire to its worst performance since Mr. Buffett took it over 44 years ago.

The two men, Mr. Munger, 85 years old, and Mr. Buffett, 78, speak frequently and confer about most deals, but there are differences. Mr. Munger is laconic; Mr. Buffett loquacious. Mr. Munger leans Republican; Mr. Buffett tilts Democratic. Mr. Munger will pay hefty price tags for businesses; Mr. Buffett likes safe, dirt-cheap stocks.

Mr. Munger's views have pushed Berkshire into some surprising directions. Several years ago, Mr. Munger learned of an obscure Chinese maker of batteries and automobiles called BYD Inc., which hopes to create a cheap, functional electric car.

A Chinese tech company is nothing like the shoe and underwear makers Berkshire had been buying. But Mr. Munger was enthusiastic, less about the technology than about Wang Chuanfu, who runs BYD. Mr. Wang, Mr. Munger says, is "likely to be one of the most important business people who ever lived."

Mr. Buffett was skeptical at first. But Mr. Munger persisted. David Sokol, chairman of Berkshire utility MidAmerican Energy Holdings Co., paid a visit to BYD's factory in China and agreed with Mr. Munger's assessment. Last year, MidAmerican paid $230 million for a 10% stake in BYD.

"BYD was Charlie's idea," Mr. Buffett said. "When he encounters genius and sees it operating in a practical way, he gets blown away."

Mr. Munger also was an advocate of Berkshire's $4 billion investment in Iscar Metalworking Cos., an Israeli maker of metal-cutting tools, in 2006. The investment was relatively pricey, especially given Mr. Buffett's preference for cheap companies. But Mr. Munger convinced his longtime partner that Iscar was worth the cost.

The deal helped pave the way for other large investments by Berkshire in companies outside the U.S. Results on the two investments haven't been reported.

The men share a view that the U.S. financial system will change, and criticize past excesses. "People were horribly overpaid for just pouring on leverage," Mr. Munger said. The two investors have repeatedly warned about the systemic risks posed by the abuse of leverage and derivatives.

Mr. Munger thinks regulators may significantly curb the amount of leverage, or borrowed money, that banks can use. That will drive down pay at Wall Street firms, since traders won't be able to make as many big, leveraged bets. This could benefit Berkshire, with its cash hoard of $24.3 billion at the end of 2008. "There's going to be new rules in the game," he said. "For someone like us, that's going to be very interesting."

Saturday's meeting comes after the worst year in Berkshire's history, when it lost 9.6% in book value per share, a common metric it uses to track its performance. It marked the biggest decline since Mr. Buffett took over the company in 1965, when it was an East Coast textile maker, and turned it into an investing powerhouse. Berkshire's shares have fallen 36% since September.

The two investors say they expect Berkshire to return to form in the near future, and they continue to collaborate. They speak on the phone at least once or twice a week from their respective offices, Mr. Buffett in Omaha, Mr. Munger in Pasadena, Calif.

"Charlie understands the essence of a lot of businesses probably better than people in those industries do," Mr. Buffett said. "He gets right to the point of it quicker than anyone I've seen."

Mr. Munger grew up in Omaha and joined the U.S. Army during World War II, serving as a meteorologist in Alaska. After the war, he earned a degree from Harvard Law School and became an attorney at a California firm. He also became a serious investor. He met Mr. Buffett in an Omaha restaurant in 1959. After working together on a number of investments for many years, the two joined forces full time at Berkshire in 1978, when Mr. Munger became vice chairman.

One of their early deals is one of Berkshire's best-known brands. In 1972, Mr. Munger helped persuade Mr. Buffett to participate in a joint purchase of See's Candies, a California boxed-chocolate maker, for $25 million. While the price seemed steep by some measures, the deal was wildly successful, producing more than $1 billion in pretax earnings.

Without such investments, it isn't likely that Berkshire could have grown as large as it has, says Whitney Tilson, manager of T2 Partners LLC, a New York money manager that owns Berkshire stock. He says: "Munger helped Buffett appreciate some of the higher-quality investments that lead to multibillion-dollar outcomes several decades later."

Financially, Mr. Buffett has done better. He boasts a net worth of $37 billion in 2008, according to Forbes magazine's list of the world's wealthiest people, putting him at No. 2 in the world behind Microsoft Corp. founder Bill Gates. Mr. Munger placed 522 on the list, with a net worth of $1.4 billion.

Mr. Munger has won the respect of Mr. Gates, who sits on the company's board. When the Justice Department accused Microsoft of abusing monopoly power with its Windows operating system in the late 1990s, Mr. Gates says he sought out Mr. Munger for legal advice. He also consulted Mr. Munger when considering how to set up his charity, the Bill & Melinda Gates Foundation.

"Warren wouldn't have done nearly as well without his help," Mr. Gates said in an interview.

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Rooms at the Top by Laura Landro, WSJ.com

What is now the hotel industry's premier luxury brand began as a single motor hotel in 1961 in Toronto. It was there that the young Isadore Sharp officially became a hotelier. He had recently begun his career as a partner in his father's construction firm and, along the way, noticed the success of a motel that the firm had built for a local businessman.

Why couldn't he duplicate such success? "I typed out, using one finger," he recalls, "a profit-and-loss statement on building and operating a one-hundred room hotel."

With effort, he found three backers, including his father, and the project was under way. "We needed a name, and someone came up with Thunderbird." It didn't stick. Then someone remembered a hotel in Munich where he had once stayed, "the finest hotel he knew, the Vier Jahrzeiten. That translated as Four Seasons. It sounded right. And that was the extent of our market research for a name."

Mr. Sharp went on to build a world-wide chain with 83 hotels in 35 countries, delivering service and accommodations to demanding clientele and charging them a high price for the privilege.

He unloaded all but a 5% stake when the company went private in 2007 in a deal valued at $3.8 billion, leaving control in the hands of Microsoft founder Bill Gates and Saudi Prince Alwaleed and leaving Mr. Sharp free to compose "Four Seasons," an appealing memoir and an instructive attempt to sum up his business philosophy.

While the Four Seasons may not always be the most interesting or authentic hotel in town, anyone who has visited the chain around the world, including this finicky traveler, can attest to its reliability. A policy of consistently high standards in regional settings means that Four Seasons guests may check into a Western lodge in Jackson, Wyo., a modernist high-rise in New York or a renovated Baroque landmark in Prague and yet always know that they are staying in a Four Seasons hotel.

The things we take for granted now during our hotel stays, comfortable beds, fluffy towels, lighted make-up mirrors, fancy toiletries and hair dryers, made their first appearances at the Four Seasons, Mr. Sharp says. Likewise for European-style concierge service and Japanese-style breakfast menus, in-hotel spas, and the possibility of residence and time-share units.

At a time of global economic meltdown, Mr. Sharp's story of high-end success may seem ill-timed. After all, the occupancy at luxury hotels has plunged as corporations have slashed their travel budgets and scrambled to avoid any hint of participating in spa-resort conference boondoggles. But Mr. Sharp has seen such downturns before; surviving them, he suggests, is part of the challenge.

In the 1981 recession, Mr. Sharp remembers, luxury was no longer in vogue for middle managers and executives; companies cut back on their use of luxury hotels. But the reliable, time-saving service they could depend on from the Four Seasons, he claims, kept them coming back.

Employees took pay cuts and worked four-day weeks so that no one would have to be laid off. During slow times in the past, Mr. Sharp says, he raised ad budgets to remind customers of Four Seasons quality; rather than scrimping, he even invested in refurbishing and upgrading his hotels.

Sometimes problems come from other sources. In Nevis, a Caribbean island with little infrastructure, the Four Seasons trained 500 locals, including some who hadn't seen electric appliances like dishwashers, to deliver its signature service.

The project was delayed by a hurricane. But the company provided relief to the local community before any other aid arrived, cementing goodwill; and the Nevis government decided to enhance its roads and build a new airport

Other hurricanes have closed the resort over the years. It is closed at the moment because of a hurricane last fall. but the experience, Mr. Sharp says, merely shows that, weather permitting, it is possible to deliver "Four Seasons service anywhere in the world."

The core reason for the Four Season's staying power, Mr. Sharp believes, is a credo that may sound almost quaint: Follow the Golden Rule. Workers, he says, are vital assets who should be treated accordingly.

At most hotel companies, he notes, housekeepers, cooks, bell staff, waiters and clerks are often the lowest paid and "the least motivated people." But at the Four Seasons, those who might otherwise be considered the most expendable "had to come first," because they were the ones "who could make or break a five-star service reputation."

Turning the top-down management philosophy on its head, Mr. Sharp authorized every Four Seasons employee to solve service problems as they arose and to remedy failures on the spot. Managers were told: "Keep your egos in check and let the people who work for you shine."

Mr. Sharp says that it took years to weed out of the company the many managers who disagreed with this philosophy and could only see staffers as a cost. The chain appears to be continuing in this tradition under its new owners: It was just named to Fortune magazine's "100 Best Companies to Work For," for the 12th consecutive year.

Another key to success was Mr. Sharp's business model. Though there were rough patches at one point he had to pledge his entire stake as collateral for a loan he eventually found a way of "growing" the business while curbing the risk. He kept investments in hotels to a small percentage of equity, signing 50-year or longer management contracts with property developers who owned the hotels. Four Seasons was paid a percentage of gross revenue and participated in profits.

Mr. Sharp weaves the tale of the Four Seasons' growth with his personal life, including his marriage to Rosalie, who became a major force in the design and style of the hotels. Together they have had four sons, one of whom died of melanoma in 1978, at the age of 18. Mr. Sharp does not hesitate to share the credit for his success with his wife and, in the course of his narrative, with various executives within the company.

A little humility never goes out of season in the hospitality trade.

Four Seasons by Isadore Sharp with Alan Phillips
Portfolio, 302 pages, $29.95

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Raising Bill Gates by Robert A. Guth, WSJ.com

Spend time with the family of Bill Gates, and eventually someone will mention the water incident. The future software mogul was a headstrong 12-year-old and was having a particularly nasty argument with his mother at the dinner table. Fed up, his father threw a glass of cold water in the boy's face.

"Thanks for the shower," the young Mr. Gates snapped.

The incident lives in Gates family lore not just for its drama but also because it was a rare time that Bill Gates Sr., father of his famous namesake, lost his cool. The argument presaged a turning point in the life of a tempestuous boy that would set him on course to become the Bill Gates whom the public knows as co-founder of Microsoft Corp. and the world's richest man.

Behind the Bill Gates success story is the other William Gates. The senior Mr. Gates balanced a family thrown off kilter by a boy who appeared to gain the intellect of an adult almost overnight. He served as a quiet counsel as his son jumped into and thrived in the cutthroat business world. When huge wealth put new pressure on the son, the elder Gates stepped in to start what is now the world's largest private philanthropy.

Bill Gates Sr., 83 years old, is now co-chair of his son's $30 billion philanthropy, the Bill & Melinda Gates Foundation. He has avoided the spotlight. The public details of his life include little beyond his official biography at the foundation, which says he was a Seattle lawyer, World War II veteran, nonprofit volunteer and father of three. He has compiled his thoughts on life in a short book to be published next week.

In interviews with The Wall Street Journal, Bill Gates Sr., Bill Gates and their family shared many details of the family's story for the first time, including Bill Gates Jr.'s experience in counseling and how his early interest in computers came about partly as a result of a family crisis. The sometimes colliding forces of discipline and freedom within the clan shaped the entrepreneur's character.

The relationship between father and son entered a new phase when the software mogul began working full-time seven months ago at the Gates Foundation. For the past 13 years, the father has been the sole Gates family member with a daily presence at the foundation, starting it from the basement of his home and minding it while his son finished up his final decade running Microsoft. They now work directly together for the first time.

At six-foot-six, Bill Gates Sr. is nearly a full head taller than his son. He's known to be more social than the younger Bill Gates, but they share a sharp intellect and a bluntness that can come across to some as curt. He isn't prone to introspection and he plays down his role in his son's life.

"As a father, I never imagined that the argumentative, young boy who grew up in my house, eating my food and using my name would be my future employer," Mr. Gates Sr. told a group of nonprofit leaders in a 2005 speech. "But that's what happened."

The first stage, argumentative young boy, "started about the time he was 11," Mr. Gates Sr. says in one of a series of interviews. That's about when young Bill became an adult, says Bill Sr., and an increasing headache for the family.

Until that time, the Gates home had been peaceful. Bill Sr. and his wife, Mary, had three children: Kristi; then Bill, born in 1955; and Libby. It was a close family that thrived on competitions, board games, cards, ping-pong. And on rituals: Sunday dinners at the same time every week, and at Christmas, matching pajamas for every family member.

While very involved in his kids' lives, Mr. Gates Sr. was somewhat distant emotionally, which his children say probably reflects his generation. His stature, combined with a lawyerly bent for carefully choosing his words, also made him intimidating at times. "He'd come home and he'd sit in a chair and eat dinner, but there was never any kind of warm, give-me-a-hug kind of thing," says Kristi Blake, his oldest daughter.

Ms. Gates encouraged her kids to study hard, play sports and take music lessons. Bill Gates tried the trombone with little success. And she imparted a discipline that reflected her upbringing in a well-to-do family. She expected her kids to dress neatly, be punctual and socialize with the many adults who visited their home. For the most part, young Bill dutifully abided.

"She was the most engaged parent and she had high expectations of all of us," says Libby Armintrout, Bill's younger sister. "Not just grades and that sort of thing, but how we behaved in public, how we would be socially."

Bill Gates at an early age became a diligent learner. He read the World Book Encyclopedia series start to finish. His parents encouraged his appetite for reading by paying for any book he wanted. Still, they worried that he seemed to prefer books to people. They tried to temper that streak by forcing him to be a greeter at their parties and a waiter at his father's professional functions.

Then, at age 11, Bill Sr. says, the son blossomed intellectually, peppering his parents with questions about international affairs, business and the nature of life.

"It was interesting and I thought it was great," Mr. Gates Sr. says. "Now, I will say to you, his mother did not appreciate it. It bothered her."

The son pushed against his mother's instinct to control him, sparking a battle of wills. All those things that she had expected of him, a clean room, being at the dinner table on time, not biting his pencils, suddenly turned into a big source of friction. The two fell into explosive arguments.

"He was nasty," Ms. Armintrout says of her brother. Mr. Gates Sr. played the role of peacemaker. "He'd sort of break them apart and calm things down," says Ms. Blake, the eldest sibling. The battles reached a climax at dinner one night when Bill Gates was around 12. Over the table, he shouted at his mother, in what today he describes as "utter, total sarcastic, smart-ass kid rudeness."

That's when Mr. Gates Sr., in a rare blast of temper, threw the glass of water in his son's face.

He and Mary brought their son to a therapist. "I'm at war with my parents over who is in control," Bill Gates recalls telling the counselor. Reporting back, the counselor told his parents that their son would ultimately win the battle for independence, and their best course of action was to ease up on him.

Mr. Gates Sr. understood that counsel because of his own childhood, an hour's ferry ride from Seattle in the working-class town of Bremerton. "There wasn't a lot of structure to my growing up," he says. "I had an awful lot of discretion about where I went, what I did, who I did it with."

His mother was doting and easygoing. His sister, his only sibling, was seven years older. And his father was a workaholic who sacrificed child-rearing to work at a furniture store he owned with a partner. "His complete focus was on the store," Bill Sr. says.

Mr. Gates Sr. early on built a life outside of his home. Next door, the Braman family had two boys for him to play with and a father who would become his most important role model.

That man, Dorm Braman, had built his business and would later become a Naval officer, mayor of Seattle and a U.S. assistant secretary of transportation. In the late 1930s, Mr. Braman brought Bill Sr. on family road trips across the country.

He was scoutmaster of Bill Sr.'s Boy Scout troop, leading the boys on hikes through the Olympic Mountains and driving them in a beat-up bus to Yellowstone and Glacier National Parks. The troop spent two years building a log house from Douglas firs they felled themselves. Mr. Braman had "no sense of personal limitations whatsoever," says Mr. Gates Sr.

Bill Sr. and Mary ultimately took a page from that upbringing: They backed off. They enrolled their son in a school that they thought would give him more freedom. That was the private Lakeside School, now known as the place where Bill Gates discovered computers.

Mr. Gates says he began to realize, "'Hey, I don't have to prove my position relative to my parents. I just have to figure out what I'm doing relative to the world.'"

From age 13, he was given rare independence. He took off some nights to enjoy free use of the computers at the University of Washington. He spent chunks of time away from home, much as his dad had done as a kid. He lived for a time in Olympia, where he was a page in the state legislature, and in Washington, D.C. as a Congressional page.

During his senior year, he took a break from school to work as a programmer at a power plant in southern Washington. And in what would become his first major collaboration with Paul Allen, his future Microsoft cofounder, Mr. Gates designed the "Traf-O-Data", a device for counting cars traveling over a section of road.

His parents played supporting roles. They acquiesced when Bill quit Harvard and then moved to Albuquerque, New Mexico, to start Microsoft. It was a tough decision to back.

"Mary and I were both concerned about it -- I think she a bit more than I," Bill Sr. says. "Her expectations and mine were very ordinary expectations of people who have kids in college -- that they get a degree."

The family support was one reason Mr. Gates decided to move Microsoft to Seattle, where he settled into a house not far from his parents. Ms. Gates arranged to have a maid clean her son's house, and made sure he had clean shirts for his big meetings. She also insisted he kept observing the family traditions, including the weekly Sunday dinner at his parents' house.

Mr. Gates Sr., drawing from his own experience as a lawyer guiding small companies, helped find Seattle businesspeople to serve on the Microsoft board. In 1980, Bill Gates brought his father along to dinner to help persuade college friend Steve Ballmer, now Microsoft's chief executive, to quit graduate school and join Microsoft.

The father's law firm would also end up representing Microsoft, which became the firm's biggest client. Bill Sr. eased his son's worries about taking Microsoft public when Bill fretted that it would be a distraction for employees. The offering would turn Bill Gates into a billionaire. It also spawned the next challenge for the family.

After the windfall, Ms. Gates pressed her son to get into philanthropy. At his father's law office late one night, someone present recalls, Bill quarreled with his mother as she urged him to give money away.

"I'm just trying to run my company!" he snapped, says the person in the office at the time. Mr. Gates says that at the time he wasn't opposed to philanthropic work, he just didn't want to be distracted from his duties at Microsoft. Eventually, she got her son to start a program at Microsoft to raise money for the United Way. He also followed his mother onto the national United Way board in the 1980s.

But as Bill Gates's wealth grew, letters from Seattle-area nonprofits asking for donations piled up. He says he planned to get serious about philanthropy after retiring from Microsoft, or at about 60 years old.

That plan would be fast-tracked after Ms. Gates was diagnosed with a rare form of breast cancer. As she battled the disease, she continued to urge her son to do more philanthropy. Ms. Gates passed away in June 1994. The day of her funeral, the Gates family had dinner at home. Bill Sr. told his children not to worry about him, saying that he had about 10 good years left in him. He was 70 at the time. Still, after his wife died he was listless.

About six months later, standing in a line for a movie with his son and daughter-in-law, Melinda, the elder Mr. Gates again broached the idea of philanthropy. He suggested he could start sifting through the requests for money and give some out. A week later, the software mogul set aside about $100 million to create a foundation that his father could run. Bill Gates Sr. later sat at his kitchen table and wrote the first check, $80,000 to a local cancer program.

In the early days, Mr. Gates Sr., who soon remarried, would scribble a few notes on the most-promising requests for donations. He would then put them in a cardboard wine box that he periodically sent to his son's house. The box would come back with Bill Jr.'s responses. Mr. Gates Sr. would then reply to all the grant seekers, sometimes including a $1 million check with little more than a single-page letter of congratulations.

Bill Sr. and a former Microsoft executive managed the foundation, doling out money, overseeing a staff of hundreds and expanding its purview to areas like education and vaccines.

Mr. Gates Sr. says he hasn't lost sight of the fact that he was playing the role of caretaker until his son and daughter-in-law took the helm. And after 53 years, he knows to give his son space.

"He has very fixed ideas of some things," says Mr. Gates Sr. "The dynamic of the family is that you don't cross him on those things, because it's a waste of time."

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A monopoly is a license to print money, but one day the printing may stop.

That reversal hasn't yet come to Microsoft, whose 90%-plus share of the personal computer software market has made it a cash machine. The stock, though, is acting as if the day of reckoning isn't far off. In the past 12 months, Microsoft stock is down 42%, comfortably underperforming the 25% or so declines at other blue chip tech names such as Apple, IBM and Oracle.

Microsoft shares are trading around 9.6 times consensus fiscal 2009 earnings, a little below IBM, at about 10, and well under the others.

That may create an opportunity for investors near term. Microsoft still generates plentiful free cash flow, 5 billion this year, estimates Credit Suisse, andd sits on net cash of nearly $19 billion. So even though earnings are expected to dip this year, the dividend, which offers a 3% yield, is super safe. That can't be said for many other companies.

What's more, the stock may get a boost ahead of the release over the next nine months of Microsoft's latest operating system, Windows 7. The reality that Microsoft's operating system monopoly is gradually slipping away will, of course, continue to weigh on the stock, but it's easy to overstate the immediacy of the competitive threats facing the company.

Microsoft has lost market share, including to Apple, but only by a percentage point or so. Google's free applications software may one day be a viable alternative to Microsoft Office, but it isn't yet. Smartphones will eventually erode demand for laptops, hurting Microsoft, whose Windows Mobile has only 12.4% market share, according to Gartner. Again, this could take years to play out.

A more serious threat may be the expected shift among businesses to use shared computer services run in a cloud, paying for the service rather than for PC software. Microsoft wants to be a major player in cloud computing. It has the deep pockets necessary to invest in the data centers required, as do rivals including Google and IBM. But IDC projects cloud will account for only 9% of business software and infrastructure spending by 2012.

The experience of other industries undergoing structural shifts, such as broadcast TV's loss of market share to cable networks, is that the secular changes take a long time to seriously undermine a business model.

Admittedly, to protect its market share in the meantime, Microsoft likely will have to cut prices, hurting operating margins that now reach 70% in some products. Already, it gets only half its usual price for Windows on low-cost laptops called netbooks. That will hurt profitability.

Microsoft has plenty of ways to cut costs, however, including cutting investment in some areas. Microsoft's online business lost about $1 billion in the first half of fiscal 2009, despite massive investment in recent years to build a presence in the search market dominated by Google.

This isn't to say Microsoft should hunker down and be run for cash. Microsoft has successfully built a server business in recent years. But new business successes have to be huge to make a meaningful contribution to a company generating $20 billion-plus of annual operating profit.

It needs to pick its investment spots carefully for its $9.5 billion in annual research and development spending and be willing to change tack when businesses, such as search, fail to gain traction.

This sort of retreat isn't likely to happen under the current management, which is likely to keep swinging for the fences. A more disciplined approach to costs and investment likely won't happen without some outside pressure. But with Bill Gates' stake gradually declining, it's now down to 8.5%, that day will come eventually.

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The investment firm owned by billionaire Bill Gates has poured more than half a billion dollars into Republic Services (RSG), the U.S.'s second-largest trash collector.

Over the past seven months, Cascade Investments has spent $584.2 million to purchase nearly 21.2 million Republic Services shares on the open market. The fund controls a 13% stake in the company, or 49.5 million shares. Cascade is the company's largest, and longtime, shareholder.

Per-share prices ranged from $23.47 to $35.18 in transactions dating from Aug. 12, 2008, through Feb. 13, according to Securities and Exchange Commission filings.

Separately, FMR, the financial-services firm widely known as Fidelity Investments, more than quadrupled its stake in Republic Services to 21.1 million shares, or a 5.59% stake, in the fourth quarter, up from the 4.65 million shares it reportedly held in the prior quarter.

Shares of Republic Services closed at $23.84 Thursday. Shares peaked at around $36 in September, 2008, before falling to $18.25, its lowest level in nearly five years. Cascade started buying the stock close to those highs late last summer but stopped as the stock plunged to lows. It aggressively picked up the pace in the $20 range.

Since the start of the year, Cascade acquired 14.06 million shares for $350.9 million at per-share prices near the lower end of its buying range. The normally passive investor Cascade disclosed its holdings through activist 13D filings. Ken Squire, founder of 13D Monitor, an independent research firm, says Cascade is a "reactive activist not a proactive activist," and rarely so.

In July 2008, Cascade came out against the proposed acquisition of Republic Services by industry leader, Waste Management (WMI). By October 2008, Waste Management canned its bid for the company.

In a letter to Waste Management, Gates' investment firm called it an "ill-timed" and "poorly conceived" move that would result in an excessive debt burden, regulatory hurdles and reduce shareholder value. Cascade is listed as Waste Management's 11th largest shareholder by StreetSight.net.

In June 2008, Republic Services, then the third-largest trash hauler, said it would acquire the industry's No. 2 player at the time, Allied Waste Industries.

Republic Services recently announced the sale of some of its landfill and collection assets to raise cash to pay down debt. In a note dated Feb. 6, Wunderlich Securities analyst Michael Hoffman wrote that the industry continues to have a defensive posture and that the two market leaders have "the resolve and the ability to maintain pricing discipline in this economic downturn." This should cause the stocks to bounce in upcoming months.

Hoffman has a Buy rating on both companies with price targets of $30 on Republic Services and $40 on Waste Management.

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Speaking at last year's World Economic Forum in Davos, Switzerland, Microsoft founder Bill Gates called on "capitalism" to become more "creative" in finding ways to help the world's needy. Government and philanthropy had important roles to play, he said, but neither could accomplish as much as business in reducing social problems such as poverty, disease and malnutrition.

Although Mr. Gates's speech received considerable attention at the time, its substance was not particularly novel. For at least a decade, high-tech billionaires, including eBay's Pierre Omidyar and Jeffrey Skoll and Google's Sergei Brin and Larry Page, have been looking for ways of achieving their philanthropic goals through business-like activities. The search for profit-making ventures that also improve the world -- by means of "social entrepreneurship" or "philanthro-capitalism" -- is now the rage at business schools, and it has given rise to countless books, competitions and consulting groups.

In "Creative Capitalism," Michael Kinsley and Conor Clarke have enlisted a distinguished group of economists, journalists and executives of nonprofit organizations to assess Mr. Gates's speech and its social-entrepreneurship theme. Their responses range from strongly supportive to sharply critical. One of the more interesting ideas found in this somewhat rambling book contends that "philanthropic" business activity is in fact at odds with what is best about capitalism itself and thus counterproductive.

Lawrence Summers, the former Harvard president and former Treasury secretary, states the difficulty succinctly: "It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too." He offers as an example Fannie Mae and Freddie Mac, government-created corporations that were supposed to achieve a social goal -- affordable housing -- while operating as businesses. They did neither well, eventually leaving their catastrophic debts for taxpayers to pay.

U.S. Circuit Court Judge Richard Posner, along with other contributors, notes that companies often suffer losses when they set out to address a social problem. If they could really make a profit by doing good works, the argument goes, they would no doubt already be hard at it, but if they do good works at the expense of profit, they will become less efficient, making themselves more vulnerable to competitors. Economist Steven Landsburg suggests that companies sacrificing profit to accomplish philanthropic goals end up betraying their shareholders, who rightly expect the best return on investment.

Their skepticism echoes Milton Friedman's objections to "corporate social responsibility," expressed in a 1970 article that is usefully reprinted in the book's appendix. Business professor David Vogel argues that "creative capitalism" is indeed a descendant of "corporate social responsibility," which has attracted support from corporations throughout the world, if only to improve their public images -- a kind of business benefit, to be sure. "Managers can plausibly claim that virtually any corporate expenditure on good works is in the interest of its shareholders," he writes, because subsidizing good works is "a form of risk management or public relations" that protects the company's reputation and brand.

Other contributors to "Creative Capitalism" are more sanguine about Mr. Gates's campaign. Markets are not perfect, they say, and businesses may need to be encouraged to look harder at opportunities for profitable enterprises in poorer countries, not least where failed governments are incapable of providing public services. In any case, as Harvard economist Ed Glaeser argues, consumers and investors may not be as single-mindedly profit-oriented as Milton Friedman perceived. Companies that try to balance doing good with doing well may reap rewards that their less altruistic rivals miss.

In the end, these differing judgments are left unresolved, as one might expect in what is essentially a collection of blog posts. Watching these smart folks kick the idea around, the reader might be tempted to interject a simple question: Why is "creative capitalism" even necessary? Whatever its limitations, no economic system has done more to create wealth, drive the progress of technology, improve the world's living standards and reduce poverty than capitalism in its traditional form. Maybe what the world could really use -- especially in its poorest regions -- is not "philanthro- capitalists" but just more plain old profit-seeking ones.

Creative Capitalism Edited by Michael Kinsley, with Conor Clarke
Simon & Schuster, 315 pages, $26

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On Friday, November 21, 2008, it was disclosed that Bill Gates' investment vehicle, Cascade Investments, and the Bill and Melinda Gates Foundation had accumulated about 18 million shares of AutoNation or about a 10% stake. On the same day, billionaire hedge fund investor Eddie Lampert disclosed that he and his company, ESL Investments, had holdings of almost 80 million shares and a 45% stake in AutoNation.

Mr. Lampert is the Chairman of Sears and founder, Chairman, and CEO of ESL Investments. Mr. Lampert has produced typical returns of 30% a year for his hedge fund. His investment style has drawn comparisons to investor Warren Buffett. Mr. Lampert is worth about $3.5 billion and is #307 on the Forbes List of the Wealthiest Billionaires. His current investments include Sears, AutoZone, AutoNation, Citigroup, and Home Depot.

   

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