Chapter 6

BETTING ON THE FUTURE

“Leadership is about making others better
as a result of your presence, and making sure
that impact lasts in your absence.”

—Sheryl Sandberg

“Philanthropy is not about the money,” Melinda Gates once said at the World Economic Forum. “It’s about using whatever resources you have at your fingertips and applying them to improving the world.”1

While charity is a social palliative that provides immediate relief of suffering in crisis situations, philanthropy has a different agenda. According to Laura Arrillaga-Andreessen, professor of strategic philanthropy at Stanford, “Philanthropy is a proactive attempt to change systems and solve social problems by addressing their root causes. Philanthropy empowers individuals to become self-sufficient…”2

Obviously, the risks are far greater when you attempt to make a real difference. But it is those same conditions that make the rewards invaluable.

BOYS & GIRLS CLUBS

Giving generously to those who need it most can change your own life as much as theirs.

Of all the philanthropy in which I’ve engaged, the single most satisfying effort has been with the Boys & Girls Clubs of America.

It began in 1993 when I was looking for a charity that helped inner-city youth. A resident of the notorious Watts area in South Central Los Angeles directed me to the Challengers Boys & Girls Club.

After I’d researched the club and interviewed the references he provided, I offered to send a generous check, but he refused. “You need to come to Watts and meet Lou Dantzler first,” he insisted. “He’s the guy who started the clubs in LA.”

I wasn’t too excited about spending a day in Watts.

After World War II, tens of thousands of African Americans had migrated to California from Louisiana, Mississippi, Texas, and Arkansas, looking for more opportunities and less discrimination.3 Too many had ended up impoverished in Watts. The blame and bitter disappointments of those previous generations still hung palpably in the air.

Since the 1960s, those two square miles of the city had developed a reputation as a low-income, high-crime area prone to violence. It was where street gangs fought for turf on a tiny urban patch of steel and concrete with the highest population density in LA. The thing is, it also had one of the youngest demographics in the country.4 Those were the kids I wanted to help. So I reluctantly agreed. It was a fateful meeting.

Lou was a bear of a man with a mild demeanor and a warm smile. But he had more courage and steely determination than anyone I ever met.

“Challengers is an oasis in a war zone,” he explained to me. Kids came there for safety and encouragement to find a better life. Even gang members brought their younger siblings to the club so that they could have a better future. The gangs never damaged the clubhouse. Even during the infamous Watts riot of 1992, when rioters took over the freeway, blocked traffic, beat up motorists, wrecked and looted downtown stores, and set more than one hundred fires,5 Challengers had stood untouched, surrounded by burned-out buildings.

When I met Lou in 1993, he was looking for ways to expand farther into the inner city. I had the idea of using public schools to save on capital costs for buildings and recreational facilities. (The strategy has since been adopted nationally and has accelerated Boys & Girls Clubs of America growth.)

After our initial attempts to persuade the Los Angeles Unified School District to open their doors to Challengers after school hours failed, I called Tom Bradley.

A five-term mayor of Los Angeles, Bradley had made history when he was elected in 1973 as the first African American mayor of a big American metropolis with a predominantly white population. In the aftermath of the riots provoked by the beating of Rodney King in 1992, Bradley was at an all-time low. Some believed that the outpouring of civil unrest had shattered all hope that a black mayor could make a difference in the battle against inequality. Despite all he’d accomplished, Bradley himself was discouraged by his inability to do more, and he would announce his retirement within months.6

Using his influence to help Challengers seemed like just the kind of mission he might warm to. His own mother had moved to the city when he was just seven years old.7 He knew firsthand what it was like to face temptations, obstacles, and setbacks without the guidance of a father figure.

When we spoke, I explained that I had financially backed his campaigns, even though I lived outside LA. I told him that we all had a duty to help these kids.

“What do you want me to do?” he asked.

“Make the school board approve the use of schools with Challengers in Watts.”

Bradley agreed. But the school board, in my opinion, lacked the courage to follow through. Instead of making a decision themselves, they ruled that the individual principals of each school would decide whether to host the after-school programs or not. I was disappointed to see them offload the decision to the already overworked principals in tough neighborhoods. But these principals demonstrated the devotion that had led them to their profession in the first place.

Every principal heartily welcomed the Challengers Club. Sooner than expected, we had three branches in inner-city elementary schools. The principals’ dedication to their kids inspired me. Politicians took credit for the idea, the school board refused to take any responsibility, and the press got the facts wrong—reporting that my employer, not I, had provided the money, and misspelling my name while they were at it! But I was thrilled. Much is possible if you don’t mind letting others take full credit.

During 1995, Pete Silas asked me for a favor. Pete was legendary as the chairman of Phillips Petroleum and just about every other board on which he sat. I’d come to like and respect Pete when we were both serving on the board at Georgia Tech.

“Do you think any of your business partners would be interested in being a director of Boys & Girls Clubs of America?” he asked innocently.

“I don’t know, Pete, but I’ll ask around.”

“Well, actually”—he chuckled—“I had you in mind!”

My response was guarded. I was working sixty to seventy hours a week. My enthusiasm for Boys & Girls Clubs of America could not have been higher. I’d been giving an increasing amount of time and money to the Challengers Club for years, but where would I find the time to be a director of an organization with two million kids?

By way of persuasion, Pete arranged for me to meet some of the other Boys & Girls Clubs board members. With the active encouragement of the warm yet persistent Sandy Milbank, I signed on. I soon learned that, under Pete Silas’s chairmanship, the Boys & Girls Clubs’ focus had matured. Instead of simply trying to help the kids avoid a life of crime, the programs strove to prepare them to lead productive lives. The emphasis was on education, health, and career preparation. This approach attracted an even greater number of kids, and naturally the broader programs demanded more money.

Pete’s strategy really took off during the presidency of the wonderful Roxanne Spillett, who helped transform Boys & Girls Clubs into the largest network of facility-based youth development organizations in the world at four thousand club locations worldwide. With a staff of fifty thousand employees and two hundred thousand volunteers, Boys & Girls Clubs helps young people achieve academic success, lead healthy lifestyles, develop strong character, and engage in what the I Have a Dream Foundation calls “a level of civic engagement not seen since the founding of our nation.”8

Rick Goings, my great friend, who is the chairman and CEO of Tupperware, joined Roxanne in setting ambitious goals for growth when he became chairman in 1996.

That same year, five-star general Colin Powell joined the board. As the youngest person and the first African American to ever hold the position of chairman of the Joint Chiefs of Staff, Powell was an awesome role model for all the kids. He himself had grown up on the streets of the South Bronx, as the son of Jamaican immigrants, and he knew about the hardships these kids faced. In five years, his influence would become even greater when he became the nation’s sixty-fifth secretary of state and the first African American to hold that position.9

I had joined the board when it was floundering and helped them adopt aggressive policies that were paying off. The board wasn’t primarily made up of wealthy blue bloods, but of former club members who had worked their way to success.

BOYS & GIRLS CLUBS 10-YEAR TRACK RECORD
SCOPE	1995	2004	change
Number of Clubs	1,810	3,681	1,871
Number of Youths Served	2.4mil.	4.4mil.	2mil.
STAFFING
Combined Full/Part-Time Staff	13,500	44,000	30,500
Number of National Staff	160	330	170
REVENUE
Combined local and national income	$362mil.	$1.1bil.	$758mil.
BGCA Private Dollars Raised	$14mil.	$45mil.	$31mil.
Federal Funding	$5mil.	$105mil.	$100mil.
State Alliance Funding	$0	$30mil.	$30mil.
Pass-Through Funding	$6mil.	$97mil.	$91mil.

Colin Powell feeding cake to Daniel Boulud while I do the same to Alma Powell at the opening of Daniel’s new restaurant, with help from the Boys & Girls Clubs board members.

JOEL SMILOW

When Joel Smilow became a director of Boys & Girls Clubs, he focused on evaluating the impact of the programs, rather than just their size.

The former chairman and CEO of Playtex, Joel was a generous philanthropist, but every gift needed to adhere to the four categories of his philanthropic philosophy: “Do it now, leverage the gift, make a difference, and get accountability.”10

Joel liked to say that the most important of these was to do it now. “All of my money eventually goes to charity, but the more that can go now, the better. The big winner by doing that is me. I get the joy and satisfaction of seeing it do good things.”11 But when he came to Boys & Girls Clubs, he emphasized accountability. It was great to have a lot of programs motivated by the best intentions, but which ones were having the most impact? he wanted to know.

As a result, fund-raising broadened and increased in sophistication. Training programs increased and improved. Human resources policies were strengthened. Trustee recruitment targeted promising industries. Process improvements cut costs. And the individual clubs, long accustomed to operating as they wished, were increasingly required to comply with a uniform standard for the quality and quantity of programming.

Measuring program impact is always the toughest process for any nonprofit—especially since, as in the for-profit world, it is the most subject to gaming. Nonetheless, Boys & Girls Clubs eventually developed some very relevant metrics.

Alumni who say the club saved their lives	57 percent
High school graduation	90 percent
Expect to earn a college degree	26 percent
Know right from wrong	85 percent
Ability to avoid difficulty with the law	67  percent
Helping others is a priority of mine	92 percent
Improved health and fitness	80 percent
Average attendance	Four days/week

A combination of a stronger and more productive board, inspired operating leadership and staff, and greatly improved fund-raising was fuel for growth in both the number of youth served and in the programs’ impacts. The quality of the effort was recognized by The Chronicle of Philanthropy, which has ranked BGCA consistently as the number one youth nonprofit organization as well as among the best of all US nonprofits.12

When I became chairman of the Pacific Region trustees, I helped expand and strengthen that group. For many years, I served as chairman of the investment committee, during which time the endowment fund grew from $159 million to $260 million. I also served for years as a vice chairman of the board, helping set policies and strategies. In 1997, I was honored to receive Boys & Girls Clubs’ highest volunteer award.

While I was serving as chairman of the investment committee, the BGCA national headquarters relocated from New York City to Atlanta. A generous grant from the Woodruff Foundation allowed us to buy and renovate a sixty-one-thousand-square-foot building in midtown that accommodated 104 people.

We were growing so fast that we quickly outgrew the space! Happily, a nearby office tower came up for sale at a bargain price of $139 per square foot. With renovations, new furniture, and moving costs, BGCA needed $29 million—a huge sum, considering our cash reserves. Regardless of the need for the space, many of the directors opposed the transaction.

I galvanized the investment committee to support the purchase. The $29 million was not what it seemed, I pointed out. We could commit some of the endowment cash, which would be repaid over time by charging BGCA market rents. Then, after selling our existing headquarters, we would only need $20 million. The unoccupied space in the building could be rented for $350,000 per year, which would service $7 million in loans at 5 percent interest. After that, as much as $15 million could feasibly be covered by naming gifts to make up the difference.

The board saw the logic. A $15 million, 3.5 percent bond was sold, which provided more than the cash we needed. And today, needless to say, the building is worth many times its original cost. It was the investment committee’s finest moment.

Our darkest hour was ahead. No good deed goes unpunished.

BGCA was not only growing larger, but its quality and outcomes were magnitudes greater than before. With its endowment fund performing in the top decile of its group, you’d think that people would be glad to see such good work being done. But, as is often the case, prominence of any kind attracts a low breed of people who salivate over the chance to attack big-name targets for no reason other than a desperate grasp for fifteen minutes of fame.

During 2010, BGCA received letters from certain senators demanding details about executive compensation, perks, travel, and other expenses. They purportedly suspected that we were “a top-heavy organization demonstrating questionable management of hundreds of millions in taxpayer dollars and charitable donations.”13

In return, we were suspicious of their motives, since they sent the letters not to us, but to the media! Their press release claimed that President Roxanne Spillett had earned over $900,000 two years earlier, while local Boys & Girls Clubs across the country had been forced to close for lack of funding. They also cited travel expenses of over $4 million, with $1.6 million spent on conferences and over $540,000 on lobbying.14

The Boys & Girls Clubs released a statement defending Roxanne, pointing out that the organization had doubled both its revenue and the number of young people served under her presidency. It also confirmed that her base salary of $360,774 had not increased since 2006.15 Roxanne had served for decades without an appropriate retirement plan. When we awarded one to her, accounting rules made us report its value as her income for one year.

While legitimate questions were raised, a great amount of time and expense was lost in answering them. Out of fear of harming the organization that she was so devoted to, Roxanne went so far as to forfeit some of her legitimate retirement benefits. A political power play trumped fairness.

By the end of 2010, the questioning had died down as the press lost interest. Only one issue remained: Was BGCA investing money outside the United States in order to dodge taxes? And we were.

The fact is, there was, and still is today, a defect in the US tax code that creates “phantom income” when most nonprofits invest in funds with outstanding loans. These loans trigger what is called unrelated business income tax (UBIT). It is well-known that this is a tax on purely fictional income.

Most leveraged funds offer a “feeder fund” based in a tax haven that invests in leveraged onshore funds. The IRS knows all about this and doesn’t seek to stop it.

As fiduciaries of Boys & Girls Clubs, I believed that we were obliged to maximize our investment returns by eliminating UBIT according to best practices (i.e., investing through the tax-haven feeder funds). I had long hated the added expense of feeder funds necessitated by a defect in the tax code.

While others on the board were nervously recommending that we close the feeder funds to moot the accusations of the senator, I proposed that we cooperate with the complaining senator and seek to fix the tax code together. This would both resolve his complaints and save us and other nonprofits this inefficient flow of funds into tax havens.

As I saw it, this course of action clearly was good for America as well. We would be taking the opportunity to save ourselves a needless expense, while helping the rest of the country—perhaps even the senator—do the same. The senator was unresponsive.

Sadly, at my last board meeting, most everyone voted to liquidate all our offshore holdings, while I abstained. The threat of Congress cutting off its support for Boys & Girls Clubs was greater than the benefit of avoiding a phony tax.

“It’s McCarthyism reborn!” I clamored, but I understood. Other institutions not so dependent on the US government have not capitulated to this pressure, and I salute them.

All things considered, I’m proud of our investment committee results. In 2003, we shifted out of US equities into international and alternative equities. We reduced fixed income and added inflation-sensitive equity. Then, in mid-2007, we increased our cash and our investment in US government bonds. We pioneered an accounting process to look through fund portfolios in order to calculate our true allocation by asset class, geographic exposure, and strategy. We also terminated misleading reports that equated volatility with risk. By spring 2011, our financial consultants wrote:

As we reported in January, the Clubs’ 5- and 10-year returns rank among the strongest in Cambridge Associates’ universe of clients (who have generally outperformed the institutional universe at large), and this remains the case after Q1. For the 5- and 10-year periods ended in March, the Clubs’ portfolio ranked 43rd and 21st among the 351 Cambridge Associates clients reporting returns for those periods, placing it in the top decile for both periods. Further, the Clubs’ performance among similar-sized institutions (defined as those with an asset size between $200 million and $500 million) has been even stronger—the Clubs ranked second and fourth out of 73 institutions for both periods.

Not a bad report card for our wonderful committee.

When I retired from the board, they made me a lifetime member. I loved the idea! One of the directors asked me to join him next to a large screen in front of the group.

“We want you to watch this,” he said, smiling, as someone turned down the lights.

As a video began to play, I saw so many people, including Lou Dantzler’s son, thanking me for my contribution. I started getting emotional. Then the lights came up and I noticed a guy wearing big round glasses like mine! That was odd, I thought. I hadn’t noticed before that we wore the same glasses. He was also wearing a bow tie like I do, but I had noticed that before.

As I glanced around, I saw the woman next to him was wearing a bow tie and glasses and the guy next to her and the guy next to him… Even Condoleezza Rice and Goldie Hawn were sitting there grinning in big round glasses and bow ties! What a perfect homage! We all started to laugh.

“I’m leaving this board at exactly the wrong time!” I said. Their affectionate joke left me doubled over with laughter. And teary eyed.

Condoleezza Rice and Goldie Hawn at my retirement party.

LOU DANTZLER

One hot summer day in South Central LA in 1968, Lou Dantzler came home early to find his neighbor’s eleven-year-old son breaking into his house. Lou was angry but not surprised. He’d caught the kid red-handed and could’ve called the police, but everybody knew that juvenile hall was nothing but a training ground for criminals. Sending an impressionable kid there wouldn’t help anyone.16

What the boy really needed—like dozens of kids in the neighborhood—was the influence of a father, taking an interest and providing the discipline to keep him out of trouble. That was the day Lou decided to step up.

He invited this boy and eleven other kids in the neighborhood to spend a fun-filled day at a nearby park. Their eyes grew wide when they saw it. Not a single one of them had ever been there before. It was like paradise.17

In the course of the day, a few of the boys felt comfortable enough to share their problems with Lou, and he gave them advice. When they got too rowdy, he firmly brought them back in line. His care, attention, and constraints were exactly what they’d been missing, and instinctively they knew it. As they were leaving, he asked if they wanted to do it again. The boys all cheered. Then one boy asked, “Can I bring a friend?”18

The next weekend, twelve kids turned into twenty-five. A month later, fifty kids showed up. Lou realized he was going to need help, so he invited his friends to join in. Before long, a network of parents were participating. By the end of the summer, a hundred kids showed up at the park.19

Sensing that the kids would benefit from an added sense of ownership and belonging, Lou decided to call it a club, the Challengers Boys Club. When the owner of the closed Vons Grocery on Fifty-First Street and Vermont Avenue heard what Lou was doing, he offered his empty store as a meeting place. It had been abandoned since the Watts riots in 1965.20

Eric Davis, who later played center field for the Dodgers, was a member from the time he was seven years old. He said that Lou took kids “that no one else believed in, and he made believers of everybody.”21

Lou had personal experience of how important it was to fill the empty places in a young kid’s life. He had grown up without a father himself, on a farm in South Carolina. Until his older cousin Willie took him under his wing, the only prospect in his future was picking cotton. From Willie he learned how to strive for something more than a “downtrodden, go-nowhere life.”22 From his mother, he learned to look after other people. In a 1999 interview with the Los Angeles Times, Lou said, “My mother was the kind of person who, when someone was sick, she’d take them food. And I’d think, ‘We need that food.’ But we always survived. That taught me a lot about how to live.”23 Lou told me of nights when the Ku Klux Klan rode through his neighborhood and his family would cower in the dark. What a childhood!

For forty years Lou was a deeply loved and respected guide to the boys and girls in South Central LA, who called him Papa Lou. Supporters and sponsors emerged from every walk of life: Sidney Poitier, Henry Kissinger, Barbara Walters, Denzel Washington, and Magic Johnson, among many others.24

Lou Dantzler built a home for kids in the heart of the toughest gang territory in America. Parents, kids, and even gang members respected Lou’s efforts to set positive standards for kids and consistently enforce them.25

After the Los Angeles riots of 1992, when President George H. W. Bush visited the club, he said, “This Boys & Girls Club stands unscarred, facing a burned-out block. And its leader is this wonderful man next to me, Lou Dantzler. And he started it in the back of an old pickup truck with a group of kids that wanted to get off the street. And its existence proves the power of our better selves.”26

Before his speech, I met with President Bush and asked if he had read the book I was holding, the Report of the National Advisory Commission on Civil Disorders. It had predicted continued inner-city violence until these kids had hope for a decent life. He admitted he hadn’t. I gave him the book, which he promised to read on the plane. Sadly, not much has changed.

Smithsonian Institution

Getting close to superior efforts to gain new knowledge stretches your mind and stokes your imagination.

Wayne Clough says that before he became the chief executive officer of the Smithsonian in 2008 people thought of it as:

the nation’s attic—a dusty place not going anywhere, looking backwards as opposed to looking forward.27 That hurt us a great deal when I went up on the Hill and spoke to Congress about the possibilities of funding for the Smithsonian. They tended to view us as … a museum, and museums are wonderful things, don’t get me wrong, but sometimes that was a pejorative term.

Greeting President Bush on his visit to Challengers.

The report I gave him that had predicted the riots—which he had not read.

Science was one of its most dynamic activities, but at the time, that important work of the Smithsonian was virtually invisible—and not just on Capitol Hill.28

“I was surprised at how few people in the science community knew—unless they were in a specific discipline—what the Smithsonian was doing in science,” Wayne said.29

Like everybody else, I knew little about the institution’s activities. When Wayne explained to me the Smithsonian’s wide range of engagement, it was an eye-opener. The institution clearly needed a higher profile. Wayne succeeded in raising it beyond all expectations.

Wayne and I had been friends for years. He graduated from Georgia Tech with a degree in civil engineering in 1964. Thirty years later, in 1994, he was the first alumnus to become president of Georgia Tech.30 When he made the move to the Smithsonian in 2008, his leadership launched a new era that gave the institution a powerful international relevance.31

“We are an unusual institution,” Wayne explained. “There are many great science museums—the California Academy of Sciences, the Field Museum, the American Museum of Natural History in New York City—and there are many great art museums. But the Smithsonian is an amalgam of all those things.”32

The Smithsonian is the largest museum/research institution/educational organization in the world. It generates a continuous flow of new knowledge on a massive scale. Given its complexity, it is a massive management challenge.

The Smithsonian includes nineteen museums, seven research centers, two giant telescopes, and the National Zoo. It runs research programs in more than one hundred countries. Taken together, these disparate activities make it a mighty force in education and research. Wayne has seen to it that the enormous museum collection will be completely digitized and available online free for people all around the world.

As Wayne began to educate me about the scope of the Smithsonian’s fascinating activities, I was immediately attracted to the prospect of getting involved. I love the opportunity to learn about new things to which I’ve had little previous exposure. Not only was the Smithsonian a preeminent source of knowledge, but the range of topics in its expertise was beyond imagination. Another new adventure!

I was delighted to participate, and the choices available were remarkable. Almost every one of the museums and installations has its own board, which means there is a huge range of topics and activities available for interested contributors. The duties of national board members were most interesting to me. Not only did we help with fund-raising, but we also gave advice on strategy and operations.

Since the time demands on board members were low and the work was constantly engaging, it fit into my life perfectly. And, of course, it didn’t hurt that our board meetings sometimes took place in exotic locales, where the leaders of the research teams came to explain their research and discoveries to us in person.

My first board meeting, in February 2012, was held in Panama at the Smithsonian Tropical Research Institute, which had begun as a simple biological survey in 1910. The Smithsonian now has scientists at ten locales around Panama, observing the changes in plant growth due to variations in geology and in climate.

One of the highlights of the trip was our visit to an ancient megalodon breeding pond from perhaps twenty-three million years ago.33 The fossil record shows that the extinct Carcharocles megalodon was the biggest shark that ever lived.34 Growing up to fifty feet long, the megalodon is thought to have weighed as much as 110 tons. For comparison, consider the African bush elephant, the largest land mammal on earth today. Among those elephants, the greatest body mass ever recorded was that of an enormous wild bull in Ngaruka who weighed 6.64 tons.35 It would require more than sixteen of the biggest bull elephants on earth to match the weight of one megalodon shark.

These creatures were so massive, they fed on whales. Their bite force ranged from twelve to twenty tons—more than four times greater than that of a Tyrannosaurus rex. With that kind of power, they were able to kill whales by simply biting off their tails!36 Yet as millions of years have passed, great white sharks and many species of whales have outlived megalodons. Catalina Pimiento at the Smithsonian Tropical Research Institute explains that, ironically, the strength and size of megalodon sharks may made them more vulnerable to extinction. “When food supplies dwindled, these giant creatures could have had a tough time finding enough food.”37

Also, they uncovered evidence that the Isthmus of Panama arose from the sea as many as fifteen million years ago. Prevailing views had been that this separation of the Atlantic from the Pacific is only about 3.5 million years old, which correlates with the North American Ice Age. This new dating casts doubt on the traditional assumptions about what caused the Ice Age.

Another board meeting was held in Hawaii, where we were introduced to the scientists’ studies of coral reef growth and their efforts to preserve coral sperm and eggs for reef regrowth around the world. We watched molten rock flow out from the very core of the earth as it continues to expand the island of Hawaii.

One afternoon, we were taken to the 13,755-foot peak of Mauna Kea on Hawaii’s Big Island to visit the Smithsonian Astrophysical Observatory’s Submillimeter Array. There, eight radio telescopes scour the known universe in coordination with each other to search for radiation signatures like those emitted by the cool dust surrounding newborn stars.38

The astronomers at the Smithsonian have been studying a young star that is the size of our own sun, but 450 light-years away. There appears to be a gap in the penumbra of debris around the star. In that gap, a Jupiter-size planet is being formed. At the top of Mauna Kea, Smithsonian astronomers are watching a planetary system, very much like our own, coming into existence. 39

It was thrilling to imagine the birth of other galaxies like ours. I asked the astronomers if they’d found other planets with conditions that could produce human life. They unequivocally said yes!

Back in the heart of Washington, DC, on 163 acres of Rock Creek Park, lies another Smithsonian marvel: the National Zoo. Established in 1889 by an act of Congress, the zoo’s mission is “the advancement of science and the instruction and recreation of the people.”40

Sumatran tigers, Asian elephants, giant pandas, Panamanian golden frogs, North Island kiwi, African kori bustards, and orangutans are but a few of the three hundred different species represented by the zoo’s fifteen hundred animals. Between thirty to forty endangered species are also protected there.41 But the Smithsonian goes further than merely providing refuge for these animals.

The Smithsonian Conservation Biology Institute (SCBI) is an international leader in conservation, working to save wildlife species from extinction and to teach the next generation of conservationists. More than twenty endangered species have been bred by the SCBI and released into the wild. In 2006, SCBI scientists cryogenically preserved eggs and sperm from the Great Barrier Reef coral to create the first genome repository for coral. Once extinct in the wild, black-footed ferrets and scimitar-horned oryx have been reborn.42 The last wild horse in the world, the Przewalski’s horse, was extinct in nature in 1969, but the Smithsonian has contributed to the rescue and reintroduction of the species. Herds amounting to nearly five hundred Przewalski’s horses now live in Kazakhstan, Mongolia, and China.43

The life span of these restored species will be greatly increased if care is given to the ecosystem of the planet they share with us. In 1910, the Smithsonian Tropical Research Institute was founded to do just that. The vast majority of animals, plants, and fungi on earth live in the tropics. Although it is a small area the size of South Carolina, there are more species of birds and plants in Panama than in the United States and all of Canada put together.44

The Smithsonian Museums include such diverse activities as the Anacostia Community Museum, the Arts & Industries Building, the Cooper Hewitt Smithsonian Design Museum, and the Freer | Sackler Gallery. The wide-ranging research centers further include the Archives of American Art, the Museum Conservation Institute and the Smithsonian Astrophysical Observatory.

Ultimately, I initiated an advisory committee to assist in developing the Smithsonian’s commercial operations (pay TV, magazine shops, travel, etc.) and helped fund a new project to study change in coastal ocean waters on a global scale.

TENNENBAUM MARINE OBSERVATORIES NETWORK

The work at STRI was inspiring, so when Wayne told me that they wanted to set up a similar group to study climate change under bodies of water, I was interested. With more than 70 percent of our earth’s surface covered by water and 75 percent of its people living within one hundred miles of a coastline, the oceans are of great importance to our quality of life. Not only do they help regulate the climate, but they are a major food source. Suzanne and I agreed to provide an initial gift of $10 million to the Smithsonian to launch the Tennenbaum Marine Observatories Network (TMON) in order to create a greater understanding of coastal marine life and the role it plays in sustaining resilient ecosystems on the planet.

Unlike most ocean research efforts, which study either the open sea or ocean characteristics, TMON integrates numerous scientific disciplines to study the functions of the ecosystems and biodiversity along the coasts over long periods of time, using standardized testing and covering large areas. Experts in ecology, biology, and anthropology are given the opportunity to use cutting-edge technologies like DNA sequencing to advance our knowledge of undersea life. Already thousands of new life forms have been discovered.

The Tennenbaum Marine Observatories Network is particularly close to my heart, because I have lived near the water for most of my life. For more than twenty-five years, I have nurtured my love for scuba diving in dives all over the world. I never feel more at home than when I’m underwater.

I know that the leaders of the Smithsonian are passionate about this important research. It is the study of the life of the planet itself. For such a huge task, passion and adventurousness are the basic requirements.

WAYNE CLOUGH

Born in 1941 in Douglas, Georgia, a small Southern town of only fourteen square miles and a little over five thousand people, Wayne Clough went on to distinguish himself in remarkable ways. As the twelfth secretary (CEO) of the Smithsonian Institution, one of his first initiatives was to create a new strategic plan laying out four grand challenges that gave the vast multidisciplinary resources of the Smithsonian’s museums and science centers a united mission.45

Ensuring that the institution’s vast collection is accessible to everyone was a priority for Wayne. Millions of objects and research data in the collection are being digitized, laying the groundwork for the Digital Smithsonian.46

While he was president from 1994 to 2008, Georgia Tech was in the top ten among public universities in the United States every year. The student body expanded from thirteen thousand to nineteen thousand.47 He developed research and education platforms in France, Ireland, Singapore, and Shanghai.48 Thanks to his efforts, Georgia Tech has become one of the leading universities in the country for graduating both minorities and female engineers.49

Wayne’s fund-raising legacy at Georgia Tech is unmatched in the university’s history. Funding for external research more than doubled, from $212 million to $473 million, during his tenure. In private gifts, he raised over $1.6 billion.50

At the local, state, and national level, Wayne has extensive public policy experience. No one else has ever been appointed by a United States president to both the National Science Board and the President’s Council of Advisors on Science and Technology.51

Acclaimed as both a teacher and researcher, Wayne has received nine national awards from the American Society of Civil Engineers, as well as the 2004 OPAL Lifetime Achievement Award for his contributions to education.52 Plus he and his wife, Anne, are delightful.

UCLA

Make risky bets on new knowledge for the greatest potential impact.

Phil Williams was the last real gentleman. Immediately upon graduating Harvard College in the early 1940s, he was commissioned as a navy officer and ordered to report to a destroyer in the Pacific War. After the war, he went back to Harvard to complete a graduate degree at the business school, then he embarked on a successful business career.

When first I met him in the 1980s, he was a senior executive at Times Mirror Company, a blue-blood establishment at the center of the Los Angeles power structure. Other men of his prominence might have behaved disdainfully toward a newcomer like me, but Phil consistently placed a high value on good manners so gracious that they almost seemed courtly in the ambitious financial wranglings of LA. As an unknown in town, decidedly off the society radar, I was glad to be treated with respect and consideration. We stayed in touch.

About fifteen years later, I invited Phil to join the advisory board of Tennenbaum Capital Partners. When I expressed my gratitude, he protested that it was he who was honored to join us—a posture he maintained throughout his ten-plus years on the panel—but I was well aware that he had done me a favor in lending his name to our fledgling enterprise. So when Phil asked me to join the UCLA School of Medicine Board of Visitors in 2000, I accepted without hesitation.

My connection with UCLA had begun in 1996, when I began receiving excellent personal medical care at the world-renowned UCLA Medical Center. But my philanthropic involvement came about because of Phil.

UCLA SCHOOL OF MEDICINE

The Board of Visitors was an advisory organization for Dr. Gerald Levey, the dean of the School of Medicine. Levey was a very successful fund-raiser. He did an amazing job of raising money for the new Ronald Reagan Hospital when it far exceeded its huge budget. What he lacked was business and financial experience at a time when a major crisis was brewing.

The UCLA School of Medicine was (and is) an amalgam of medical school, research center, charity, disaster recovery center, and health services provider.

In 2000, it provided about $751 million in health services, but that figure was understated by more than $400 million (53 percent) because of charity work and large contracts. California had led the way in a nationwide shift to health insurers at great cost to health service providers. The large volume of business that the health insurers acquired gave them enormous clout to negotiate major discounts on fees from providers like hospitals and doctors. Soon, the insurers transferred much of their risk by forcing their providers to agree to a fixed fee per month per person (“capitated medicine”). Any costs over that amount had to be borne by the provider.

The combination of tough industry conditions and an academic atmosphere caused UCLA’s cash to burn off in a few short years. From $100 million in the late 1990s, its cash had dropped to almost zero by 2001, while its long-term debt had risen to $200 million. This put the entire organization—and Dr. Levey, in particular—under serious pressure.

A subset of the visiting committee was tasked with solving the problem.

Our group decided that the quickest solution would be to seek improved government funding from both federal and state sources. This was well deserved by UCLA. As one of the world’s top research universities, it had made major breakthroughs that helped with treatment, diagnosis, and prevention of illness. It had been ranked number one among hospitals in the western United States since 1990.52 Its charitable work also had been exemplary.

Also, we decided to benchmark UCLA’s financial performance to other leading academic health centers (AHCs). But it became apparent that UCLA performed such a wide variety of activities that financial performance could not be compared easily. For example, any AHC might do costly organ transplants (or not), it might accept very seriously ill charity patients (or not), and it might earn great patient satisfaction (or not).

While we were developing our strategy, a wave of mergers and sales hit the AHC community. Five AHCs combined in Boston, two combined in San Francisco, and four combined into two in New York City. Georgetown and the University of Minnesota sold their hospitals. I didn’t think UCLA needed to increase its size under these conditions. Yet UCLA bought a money-losing hospital in nearby Santa Monica.

It was one of the most exciting times in medicine. Major breakthroughs were happening at rapid rates. Advances in biomedical research had never been greater.54 The race to sequence the human genome had been completed in 2001, finally giving us a blueprint for the human body.55 New technology had made doctors far more effective, giving them the ability to double-check pharmacology and symptomology on the spot. Thanks to drugs developed to treat a heart attack after it occurred, heart disease deaths had dropped by 40 percent. Promising treatments had occurred in stem cell research, and functional MRIs were revolutionizing the understanding of the human brain.56

The downside was that the new devices and treatments were expensive. At the same time that life-saving new procedures were being made available by health-care providers, insurance and government reimbursement rates were shrinking. The regulations—compounded by unwieldy state and federal paperwork—were stifling. Providers and insurance companies were fighting over shrinking profits. The health-care industry was in an uproar.

Inadequate attention was being given to improving the industry’s management practices—the areas that most interested me.

Best practices that would have been ingrained in the thinking of good businesspeople were either unknown to many health professionals or simply not on their radar. Management in elite professions such as law, medicine, investment, or consulting is chosen from among the most successful practitioners in the field. It’s logical, since such people have the greatest credibility and the kind of track records that appeal to their colleagues. However, they often are not the best managers. This is a chronic issue in professional services. And, unfortunately, UCLA Medical Center was no exception.

These fundamental problems won’t go away. They’re built into the very nature of the situation. I hope that the true gems among health service providers, like UCLA, find ways to preserve the excellent work they do, despite the system’s limitations.

UCLA NEUROPSYCHIATRIC INSTITUTE

In the summer of 2001, Phil Williams called me and recommended that I tour the UCLA Neuropsychiatric Institute (now renamed the Semel Institute). “I’d like you to meet its director, Dr. Peter Whybrow,” he said. “The work he’s doing is fascinating to me. I believe it will interest you as well.” As it turned out, that was an understatement.

Dr. Whybrow’s work on brain function and brain disorders has made him an international authority. He has focused especially on depression, bipolar disorder, and the effects of thyroid hormone on the brain and human behavior.57

When I met him, he had been the director of the UCLA Neuropsychiatric Institute (NPI) for four years. A prolific author, he had already written several books at that time. He predicted the credit crisis in the terrific book American Mania: When More Is Not Enough. In The Well-Tuned Brain, Dr. Whybrow adopted the provocative position that the affluent environments we live in disrupt the health of our minds and bodies, because these affluent environments are out of sync with our biological heritage. By returning to “ancient human truths” uncovered by science, he believes we can build a thriving future that better serves humanity.58

The range of Dr. Whybrow’s knowledge is captivating. The Semel labs are among the largest brain research centers in the world. Their work includes behavioral genetics, developmental neuroscience, cognitive neuroscience, neurobiology, brain imaging, clinical research, health services, policy research, sociocultural studies of human behavior, and psychopathology with a focus on illnesses and disorders of the brain.

The fact that the brain is central to our very being yet remains so mysterious is fascinating to me. I wanted to make a contribution to an interdisciplinary program in the hopes of accelerating our understanding of our brain’s functions, but I was aware that my own budget was relatively small, compared to the mammoth medical research funding by the National Institutes of Health and the National Science Foundation. These big funders’ emphasis has been primarily on disease and dysfunction. I decided my biggest impact could be on “superior function,” like giftedness and creativity.

UCLA TENNENBAUM CENTER

Suzanne and I funded the Tennenbaum Center for the Biology of Creativity at UCLA’s newly named Semel Institute for Neuroscience and Human Behavior. The creativity program helped spawn projects like the Big C Project, which attracted major funding and took on lives of their own. The initial mission of the creativity project was to study “molecular processes, cellular functions, neural circuits, and behavioral mechanisms that result in cognitive enhancements, and explain unusual levels of performance in gifted individuals, including those who manifest extraordinary creativity.” Four core cognitive processes were involved:

• novelty generation: the ability to adaptively generate unique products,

• working memory: the ability to maintain and use information to perform,

• declarative memory: the ability to store and retrieve information, and

• response inhibition: the ability to suppress habitual plans and substitute alternate actions when necessary.59

Our integrated research program aims to reveal the genetic architecture and fundamental brain mechanisms underlying creative cognition. The work holds enormous promise for both enhancing healthy cognitive performance and designing new treatments for diverse cognitive disorders.60

In the summer of 2002, we created the Tennenbaum Family Interdisciplinary Center with a $1 million gift. The center was designed to spur collaborative research and accelerate the development of new treatments. By bringing together scientists and clinicians at UCLA, it looked for unique ways to efficiently exploit the brain’s inherent flexibility.

The research was so continually fascinating and so much progress was being made that we accelerated our involvement from there, making changes and improvements almost every year.

• Spring 2003. A challenge was sent out to the UCLA faculty and graduate students to submit proposals for research projects analyzing human creativity. After screening the thirty-one proposals, a panel of experts selected seventeen for presentation at a two-day retreat in July. By the fall, three winners were selected and funded. Happily, two of these projects have added new knowledge to the study of the organic basis of creativity!

• Winter 2005. Our $1 million was mostly spent, but eight leading laboratories at Semel were researching aspects of creativity, advancing our understanding of giftedness through a greater understanding of a new gene.

• Spring 2006. A study of three hundred gifted undergraduates was underway, and outside grants were expanding our scale. Suzanne and I gave another $800,000 to fund two more years’ work.

• Summer 2007. I saw the need for a permanent structure for our interdisciplinary center, which had had such a strong influence despite existing only on paper. We endowed a chair for creativity research with an additional $1 million gift. It was the first such chair in the world.

Afterward, millions of dollars of outside funding came to UCLA, partly due to the interdisciplinary work and partly due to the work on creativity. As of 2018, the Big C Project study continues to employ interviews, personality and cognitive assessments, as well as magnetic resonance imaging (MRI) of the brain to study exceptionally creative scientists and visual artists.61

It was tough to get approval to do a study on superior capacity in a state school that emphasizes equal treatment. I guess it smacked of eugenics. Well, I’m not happy that so many people have abilities superior to mine, but owning up to those depressing facts makes me much more practical in the conduct of my life.

I am glad to have been able to develop and fund one of the first interdisciplinary centers at UCLA Medical Center. It is also the first center to study the organic basis for creativity.

HARVARD BUSINESS SCHOOL

Pay back the institutions that helped you—even if they’re rich.

With $500,000 of my gains in PSA airline stock, I endowed what was then one of the largest scholarship funds at Harvard Business School. As my success continued to grow, so did my gratitude for the mentors and education I received at Harvard. I had an increasing appreciation of how much those years had influenced my life. Now, because of that success, I found myself able to repay the source that had made my own attendance at Harvard possible. I’d come full circle.

When David Milton, a classmate and pal from Georgia Tech, first introduced me to the prospect of getting a Harvard MBA, the primary attraction for me was school’s 100 percent financial aid offer. As broke as I was, that was the one thing that allowed me to even consider going to graduate school.

Afterward, as my Wall Street career took off in the late 1960s, I grew ever more appreciative of what Harvard Business School had done for me.

Even more powerful than the skills I acquired was the friendship with other HBS graduates. These relationships founded on mutual admiration bolstered my self-confidence. I will always be obliged to Harvard. Without it, my life would be very different today.

The opportunity to deepen friendships with members of the faculty is one of the things I’ve treasured most. My friendship with Sy Tilles, my strategy professor in my second year, was a high point. Until his untimely death, we regularly confided in one another and shared books that fascinated both of us. I enjoyed a similar friendship with Ted Levitt, who had been my marketing professor in my first year. His creativity and joie de vivre brightened my life. I also prize my continuing friendships with Wickham Skinner, my first-year manufacturing professor, and with Warren McFarlan, then a senior dean, and especially with John McArthur, the previous dean.

Over the years, I’ve been eager to stay engaged with the school to express my gratitude and to help make the advantages I received available to others. In the 1980s I was elected to its visiting committee. The thirty-two members of the committee met once a year to assess the HBS programs. We each served for six years and reported to Harvard’s board of overseers every three years.

The issues we grappled with were real, and the efforts of our many outstanding members were surely helpful to the school. In 1989, for example, our chairman was John C. Whitehead, the former Goldman Sachs co-chairman. Our report included these observations:

• Harvard Business School case studies were being sold below cost, although 90 percent of all business case studies in MBA programs around the world were published by HBS and the research budget was 30 percent of HBS’s budget! (I couldn’t resisting asked the dean if he were subsidizing his competitors.) 


• Talented people were discouraged from joining the faculty. Full professorships were bottlenecked because: (1) many professors refused to give up their tenure, (2) some changes in labor laws had eliminated an enforceable retirement age, and (3) there was a surge in private sector executive compensation that widely exceeded professors’ salaries.

• Unified fund-raising efforts were intended to help Harvard schools that had few rich alumni. But the incentive by HBS alumni to give was strongest when classmates solicited others in their program to contribute on behalf of needs in these shared activities. Forcing the “rich schools” (business, law, etc.) to subsidize the “poorer schools” (divinity, etc.) would dilute this very productive process.

I focused my attention on scholarships, which I hoped would help students who had no money at all but wanted to attend HBS. Having been in the same position myself, I knew what it was like. It was also important to me that the scholarships not give the recipients a sense of entitlement. In an effort to prevent that outcome, the loan was granted with a moral obligation to repay, when the students could do so. The Tennenbaum Fellowship Fund was based on a $502,000 gift made in 1987 and a $1 million bequest with this provision:

Upon receiving a Tennenbaum Fellowship, students will be informed that they have a moral obligation to eventually reimburse the Fund for both principal and some low rate of interest, except that one-third of their obligation will be excused for each year they spend in full-time employment for either a not-for-profit organization or for an institution of higher learning. Understanding that the school’s ability to accurately track such an obligation over the long term is limited, the students will be informed that it is their individual responsibility to meet the terms set forth by the donor. It is expected that the recipients will acknowledge these terms in writing to the donor.

With the recipients of my fellowship at Harvard Business School—then the biggest such group.

John McArthur was dean of Harvard Business School at the time. He too felt a deep devotion to the school. He fervently believed that Harvard could not rely on past momentum to sustain its leadership position among the great academic institutions of the world. In that spirit, he led sixteen major renovation projects and built three new buildings on campus. By making major changes to the cultivation of a fine faculty and committing unprecedented resources to curriculum development and research, he successfully secured HBS’s leading position in academia.62 When he saw my provision to the Tennenbaum Fellowship, he liked it so much that he made a personal contribution to my fund. It brought tears to my eyes. There’s a special place in my heart for Dean McArthur, one of the finest leaders I have ever known.

The financial aid folks, who were in a position to direct the Tennenbaum Fellowship to students, did not agree with the repayment provision. “Students are already struggling with an average loan debt of $58,000,” they worried. “It’s hard to recommend ‘aid’ when its repayment saddles them with an additional ‘obligation.’”

“It’s a moral obligation,” I clarified. “Not a legal debt. The point is that they can pay it off when it’s convenient. Further, it’s tax deductible when given as a gift, so it only represents about half the amount.”

The fellowship allowed for a third of the obligation to be canceled for each year spent in teaching, research, charity work, or government work. And students were better placed to repay the obligation than before—since starting salaries for students entering the business world had increased more rapidly than their HBS debt.

The financial aid people stonewalled me. For eight years, the fellowship received no contributions from recipients.

My multimillion-dollar fellowship fund had required a unique pledge by recipients that I hoped would inspire them to give back. In the end, I backed down due to political pressure, but I regret my lack of fortitude to this day.

When Howard Stevenson replaced Warren McFarlan, my ideas were received much more coldly. Howard did initiate annual dinners to connect fellowship recipients with donors. But, by 2003, the average student aid loans were only about 50 percent of starting salaries.

When I went to a benefactor group dinner, it was a thrill to see that the number of students who had benefited from my fellowship was too large to fit into the picture! There were twenty-nine of them. Being with them made the results of my efforts very tangible.

GEORGIA TECH

Find initiatives that will stay fresh.

I’ve always felt a great debt of gratitude to Georgia Tech and to Harvard, my two alma maters. There is no question that the education I received at those institutions accelerated my career and enhanced my skills.

In 1962, when my career in Wall Street was new, I began to send small annual gifts to Georgia Tech. Every year, I served on the periodic five-year reunion committees. For one of those years, I chaired the committee. Later my involvement would deepen even more.

Many people harbor a special fondness for their alma maters. It may be because college is a rite of passage, a major break from parental supervision where young people take their first tentative steps toward the enticing yet unfamiliar realm of adulthood. Or it could be all the parties. Probably both.

Georgia Tech had a work hard/play hard ethos. The work-hard times were the most important career preparation I’d ever had, and the play-hard times were the most fun I’d ever had. Thanks to Tech, I got a good start toward a successful life.

Unlike other premier tech universities, such as MIT or CalTech, Georgia Tech is backed by public funds. It was built in Atlanta after the Civil War by two former Confederate officers—Major John Fletcher Hanson and Nathaniel Edwin Harris—as part of the reconstruction of the South.

The years following the Civil War were a time of tremendous growth in America, primarily in the Northern states. The leading industrialists in the county were quick to realize that if they hoped to expand, their shops could no longer be run by machinists with a working knowledge of the shops and machines. They would need professional engineers with advanced education in science and mathematics to answer the challenges of running industrial machines and processes.63 It’s another lesson in the value of good education, one still overlooked by today’s politicians in the United States.

The prosperous agrarian society of the Old South had effectively vanished the moment the first shots were fired at Fort Sumter. Southerners believed that the best hope was to emulate, then surpass the North in industry and commerce—the emerging battlefields of the nineteenth century.64

Men like Henry Grady were convinced that education was the key to developing the trained technical minds necessary to advance manufacturing in the South. In the 1880s, Atlanta was an important railway hub, but it was responsible for only 10 percent of American manufacturing.65

The Georgia School of Technology was established as a direct response to this problem. John Fletcher Hanson and Nathaniel Harris both had deep ties to industry. A self-made industrialist who founded the Bibb Textile Manufacturing Company, Hanson would later become president of the Central of Georgia Railway. Harris was a lawyer from Macon with many industrial clients; he would later become governor of the state. Hanson was instrumental in getting Harris elected to the House of Representatives in Georgia so he could introduce a bill to create a state-sponsored technical school in Georgia.66

Bringing competitive industrialization to an agrarian culture was a challenge. In the early years, industrial development in the South was so far behind that it was hard to find shops with sufficient machinery to educate students, much less hire the graduates when they completed their studies at Georgia Tech.67

Today Georgia Tech is one of the best schools in the world. For the past decade, it has consistently been listed among the top ten American public universities. In 2018, US News & World Report ranked Tech’s undergraduate engineering program fourth68 and its graduate engineering program eighth in the country.69 It is the number one–ranked university in Georgia, and it awards more engineering degrees to women than any other school.70 And my Industrial Engineering School at Tech has been ranked number one for decades!

Still working to bring more technology jobs to Atlanta, the Georgia Tech Foundation had created Tech Park/Atlanta (TP/A) in the late 1960s. My former classmate Tom Hall called in 1971 to ask me to attend their New York City presentations. After attending the meetings, I gave Tom highly critical feedback, which led to my recruitment as a shareholder and ultimately a director of TP/A.

But the promising TP/A concept got off to a rocky start. The board soon asked me to become chairman to help rescue the company from insolvency. Among other things, I recommended that the members of the board personally guarantee a bank loan to build a new facility for an invaluable tenant. We did so, and that gesture sparked renewed growth at TP/A.

From the beginning the hope was that TP/A shares would one day be gifted to the Georgia Tech Foundation. I gave them a portion of the TP/A stock in 1974 and the rest in 1980. A portion of the gifts funded a lecture series by the finest economists in the country: Ezra Solomon, Lester Thurow, Martin Feldstein, Mike Boskin, and Alan Blinder. I wanted the engineering students to have a broader set of ideas.

Working together, the board and I salvaged the park. Since that time TP/A has thrived, bringing a critical mass of technology activity to the state of Georgia, as well as valuable new jobs. The total gifts from TP/A stockholders to the Georgia Tech Foundation totaled over $8 million. Since the foundation only had about $22 million at that time, our contribution was then one of its largest gifts ever.

During the financial crisis, trustees were asked what the funding priorities should be. Here was my answer:

Date: Thursday, February 12, 2009

Subject: Financial Summary

In response to your memo of February 6, 2009, I respectfully make the following recommendations:

1. The tradeoff between generations is not clear cut. A lapse in short run quality has a big effect long term. When I joined the Technology Park Board in about 1970, I think the Foundation had only about $10 million in it (prior to Tech Park stock). The accumulation since then has been just fine for future generations.

2. Priority funding should be to maintain and improve faculty. I would sit under a tree with a great professor and great students will be attracted to such faculty (I wasn’t exactly a great student).

3. Second priority should be the laboratories because we are an engineering school and need to do sophisticated experiments. Normally, getting corporate support for these labs in exchange for some information flow would be a good thing but the present business environment may make that tough.

4. The state politicians have to understand your need to raise your prices. You have to engage in appropriate effort to get this through. The tradeoff should be increased financial aid so needy students are not kept out but those who can afford it be made to pay—we are subsidizing other states who charge GA citizens higher fees.

5. Overhead should be slashed. Every nonprofit I know tends to accumulate overhead in excess of need. Now is the time to rationalize the business processes and to cut to the bone. The Financial Summary does not indicate what the current income yield is on the portfolio. At present prices, I do not see why this is not at least $50 million not counting alternative asset distributions. More granularity on alternative assets would be helpful; for example, some such investments do not provide income and have great future uncertainty, while others can provide very high current income.

I believe that the purpose of the Endowment Fund is not only to provide for future financial needs but also to buffer the school from short-term crises like the one at present. Invade the principal to maintain your momentum but make sure that you do it on the most efficient basis—and use the extra support to get price increases for all of your products and services.

I wish you well during these tough times.

Michael

When in 2018 Georgia Tech asked to increase the Tennenbaum Institute funding and convert it to a seed fund for high-leveraged new programs, I saw the logic. It had been a good catalyst, but this change makes it a more dynamic part of Tech’s future. As Georgia Tech’s Philanthropy Quarterly wrote, “Since 2004, the Tennenbaum Institute has focused on bringing problem-solving methods from industrial and systems engineering to bear on business practices and organizational cultures, with the aim of enhancing competitiveness and driving economic growth, particularly in health care delivery and global manufacturing.”

Instead of giving a conventional gift, I organized Georgia Tech’s first interdisciplinary institute with a $5 million gift, which was later expanded by $500,000, and then another $2.5 million. This multimillion-dollar fund allowed the top deans to fund new projects with high potential that would not attract funding from other sources. I considered it to be a high-risk/high-reward effort.

In 2017, the result enabled funding for a new multidisciplinary program which extends support to students from a wide variety of academic backgrounds and fields of study. “Income from the enhanced endowment will provide support, in perpetuity for programs and initiatives that promote enterprise innovation at Georgia Tech. These include strategic research, pilot programs, facilities construction or renovation, seed funding, startup funding, challenge grants, and other purposes.”71

Though the original mission of the Tennenbaum Institute is not now as unique as it was, the new institute, which is the first of its kind at Georgia Tech, aims to keep the future in sight and drive innovation. My goal has always been to boost cutting-edge ideas that will help in making an impact.

JOFFREY BALLET

Not all adventures have happy endings.

Not many guys in my high school in rural Georgia went with their moms, like I did, to see ballet. In the 1950s, the musical pulse beat to the rhythms of Frank Sinatra, Tony Bennett, and Patti Page, before Elvis came along. Ballet felt like an exotic foreign import when we were dancing the Shag.

Most Americans associated dancing on stage with the huge Broadway musicals like Show Boat, South Pacific, or Kiss Me Kate. None of the kids in my class seemed to know anything about the great European ballets. In the early twentieth century, America didn’t have a strong tradition in ballet at all. Its Russian and European origins may have felt too foreign for everyday Americans to call their own. But all that changed in 1940 when the American Ballet Theatre seized its destiny with both hands and took a daring risk.

Their new season featured classic pieces by Serge Diaghilev and Michel Fokine alongside the work of dynamic new American choreographers.72 It represented liberation from the past. A barrier had been broken. For the first time, Americans could infuse ballet with their own vital, earthy sensibilities. A thrilling state of flux ignited in the dance world. Exciting experiments were taking place on stage; adventure was in the air. After the first three weeks of the season, a critic at the New York Times wrote:

It looks very much, indeed, as if the foundations have been laid for a truly popular ballet, reconciling the best tradition of the past with a recognition of the intellectual and emotional necessities of today in America, without reliance upon esthetic snobbery.73

Twenty years later, when I was a new bachelor in New York City, eager to soak up all the culture I’d missed as a suburban family man, Dick and Nancy Miller invited me to a performance by the Joffrey Ballet. That first experience of ballet with my mother came flooding back. I remembered it as fondly and clearly as if it had happened the day before.

Dick and Nancy were what we used to call “worldly wise.” They were not only well-traveled, but they had lived abroad. As art collectors, they possessed an enviable knowledge of fine arts. Their intelligence, good taste, and generosity made them the ideal guides to a more cultural world, and I found them more than willing to oblige.

In 1961, ballet had made front-page headlines when the principal dancer of the Kirov Ballet, Rudolf Nureyev, broke away from his Russian embassy guards in Paris at Le Bourget Airport, crashed through the security barriers, and flung himself desperately into the arms of a Paris policeman, crying, “I want to be free!”74 Nureyev’s defection inspired a generation of Russian dancers. By the 1970s, Baryshnikov, Natalia Makarova, Alexander Godunov, and others had defected.

Thanks to my introduction by the Millers, I became an avid fan and regular subscriber to the Joffrey until I moved to California in 1977. Performances at the Joffrey had been a delight I’d looked forward to every season. Their repertoire was reliably eclectic and often amusing. So it was a happy moment when I learned, in 1983, that the Joffrey was taking up bicoastal residence in Los Angeles and New York City.

Later, Suzanne became just as much of a fan as I was. In our enthusiasm for this dynamic company, we ended up giving the lead gift to launch a new Arpino ballet, Italian Suite, in 1984 and became advisory directors to the board. Thus began my first philanthropy in the arts.

Like the company itself, the board of directors was divided between Los Angeles and New York. The agreement was that each city would raise $500,000 to pay the company’s debts, but Los Angeles quickly surpassed New York’s fund-raising, thanks to the Los Angeles co-chair, David Murdock.

As the Joffrey’s finances improved, the 1985 New York season was moved from the limiting City Center to the most elite venue in the city, Lincoln Center. Offering thousands of programs, initiatives, and events every year, Lincoln Center is the world’s largest presenter of performing arts to this day.75 It’s also one of the most expensive.

That move based the Joffrey in two very expensive theaters. In Los Angeles, the company was downtown at the Los Angeles Music Center. Renowned for the Dorothy Chandler Pavilion, Ahmanson Theater, and Mark Taper Forum, it too is one of the largest, most expensive performing arts centers in the country.

The glittering boards at these two prestigious venues were loath to negotiate their operating costs, which I believed to be excessive. But as no one else concurred, we began to move precipitously toward an untenable financial situation. Our bicoastal board had grown to include fifty-nine people, but some of them were contributing little to no money. That made Murdock’s contributions all the more vital to the survival of the Joffrey. Had we known that the company manager had failed, for the second time, to make tax-withholding payments, the situation would’ve been disturbingly clear, but he had carefully obfuscated the facts.

Then in 1988, the company’s beloved founder and visionary, Robert Joffrey, died. The loss was profound. A huge leadership void was left in his wake. To make matters worse, by the time the news of the company manager’s delinquent tax payments came out, the Joffrey was $2 million in debt and bleeding cash. Alarmed by the situation, as we all were, Murdock called to make an appointment with Joffrey’s partner and cofounder, the choreographer Gerald Arpino, to discuss an emergency course of action. Arpino agreed to the meeting, then didn’t show up. This led to a board revolt.

On April 30, 1990, the West Coast board adopted a charter amendment designed to put the board in charge of all officer elections, secure for the Joffrey and the Robert Joffrey estate all rights to the ballets created by Arpino, and retain the company manager who had repeatedly made such bad and costly decisions. The next day, the East Coast board also voted in favor of the charter amendment. A major contingent of the East Coast directors immediately resigned in protest, along with the co-chairs, including Murdock.

As the executor of Robert Joffrey’s estate, Arpino refused to grant the board the rights to any of the choreography created by Robert Joffrey or by himself. But blood was in the water, and the attorneys swarmed like hungry sharks. As soon as they discovered that Arpino had worked for the Joffrey without a contract for thirty-five years, they pounced. Coldly informing Arpino that he had no rights to his own work or that of his lifelong companion, they declared that the company had “the absolute right” to use the ballets against his will as long as he was with the Joffrey.76 Arpino promptly resigned.

The Joffrey was cut off from its repertoire. Astounded, executive director Penelope Curry told the press, “We really didn’t think any action like that would be taken until the end of the season, if it was taken at all… I can’t believe it could end like this. My heart is broken. We have failed.”77

The Joffrey Ballet was at serious risk of folding. The Los Angeles Music Center had prepaid the expenses for the entire spring season, but there was no money left for the performances. Although board members had guaranteed a $209,000 loan, nearly $700,000 was due immediately for payroll withholding taxes. Severe penalties were being incurred with every moment they remained unpaid. Meanwhile, the attorneys discovered, as they began to comb through the books, that our conference calls for the regular bicoastal board meetings were illegal! According to corporate law in New York, interstate board meetings could not be held without specific authorization by the documents of incorporation, authorization that they didn’t have. But that wasn’t the worst of it.

The coup de grâce was the defection of the dancers. Banding together in unqualified support of their former lead dancer and longtime mentor, Arpino, they declared themselves their own governing body and formally insisted that “no drastic action be taken … without informing us.”

Imagine you were a generous, well-intentioned board member and lover of the arts, supporting one of the most gifted ballet companies for years, only to learn that they had fallen so hopelessly into debt that they couldn’t afford to produce the season already paid for by the prestigious LA Music Center, potentially exposing the ballet company (and you, by association) to a humiliating breach of contract. What if you were then told that, thanks to a bitter power struggle between the bicoastal boards and the creative geniuses at the Joffrey, that the company now had no choreographers, no dance repertoire, and no dancers? And that when the scandal hit the papers, your name would be mentioned in connection with this mess? It’s understandable why so many board members fled. But it’s one of the great marvels of life that sometimes a leader emerges in such a crisis.

At the next board meeting on May 9, Director Dale R. Laurance announced that the Joffrey would be completely out of cash in two days. Then two days later, he not only came up with a fund-raising solution that would satisfy all the involved parties and serve as a good organizational format going forward, but he also persuaded the dancers and Arpino that it would work.

That night the season opened at the LA Music Center, and to their great credit, despite not being paid, the dancers danced!

The following week, the bicoastal board was reorganized. With the crisis postponed, I was elected to the board and to the ten-person executive committee, which was vested with the most legal power. Our very first act was to void the inflammatory charter amendment. Once those board members who had resigned in protest were reinstated, the transformation was complete. After that, if we wanted to stay in business, all we had to do was to raise $2.6 million within the next thirty days.

To attain that goal, Dale and I began to meet privately.

We calculated that the income from the Joffrey performances was about $6 million per year, divided evenly over the New York season, the Los Angeles season, and the international tours. Almost all of an additional $6 million came from nongovernment sources—quite a contrast to the European companies where governments support the arts with major subsidies.

All we needed was $2.6 million, but we needed it within the month. The size of Dale’s donations and my own was growing at an alarming rate. That’s what happens when you’re riding a tiger. Once you’re on, jumping off is tricky.

We knew we needed help—and fast! When we put our heads together, we both agreed that, under the circumstances, there was only one solution: begging.

Happily, by December 1990, great progress had been made on all fronts. Once Arpino was unfettered, the Joffrey’s artistic merit hit new highs. Soon the Joffrey was performing twenty-eight different ballets with only forty dancers, which meant that many of the dancers had to master a wide variety of styles. The programs were very eclectic and wildly exciting to fans like me. Original works were commissioned again, and the buzz they created triggered new financial gifts.

It might have worked, but then disaster struck again.

On April 19, 1991, at the courthouse in downtown LA, a jury inexplicably acquitted four LAPD officers of the beating of Rodney King. The brutal video recording of the incident had already been seen by the entire city. Feelings of injustice exploded into riots that continued unabated for five days. The entire programs at the LA Music Center and the Joffrey were canceled—and the Joffrey had already spent the proceeds from the ticket sales to stay afloat!

By summer, the board’s financial report began with dismal news: “We can’t meet Friday’s payroll.”

“Who would be willing to pitch in with me to cover the payroll?” I asked, polling the members of the board. No one offered. I paid the payroll and resigned. It was January 1992, and I had to admit defeat.

Although this was a very high-risk venture, since the Joffrey was perennially broke and ultimately abandoned by its society board, I took on a leadership role to rescue it. Unfortunately, it was only partially successful.

My only consolation is that for two years, I was able to help a marvelous dance company survive. The Joffrey was well worth saving. It was one of the first to perform a ballet with a rock music score.78 To this day, it consistently produces cutting-edge contemporary ballet, while opening its doors to twentieth-century revivals. Dancers, choreographers, and dance lovers around the world consider the Joffrey to be one of the finest dance companies in America.

LA WORLD AFFAIRS COUNCIL

The board of directors of the Los Angeles World Affairs Council has a storied history. I served on the board as its treasurer and vice chairman.

Following World Wars I and II, Americans began to retreat from the concerns of the rest of the world, feeling they had paid a high price to embroil themselves in the problems of others. In an effort to counteract the trend toward isolationism, a collection of loosely affiliated world affairs councils formed across the country. The Los Angeles World Affairs Council (LAWAC) was founded by John McCone, Paul Hoffman, Preston Hotchkis, and Mrs. Frank L. Pellissier to keep Americans in touch with the rest of the world and inform them about the important role the United States could play in world affairs.

With a board of directors chosen from the city’s power elite, the chairmanship had passed down to the leaders of such corporate giants as Pauley Petroleum, Litton, Northrop Grumman, Teledyne, Hughes, Lockheed, Security Pacific, Union Oil, and Mattel since 1953.

For decades its powerful board allowed the LAWAC to recruit a prominent array of after-dinner speakers, including eight American presidents and over 250 foreign heads of state, along with international leaders in business, technology, military, and culture. Former United States president Bill Clinton, Japanese prime minister Shinzo Abe, architect Frank Gehry, UN secretary-general Ban Ki-Moon, and entrepreneur Elon Musk all have spoken at LAWAC.

The informative programs were designed to be strictly nonpartisan. Opinions from speakers and members were not censored. No political point of view dominated the agenda. Mutual interest in world affairs and an openness to hearing opposing points of view with “grace and civility” were hallmarks of these events.79

Before dinner a VIP cocktail hour with the speakers allowed members to network with the elite. Because of its stellar reputation LAWAC did not have to pay honorariums or even travel expenses for the speakers, so the majority of the revenues were used to compensate the staff. A reserve investment account of about $2 million was maintained for contingencies.

But as billion-dollar Los Angeles businesses merged, the number of CEOs in Los Angeles dramatically shrank and the pool of highly placed LAWAC members diminished accordingly. Such people want to mingle with their own kind. The opportunity to network among the elite dropped sharply. Without its former cachet, LAWAC was no longer able to attract world-class speakers free of charge. This caused a decline in membership revenues that was a serious economic blow.

By the time the board ordered a strategic review of their finances in June 2010, it was too little and too late. The reserve fund was down by 25 percent, and membership was continuing to fall. In the spring of 2011, when I was made treasurer and vice chairman, I was vocal about consolidating the LAWAC with another similar organization.

By early 2012, we found a great fit. I recommended a merger with the Pacific Council on International Policy, which was closely affiliated with the very prestigious Council on Foreign Relations. But some dissident LAWAC members began a campaign opposing the merger, and the leadership of LAWAC hired an expert lawyer for advice.

Under California law, organizations like LAWAC needed to attain a majority vote in favor of the merger from among all classes of members—even those members who paid no dues. We lost the proxy fight, but I recommended to the LAWAC that the proxy rule violations by the dissidents were such that the merger could close and we could defend it later. The LAWAC board refused to do so. Several prominent board members resigned, as did I. Thus, the nonprofit sector suffers from some of the same governance deficiencies as the for-profit sector. Vanity, preservation of position, and the lack of honest debate can subvert even the most obvious courses of action.

As the proxy fight grew bitter, I sent the following letters to the membership in support of the merger.

From: LA World Affairs Council

Sent: Friday, March 9, 2012 12:31 PM

Subject: Why I Voted YES March 9, 2012

Dear Fellow LAWAC Member:

I am writing you as a long-time member of LAWAC in order to explain my views of its future. I agree that it has enjoyed a distinguished past, and that we wish that it could have continued in that same wonderful fashion. However, LAWAC has suffered a drop in dues-paying membership of about 50% over the past ten years; and has begun to operate at a loss. Its cash reserves could not withstand such results for very long.

I have been a Member for 22 years, and a Director for 15 years, and Vice Chairman and Treasurer for almost one year. Beginning a couple of years ago, I began advising both the LAWAC Board and Curtis Mack that I believed that a major change was needed in the LAWAC business model if it were to continue as an independent organization. The risks of doing so successfully are compounded by the risk of picking a new leader to take us into this uncertain future. The reasons for the present problems are:

1. Los Angeles has lost many important corporate headquarters during the past decade, and this has reduced both the financial support for LAWAC, as well as the pool of prominent Directors.

2. Many desirable speakers now are paid large fees for their appearances; and all of them command reimbursement for their travel expenses. LAWAC has not paid these amounts (and it is losing money despite not paying them). Consequently, the richness of our programs has declined markedly. This reduces our revenues, and our membership, and our cachet.

3. The proliferation of delivery systems for policy debate has diluted the uniqueness of our in-person programs.

I had hoped to find a promising solution. The proposal from the Pacific Council on International Policy represents such a solution.

The merger is win/win for both organizations, as well as our city and the global affairs community at large. It would combine the broad membership of the LAWAC with the academic excellence and thought leadership of the PCIP. All of our members will have more and different opportunities to engage in global affairs. There is an excellent staff already in place. It will be financially viable, especially since PCIP’s $2.6 million in cash will be combined with LAWAC’s $1.8 million, and operating savings from the combination will be realized.

The Los Angeles Global Affairs Council would be an important enhancement in supporting Los Angeles as the world class city that it is. We will attract better speakers and programs. The association with USC will enhance our brand. Our scholars will study and write about global affairs from a Los Angeles perspective which is unique and important. Together no other Southern California group comes close to matching the reputation and scope LACGA will offer. I think that all of our members can benefit from this combination.

Unlike most non-profit organizations, our charter requires a membership vote for this change. Traditionally, voting power in LAWAC has not been an important feature of membership, is expensive to administer, and is not common for our type of organization. Its future value is reduced in importance because our current board will be 50% of the combined board and can be expected to continue their current obligations to the LAWAC membership.

I urge every fellow member to vote yes.
Sincerely,

Michael E. Tennenbaum

From: LA World Affairs Council

Sent: Thursday, April 19, 2012 1:30 PM

Subject: Merger Vote - Important Facts

April 18, 2012

Dear Fellow LAWAC Member:

I wrote to you on March 9 because I believed that the debate about the merger with the Pacific Council on International Policy needed to focus on the important facts. I am writing you once more because it has not done so. Some of the persons opposing the merger are making misleading assertions as well as some bald lies. In my opinion, anyone voting against this merger has to stand ready to provide financial support for LAWAC in order for it to remain an independent entity; I am unwilling to do so myself.

For the nine months ending March 21, 2012, total revenues declined by about $270,000; this is a continuation of the slide in membership that began ten years ago and has been accelerating. Dues-paying members now have declined by over 50% during the past ten years. I have attached a copy of my previous letter which outlines the reasons for this decline; these reasons are not going to change in the near-term.

Furthermore, expenses increased during the recent nine-month period as compared to the prior year due to the severance payment that Curtis Mack extracted from the Board, but they do not include the compensation cost and search fees to find his replacement. Equally troubling. Revenues from public events dropped by about 40%, reflecting LAWAC’s inability to generate exciting programs; this circumstance will not change in the near-term.

Even before this disastrous nine-month result for the years ending June 2011, membership dues dropped to an even lower level than the disastrous fiscal year ending June 2009 which encompassed the financial crisis. As a consequence, LAWAC operated at a loss for the fiscal year ending June 2011 and will suffer an even higher loss for the year ending this June. Who is going to pay for the continuance of this business plan?

I have been called a “handpicked” member of the Board by the present administration. I have been a member for 22 years and a Director for 15 years; furthermore, I became more active two years ago in order to help Curtis Mack rejuvenate the organization. I found that it was extremely difficult to recruit directors of the caliber we have had in the past, and it was very difficult to attract big-name speakers. That is why I am supporting the merger.

The Pacific Council on International Policy is profitable and has substantially more cash than LAWAC. Despite this, they are willing to have a 50/50 split of the Board. The most prominent members of the Board and prior Chairman have been substantial financial contributors to LAWAC, and they favor the merger. Their departure would injure further the ability of LAWAC to continue.

If you have already voted yes, I congratulate you. If you have already voted no and you wish you had voted yes, please write that to LAWAC, since there might be a challenge to how the opponents waged their battle. If you insist on voting no, please notify LAWAC how much money you are going to contribute so that they can do the programs that you claim you want to continue.

Sincerely,

Michael E. Tennenbaum

QUESTIONS TRUSTEES SHOULD ASK

The board has ultimate fiduciary responsibility for the organization, but trustees should always ask these questions.

• Does the organization have the right skills on the board to execute its responsibilities? If not, how can they be recruited?

• Does the board understand the reality of the organization’s financial condition? If not, does anyone?

• Is the organization a going concern, or has the lack of depreciation accounting and current value of assets obscured its real performance?

• Does this board understand the organization’s cash situation?

• Is the organization’s debt sustainable?

• Are the organization’s balance sheet and cash protected in case of an adverse economic environment (that is, when donations and fees drop sharply)?

• Do adequate transparent measures exist for the trustee to monitor the organization’s efficiency and financial health?

Suggested reading: Joining a Nonprofit Board: What You Need to Know by Mark J. Epstein and F. Warren McFarlan (Jossey-Bass, 2011).

HIGH-SPEED RAIL

The hardest, most devoted effort can easily be thwarted by the great engine of political inertia.

In March 2018, CNBC reported that California’s bullet train from Los Angeles to San Francisco was going to delayed until at least 2033—at an estimated cost of $77 billion.80 When the California commissioner of corporations, Tom Sayles, asked me to serve as one of nine commissioners on the brand new high-speed rail commission in 1993, the estimated cost was $11 billion. Every year, real estate prices and production costs keep rising, and the high-speed rail (HSR) remains unfinished.

Not even the $8 billion stimulus, initiated by President Obama in the 2009 American Recovery and Reinvestment Act to reinvigorate intercity rail projects, could get it done.81 In fact, when almost $1 billion of the stimulus package was allotted to the HSR from Chicago to Milwaukee, the newly elected governor of Wisconsin turned it down.82 So much for jump-starting a “world-class passenger rail system” that “sets the direction of transportation policy for the future.”83

The next year, Congress went further, approving $2.5 billion more for high-speed and intercity rail, in the Consolidated Appropriations Act of 2010, but it never actually provided the funding.84

In California, voters approved Proposition 1A, which authorized almost $10 billion to build a high-speed rail system, but the project has barely gotten off the ground, and recent polls show that voters would prefer that the money be spent on something else at this point.85 It’s no wonder people have started to call California’s high-speed rail the “bullet train to nowhere.”86

It’s a noble effort, but the reality is that HSR faces—and may always face—considerable obstacles, no matter how appealing the dream. The idea of traveling from Los Angeles to San Francisco in a fraction of the time it would take to drive, or of commuting to New York from Washington, DC, in the time that it might take to cross New York when Trump’s in town is highly attractive and not outside the realm of possibility. Japan, Germany, France, Spain, and China all have had high-speed trains for decades, leaving the United States to lag behind the rest of the developed world.87

Our vast geography and our low population density put us at a disadvantage. Whereas Japan has 336 people per square kilometer, we have only thirty-three people. Securing the land needed to build HSR is more expensive in the United States than in China, for instance, where much of the land is still controlled by the state.88 In Paris, Tokyo, or Barcelona, HSR is augmented by public transportation that takes travelers to their destination once they arrive. In most American cities, it still would be necessary to hire a car or taxi at each destination.

Still, HSR would be ideal in certain parts of the country, such as the routes between Boston and Washington, DC, between San Francisco and Los Angeles, and between Dallas and Houston. Each of these are shorter corridors to densely populated cities with public transportation.89

Our job back in 1993 was to determine whether California needed high-speed rail and, if so, how to create it.

Tom Sayles was to chair the commission of interested citizens, a number of whom were vendors to public bodies or political activists. I brought a valuable combination of financial experience and engineering education, which I assumed would more than compensate for my political naïveté! I was wrong.

We had a daunting agenda in a relatively short window of time. The nine commissioners were asked to assess the viable market size for this massive undertaking, to make recommendations about the best type of high-speed rails for California, to estimate the cost of the system, to build a revenue model, and to design a financing plan. Our final report was due on December 31, 1995, twenty-one months later. And we all had day jobs.

Here’s an example of the kind of calculations we made from Working Paper #11 of the High-Speed Rail Commission:

• Other Mode Savings: Diversion of passenger traffic from highway, airplane, and conventional rail travel to HSR reduces the costs of using and operating those other modes of transport.

• Highway Mode Savings: Reducing trip volumes on highways results in less congestion, fewer accidents, and less air pollution attributable to the highway mode (to those highway users who choose not to use HSR).

• Air Mode Savings: Reducing air trip volumes results in less aircraft and passenger delay, and less investment needed at airports.

• Conventional Rail Mode Savings: Reducing the demand for conventional rail services means less investment in the conventional rail system is needed.

• HSR User Benefits: Economic benefits accrue to those who choose to use the HSR. These benefits are referred to as “consumer surplus”; the surplus is based on what the users are willing to pay for HSR use, over and above what they actually pay.

• Operating Surplus: The net difference between annual HSR operations and maintenance costs and annual HSR operating revenues.

After all the analyses, the political tugs-of-war, and the decisions regarding likely alternatives, we had to design a financing plan for the project. This phase of the work was right up my alley.

We estimated the cost of building a high-speed rail system from San Francisco to Los Angeles to be $11 billion. (The cost estimate for the total system—which included Sacramento and San Diego—was $16 billion.) We proposed that the bulk of the financing come from an increase in gas taxes and sales taxes. The rest could be derived from the sale of revenue bonds paid from the profits of operation. Naturally, an increase in taxes would require voter approval, as would the sale of the revenue bonds. But these voter approvals were only a few of the required approvals needed for the project to go forward.

In March 1996, the consultants advised us that our project needed approval from no fewer than thirty-six federal, state, and regional agencies, plus dozens of local governments. The items subject to approval included funding sources, terminal locations and design, procurement procedures, environmental impacts, construction permits, and oversight of rail operations including fares, safety, and service. Just staffing this project for the public hearings would be a massive effort.

Despite the daunting hurdles ahead, our High-Speed Rail Commission reported in December 1996 that the project was feasible and should proceed.

We recommended a 670-mile-long system connecting Sacramento, San Francisco Bay cities, Los Angeles, and San Diego, with stops along the way. Travel speeds would be over two hundred miles per hour; capital costs now were estimated at $21 billion and operating profits at $300 million per year. Funding was proposed to come from a statewide gas tax increase of twenty-five cents, plus another six cents for cities in the rail line corridor.

It had been an incredibly complex process over a three-year period, but I felt satisfied that we had done a good job.

In most corporations, when a team completes a major deal, there is a lavish party. In this case, the strict state cost reimbursement rules had cost each of us volunteers out-of-pocket expenses, not to mention thousands of hours of time, so we skipped the party. But, as it turned out, my involvement in HSR had not ended.

The recommendations of the High-Speed Rail Commission resulted in the passing of a new law establishing the California High-Speed Rail Authority (CHSRA) to direct, implement, and finance the system we had proposed.

The primary directive of the new CHSRA was to secure financing for the high-speed rail system by November 2000. The prospect was thrilling. It looked as if HSR would become a reality for the first time in America!

In early 1997, Governor Pete Wilson’s office called me asking if I’d be willing to be a member of the CHSRA. It was a tough decision. My time with the commission had made it clear how complex the success of this project would be. I knew that the work would be exceptionally demanding. Besides, I’d started a new business in July of 1996 and was learning the hard way that there was a lot more work in starting up a small business than being a senior executive in a ten-thousand-employee firm. It would be a lot to take on, but what an opportunity!

We would be creating the second-largest engineering and construction project in the world! Only China’s massive hydroelectric Three Gorges Dam, built between the breathtaking cliffs of the Yangtze River, would be bigger.90 We would also be completely transforming transportation in my adopted home state of California. My craving for excitement got the better of me.

California governor Wilson selected five appointees: two appointees from the California Senate, two appointees of the California Assembly, and me. As is the case, for such public bodies, the skill sets of the members vary. Some are highly talented and dedicated. Some hope to leverage their status for business benefits.

We had a demanding agenda: refinement of the revenue model; selection of route alignment and station location; finalization of the financing plan; solution of institutional issues, such as permits and procurement; integration with the entire transportation infrastructure; outreach to the public to convince voters of the project’s value; and finalization of the business plan.

With only twenty-four months to complete such major tasks, the strains began to show very quickly. By July 1998, the chairman of the CHSRA resigned over issues of compensation limits and authority.

It was Governor Wilson’s responsibility to select a new chairman. He wanted a Republican. I’m an Independent. When his team couldn’t find a Republican who was both qualified and willing, several members asked if I would take the job pro bono. I told the governor that if he didn’t find the right person soon, the project would be at risk. He didn’t find one.

When asked again, I agreed to take the chairmanship if 100 percent of the members wanted me to be chairman. They did. My business partners in my new venture were dismayed because we were still trying to build a complicated firm from scratch. They could see that I had overcommitted myself, but that’s how I lived. Thus began another adventure.

Everything immediately became more complicated. As a part of our due diligence, the CHSRA visited high-speed rail projects in the United Kingdom, France, and Germany in November 1998. It was a big eye-opener. Most of us Americans are skeptical about making social changes. Our frame of reference usually is the American experience. The high-speed rail system in Europe is unlike any other American experience. In Europe, it is one of the major modes of transportation, as well as a real improvement in travel comfort. Rails in the United States had been passé since the 1950s. The trip persuaded us that we were not treading in unknown territory by advocating HSR in the United States. We returned home more convinced than ever that we could pioneer the creation of a revolutionary new industry for the United States.

Invigorated by this dynamic new perspective, we realized that we could flip our emphasis costs from the cost of building the HSR to the cost of not doing it promptly! As our population grew, massive costs would be needed to expand highways and airports. Energy waste and pollution would grow. And the cost of building the HSR would soar.

We also reminded people of the great legacy of past California political leaders in major infrastructure projects, like our university system, our diversion of upstate water to the Southern California desert, and our highway system.

After running a travel survey for air travelers and recruiting a board of advisers from leading California citizens, we produced our final report in December 2000, as requested.

I declared victory and resigned from the CHSRA a few months later. I am proud of the quality of our work.

Our work has withstood the tests of time. And time certainly has passed. Although we all knew that delays were not unusual and were likely to occur in building California’s HSR, they saddened me. I hope that the lessons learned from our efforts can be avoided in other worthy large projects.

Every few years there are hopeful glimmers of progress. In 2008, California voters approved the sale of $9 billion in bonds as part of the funding for the high-speed rail system proposed by CHSRA, which may now allow trains to reach speeds as high as 220 miles per hour. The project had already received almost $4 billion in federal funds, yet it remains controversial.91

Meanwhile, in Japan, the maglev train continues to break speed records. As of October 2016, it set a new world record of 374 miles per hour. At that speed, it would have traversed twenty football fields (1.1 miles) in the time it took to read the last two sentences.92 It serves as a reminder of a missed opportunity for California to lead the way in global transportation.

At the time, this was the second biggest construction project in the world. It was very controversial then, and despite the demonstrable value it could offer the residents of California, it has still not been built to this day. Stepping into the role of chairman on this precarious project when there was a leadership void was a considerable risk. This was far from a tame political appointment.

SECRETARY OF THE NAVY ADVISORY PANEL

Of all my advisory roles, serving on the Secretary of the Navy Advisory Panel was perhaps the most adventurous. None of my other advisory roles allowed me to wander around the Pentagon with top-secret clearance, work out at the SEALs Training Center, take off and land on an aircraft carrier, or spend the day underwater on a nuclear submarine.

When President Obama made Ray Mabus the seventy-fifth United States secretary of the navy, Ray needed to restaff his advisory panel. Naturally, most of the members were retired admirals, including former heads of the Submarine Service, the Naval Air Force, and the Naval Intelligence. These admirals are great Americans and it was a privilege to serve with them, especially since I had served in the military as a lowly US Army lieutenant.
I was one of the rare businessmen on the panel. My point of view was often different from the other panel members’, but they were always open to new ideas. The Department of Defense would be much better run by such leaders than it has been by politicians.

My deal with Ray was that I would give my candid advice. If that ever became a problem for him, he would have my resignation.

Ray and I had met at a board meeting at RAND and become fast friends. He had graduated magna cum laude from Harvard Law, then gone on to serve as attorney general and governor of the state of Mississippi, then as ambassador to Saudi Arabia from 1994 to 1996.

In order to do the job, we all needed Pentagon passes and top-secret clearance. Regardless of what we all see in spy movies, the top-secret clearance process is notoriously inept. Anyone familiar with it will tell you—more tactfully or less so—that the personnel tasked with carrying out the clearance investigations are not exactly the sharpest knives in the drawer. Many are government employees previously retired from undistinguished careers. Others are hampered by their youth and inexperience.

Since September 11, the number of top-secret clearances approved by the Department of Defense has tripled and is increasing, placing an even greater burden on an already questionable system. In my experience, the clearance investigators were some of the least competent people I had ever met. No wonder America has had intelligence disasters!

The last question my interviewer asked was, “Are any of your acquaintances under suspicion?”

“I can’t answer that,” I told him, “because I have no way of knowing.”
“So you refuse to answer?” he countered.
By then, I was ready to fail, so I told him, “Yes.”
When, to my surprise, my Pentagon pass was granted, I was permitted to wander around much of the 17.5 miles of corridors of the headquarters of the US Department of Defense. With more than six million square feet of floor space, it is one of the largest buildings in the world. More than twenty-three thousand military and civilian employees work there, and I personally saw hundreds of people not working. Put me in charge of military spending; I could save us all a fortune!

NAVY SEALS TRAINING CENTER

Of all my charitable activities, these were the riskiest:

1. Landing and taking off from an aircraft carrier

2. Aggressive underwater maneuvers in a nuclear submarine

3. Driving a fast SEALs boat in San Diego harbor

4. Telling naval officers that China was more worried about their own one billion subsistence farmers than they were about the US Navy.

My days at the Navy SEALs Training Center were inspiring. The training takes place on a beach beneath the flight path of naval aircraft landing at Naval Air Station North Island (NASNI), San Diego. Near the training center is the home of the US Pacific Fleet’s Naval Air Forces, the birthplace of naval aviation.

It’s at the Naval Amphibious Base in Coronado, California, that Navy SEAL candidates suffer through a grueling eight-month course called Basic Underwater Demolition SEAL training (BUD/S). Some say it is the most mentally and physically demanding training in the world. On average only one-quarter of the candidates complete SEAL training.

In a typical training session, candidates spend two hours in the swimming pool wearing their fatigues and boots, swimming the length of the pool and enduring Combat Swimmer Orientation, in which they tread water. The drill sergeants simulate adverse conditions by yelling, making waves, and filling their masks with water. In 2016 a candidate died during this rigorous training.

They refused to let me do the pool training, but I did join in the workout on the infamous Grinder, a concrete plaza used for the constant calisthenics. On the way, I passed a sign that warned, “Yesterday was the easy day.” On the plaza the helmets of those who had dropped out are lined up with their names prominently displayed.

Working out with the CEO of the Navy SEALs base in Coronado, at the “Grinder.”

My ability to drive a fast boat aggressively in San Diego harbor earned me a token from the boat captain. But I did it under relatively benign conditions: no one was shooting at me!

After training in pistol marksmanship, I was permitted to take a test. I passed and earned a medal. But I was then deflated to learn that it was only a Navy Pistol Marksman award, not a SEALs Pistol Marksman award.

When I asked what the difference was, the instructor explained. “The SEALs begin each shot facing away from the target.” Wow. Go, SEALs!

My target from the firing range.

US NAVY AIRCRAFT CARRIER

Making a landing on the five-hundred-foot flight deck of an aircraft carrier is one of the most difficult things for a navy pilot to do. Each plane has a tail hook extending from the back, which snags one of four parallel arresting wires that stand about fifty feet apart. Most pilots aim for the third wire. The second and fourth wires are fine, too, but the first wire is close to the deck. If they come in too low and try to hook it, they can slam into the side of the ship.

Arresting wires have remarkable capacity. They are attached to a hydraulic cylinder system that buffers the energy of a fifty-four-hundred-pound jet to a 315-foot landing area that isn’t nearly long enough for it to land.

The pilot has to hit the deck at precisely the right angle. As soon as the plane touches down, it’s startling to see the pilot rev the engines to full power while coming to a stop! The reason is that if the tail hook doesn’t catch, the plane engine has to be revving back up enough to take off again. Otherwise, it will dive off the carrier into the ocean. Done properly, the arresting wire will bring a plane going 150 miles per hour to a complete stop in two seconds.

The night I spent on the carrier was amazing. The pilots were making their first night landings, and there were many misses. When the tail hook bounced down on the steel dock, sparks flew.

I landed on the carrier deck in a small plane, but the landing was nothing compared to the departure. I thought I had died when silence and weightlessness prevailed!

Jets are literally catapulted off the aircraft carrier. A catapult officer, known as a shooter, controls the catapults from inside a small transparent dome on the flight deck. High-pressure steam from the ship’s nuclear reactors fills the catapult cylinders. If the pressure is too low, the jet won’t be going fast enough. The catapult will fling it into the ocean instead. If the pressure is too high, it will cause such a powerful jerk on release that it can break off the nose of the jet. So the catapult officer monitors the pressure closely.

The entrance to the nuclear sub—really tight!

When the pressure is right, the pilot blasts the jet engines. As the engines build up force, the holdback bar keeps the plane firmly attached to the deck. Then the catapult officer releases the pistons and the enormous pressure of the steam pops the bar loose and slams into the plane, propelling it forward from zero to 165 miles per hour in two seconds.

There is an eerie weightless period in those brief seconds when you find yourself suddenly in the air. If things go wrong, the pilot can always activate the ejector seats before the jet crashes into the sea. I’m told it hardly ever happens. But it could.

NUCLEAR SUBMARINE

My day on a nuclear submarine felt less life-threatening, but it was equally extraordinary. Because of its long, slim shape, a submarine can take a beating while near the surface, but once it’s submerged, you don’t feel the waves. Although the submariners are stuck in a tube with a nuclear power plant, the reactor compartment is shielded so well that they are actually exposed to less radiation than we get from walking around every day.

Their training is unique and perpetual. Submarine school is only a few months long, but it teaches submariners how to drive the sub, run the sonar, contact tracking, do damage control, respond to flooding, fight fires on board, and run the weapon systems. Everyone is trained in the basics of every system on board. The team attending the nuclear reactor knows a little about navigation and the cooks know about fission. Very little of the sub is automated. Every pump, valve, and power switch is controlled by a submariner.

While we were there, the captain took the sub underwater and demonstrated the extreme moves it’s capable of making. It gave me great respect for those brave sailors who serve under such extraordinary circumstances.

At the end of my time on the advisory panel, I was awarded the Navy Civilian Distinguished Service Award for my work, particularly for co-authoring a report on energy use in the navy. Presented by the United States secretary of the navy, the award is the highest recognition the secretary of the navy gives to civilians. It is awarded for “significant contributions of broad scope in policy, scientific, technical or administrative fields that increase effectiveness and efficiency.” I tried to bring a different perspective to the advisory panel. Several of the members have become my good friends.

POLICY

My first public policy activism was to oppose the Vietnam War. Vietnam created for me both a very bad venture and a very good one. When the Buddhist monks began setting themselves on fire on camera and reports of extreme cruelty and great corruption by the South Vietnamese government began circulating, I concluded that it was a mistake for the United States to back such a regime in the name of democracy.

(Left) My letters to President Nixon.

(Right) The origin of Nixon’s enemies list.

In addressing this regime, the military was relying on the domino theory. The assumption was that if Vietnam became Communist, then all of Southeast Asia would follow, like a row of dominoes falling over. I said that was foolish. How many rulers who fight to gain control of a country will then subjugate themselves to some other country and other rulers? There was never any monolithic Communism! Just a bunch of dysfunctional countries ruled by revolutionaries or dictators. They couldn’t even manufacture a decent automobile, and they had to fence in their citizens so that they wouldn’t run away!

I saw no good argument for supporting the South Vietnamese government, but I saw many good arguments for not prosecuting the war. In recent years, the Vietnamese had beaten back both the Chinese and the French! Why should we think that we could prevail in such hostile environs? Furthermore, we were not paying for the war with higher taxes, but rather more deficit spending—a recipe for high inflation. So, first privately, then publicly, I opposed the war.

Not only did I attend the famous Wall Street antiwar rally where they paid thugs to beat some of us up, but I also backed antiwar political candidates and joined antiwar organizations, sometimes serving on their boards. Soon, this came to the attention of the sweet, fair-minded folk in the Nixon administration, and I found myself in tax court for five years.

Much later, when Nixon’s enemies list appeared, my name was on it. Getting on that list seems like a badge of honor today, but it wasn’t much fun at the time.

I first heard the news when I was sitting in my Bear Stearns office. My friend Sheldon Lubar called me. “Congratulations, you’re on the enemies list!” he howled.

“You’re mistaken, Shelly,” I corrected him. “I read it. I didn’t make that honor roll.”

“No, the Washington Post just published a new list, and you’re on it!” Shelly was a great investor, a pioneer in leveraged buyouts, so Nixon had wisely recruited him to head up the FHA. Nixon promised Shelly that the Watergate break-in would blow over. Specifically, he said it was nothing, and he assured Shelly he could join the Nixon administration with no worries about his reputation.

Years later, I would have my good Vietnam adventure when the first government delegation since the war came through Los Angeles on their way to Washington in 1995. I was asked to host them at our house so they could see the famous Malibu Colony.

As dog lovers, we were a little nervous. Our dogs live with us as though they were our children. The Vietnamese raise dogs for food.Sure enough, when the delegation arrived, the dogs ran to meet them, barking loudly. I yelled, “Keep your hands off them!” We all had a good laugh and soon we were friends.

The delegation leader was fluent in four languages: English, Russian, Vietnamese, and Czech. We assumed that he was an intelligence officer. Soon he and I were hitting tennis balls around in our socks. He invited me to visit Vietnam, and I did so the next year.

When we went, the trip was surreal. I brought my hosts a personal computer as a gift. It was then the most powerful computer in Vietnam. I also gave them a copy of the personal letter I had once received from Senator Fulbright, thanking me for my opposition to the Vietnam War.

We drove through the countryside with the tape player blasting Elvis Presley, while outside, farmers in reed hats were harvesting rice and plowing with water buffalo. In Hanoi, we dined at a street full of snake restaurants.

In a very dramatic display, the waiter presented us with a large live cobra, then slit its throat, pouring the snake’s blood into a carafe. The blood was then mixed with brandy, which we drank as our aperitif! Meanwhile, the beating heart of the cobra was offered to me as an appetizer.

“If you swallow the cobra’s heart while it is still beating,” our host explained impassively, “you can still feel it beating when it reaches your stomach!”

No doubt it was a once-in-a-lifetime experience, but I demurred, telling our host that I wanted him to have it as a token of our appreciation. As soon as he swallowed it, he invited us to put our hands on his stomach. We could feel it beating.

Vietnam is such a beautiful country that I hoped to find business opportunities there, especially in packing and exporting exotic fruits. But the corruption and still-prevalent Communist ideology was too much to overcome.

This experience converted me from liberal political views to independent political views. When John Anderson ran for president as an independent in 1980, I housed his kids in Malibu and sent him money. He took me on his last swing and hosted me on election night. That was great fun. The election results were not!

I’ve spent time at the best think tanks in the world—RAND, the Hoover Institution, the Cato Institute—and I’ve debated policy with distinguished leaders. Recently, I’ve listened to a lot of history books, too, thanks to Suzanne getting us both addicted to audiobooks. And I’ve concluded that there is an unbridgeable divide between two belief systems: (1) that government is the most reliable actor in most situations, and (2) that the free market is usually the best distributor of outcomes.

The answer, of course, is that there must be a distribution of power that prohibits excess dominance of any faction. My experience with Janet Yellen is a good example.

I met Janet when she was president of the San Francisco Federal Reserve Bank. I sought a seat on her board. Her warmth and candor impressed me greatly, despite the fact that I didn’t get the board seat. (She explained that there was no opening for my category.) We stayed in touch. When she became chair of the Fed, we had some correspondence.

Mostly I thought conditions should be created for a private sector rebound. She was uncomfortable counting on anything other than government action. Her sympathy (true to her Berkeley roots and her current employment at Brookings) was with the unemployed and in not slowing the gradual recovery from 2008, as had been done during the Great Depression. I believed that the sluggish recovery was partly due to excess government activity, but I sympathized with her bias until 2016, at which time I saw the basis for an inflationary environment.

During this period, most policy makers worried about generating too few new jobs. I argued that our school system poorly prepared people for the increased job demands for skills in mathematics. Also, job openings were growing and the time to fill them was slowing. We were on the cusp of wage inflation.

I had an enjoyable breakfast with Janet at the Fed, but I failed to change her views. Now, Fed tightening will have to be faster than would have been the case if the Fed had started earlier. But the cheap, easy money made me richer. I still love public policy, but I have given up any idea of having a voice in the great debates.

I believe that a combination of twenty-four-hour, for-profit news media, together with complete legal protection for political lies, has led to an election process favoring liars. Thus, our political leaders include too many opportunists and not enough statesmen. Public trust in politicians is under 10 percent. Yet their reelection rate is over 90 percent. I should have such a business!

This experience has caused me to question democratic processes. I’ve seen too many elected leaders lose their popularity within twenty-four months. Either politicians make impossible promises in order to get elected, or voters don’t comprehend all the implications of particular policies, such as free lunches. Probably all of the above apply.

Consider Brexit. On February 10, 2018, The Economist reported that 75 percent of the British population with no educational qualifications voted for Brexit, while 75 percent of those with university degrees voted against Brexit.93 RAND has analyzed the effects of Brexit on the UK economy and concluded that it would be between $55 billion and $140 billion lower after ten years, due to Brexit.

Over twenty-three hundred years ago, Aristotle predicted the problems that could emerge when the citizenry does not understand the implications of policies that require their vote.

“The best city, like any other city, must educate its citizens to support its principles… [T]he principles that it teaches its citizens are the correct principles for living the good life. It is here, and nowhere else, that the excellent man and the good citizen are the same.”

As I see it, many of the challenges we face in the United States today are caused by poor education on the issues. The future of America requires that our public education system perform well. Only then will our political system function well.

LA MAYORAL ADVISORY

“There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order and only lukewarm defenders in all those who would profit by the new order.”—Niccolò Machiavelli

In 1993 a miracle happened in Los Angeles. The city elected its first Republican mayor in thirty years, a crusty, brilliant, wealthy man named Richard “Dick” Riordan. When Tom Bradley retired in the aftermath of the 1992 Los Angeles riots, the city was traumatized and ready for change.

Riordan won a decisive victory, then led Los Angeles through the devastating 1994 Northridge earthquake and even weathered a failed secession movement by the San Fernando Valley.94 At the time, Los Angeles was suffering through a long recession. With the high cost of living and chronic regulatory problems, the city was viewed as inhospitable to business. Drops in military spending at the end of the Cold War and undisciplined spending by populist politicians were sustaining a destructive deficit. I had seen the infrastructure deteriorate and taxes spiral in New York City when I fled in 1977. Now LA was facing some of the same liabilities.

When Mayor Riordan asked me for advice right after his election, I jumped at the opportunity to use my commercial skills for public benefit. I proposed to analyze Los Angeles as if it were a large business enterprise.

“I want to bring together the smartest, toughest people in LA and see if we can fix a city that is the two-hundredth-largest organization in the country,” I told Riordan.

“That’s a very big job!” he said.

“Yes, it is,” I agreed. “But this won’t be just any committee.” Soon I had the eager participation of a blue-ribbon panel of business experts to revamp the city’s fiscal structure: Eli Broad, president and CEO of SunAmerica Inc.; Ed Carson, chairman and CEO of First Interstate Bancorp, the largest LA bank; Dick Poladian, managing partner of Arthur Andersen, a major auditing firm; and five other luminaries.

For four months we worked hard to analyze the infrastructure of a city with over nine million residents, then issued a report called “Blueprint for Economic Vitality.” Then, in February, we released more than a dozen headline-grabbing findings and proposals that “struck the Los Angeles status quo like an earthquake.”95

The city was so shaken that it prompted the editor of the Los Angeles Times to write an editorial entitled, “Calm Down, Listen Carefully.” He admired the fact that we had taken on our task with neither a cynical attitude nor petty partisanship, but open minds and a willingness to work. Attempting to get people to see our proposals objectively, he pointed out that the “seven-member panel—headed by investment banker Michael Tennenbaum—did exactly what it should have done: put a plan on the table. And not a plan from Mars either… The city needs fresh ideas that can work.”

Nonetheless, the changes we recommended were ambitious. Riordan’s goal was to get “more for less” from the city’s bureaucracy, and that’s exactly what our work supported. We recommended paying for more policemen and city services through managerial innovation and the elimination of $1 billion in waste and inefficiency. Some people were shocked when we proposed leasing the airport and harbor or privatizing city services, such as trash collection. But John Dunn, writing for Georgia Tech, understood what we were doing. He explained to my fellow alumni that we had “studied the city as though it were a company up for sale. Instead of operating in the red, the committee determined, the city should be operating in the black.” I thought we should view the city as a business because, for the most part, that’s what it is!

It was widely believed that Los Angeles had a $200-million-a-year deficit. When we subjected it to a business analysis, the real deficit was $500 million a year. People were stunned. But, as we explained, that figure took into consideration the city infrastructure that was poorly maintained and needed immediate attention for paving streets, replacing vehicles, and acquiring modern data-processing systems that would improve efficiency.

What shocked us most on the committee was the realization that, if this city were run properly, it could realize almost $1 billion in savings and new revenues in five years!

Los Angeles is a very wealthy city. It has forty-four thousand employees and a multibillion-dollar revenue stream. It should be in surplus by hundreds of millions of dollars every year, but it had been struggling with a deficit for so long that people had forgotten its potential for surplus. For those who hadn’t seen the numbers, it sounded too good to be true. No one believed our results; they called us naive. Skeptics ordered an independent audit by Barrington Wellesley Group to critique our analysis of the Department of Water and Power, which is owned and operated by the city. We had determined that it could generate an $118 million increase in profits if it were properly run. When Barrington Wellesley finished their analysis, they said our estimate was low! Their audit confirmed that the real potential savings ranged from $177 million to $223.5 million a year. 
The right people took notice. The Los Angeles Times praised Riordan for bringing us together in the first place. “If you can’t reduce government services or raise taxes, what do you do? Just what the panel appointed… by Riordan did: work up a multiyear fiscal plan that is, in effect, a program for reinventing city government.”

When I spoke at a news conference at city hall, I made it clear that dramatic action was needed immediately to keep our world-class city from becoming second class. If we keep postponing the effort, Los Angeles will become very undesirable as a place to live.

Unfortunately, when the budget was adopted in July, my favorite recommendation (multiyear budgets) was omitted. I had been the hard-liner on the committee. I guess my Georgia Tech training had taught me to strive to be efficient. It rankled me to see raging inefficiency on such a scale. But one of the difficulties in city government is that political horizons have always been shorter than financial horizons. People get reelected and they keep passing the deficit on to somebody else. I wanted to stop that and rest the responsibility firmly on the shoulders of the people making decisions. It didn’t happen.

But Mayor Riordan surprised us. After the budget was adopted, he asked that we evaluate how he had done in implementing our programs. We should have declined. But when the press called, I gave the mayor a C-plus. Dumb, dumb, dumb! His chief of staff dismissed my remarks as those of “a rookie professor, trying to show how tough he is.” It’s easier to be blunt than gracious. I’d like to think I’d handle it differently today.

The idea of grading politicians stuck with me, though. Years later, I tried to combine a left-ish think tank with a right-ish think tank into a neutral expert joint venture that would give annual grades to all congresspersons. As it turned out, no one wanted such a risky job!

The Cato Institute, a libertarian think tank, gives grades to state governors. The grades come from a conservative political point of view, but Cato discloses their rating system, so the results can be useful.

I hope to use this idea of forming an expert organization to grade the accuracy of political speech. Rampant lying by politicians is undercutting democratic processes. Believe it or not, political speech is protected by law. It has a kind of diplomatic immunity wherein the speakers can’t be held accountable for the claims they make or the bare-faced lies they tell. You couldn’t sell investments or a car or even patent medicine with public lies, but you can use them to get yourself elected to high political office. What a scandal!

LA Times article by Patrick Lee about our panel—February 25, 1994

Editorial in the LA Times—February 26, 1994.