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Unreasonable Thoughts from an Unreasonable Man

Thursday
Aug302012

Not to Belabor the Point…

As Labor Day approaches, I am reminded of two things.  One, I recognize the significance of acknowledging the contributions of the labor movement. And two, I never could have accomplished all I have without the help of incredibly bright, talented workers.

As I write in “The Art of Being Unreasonable,” I grew up in a union family. My father spent a fair amount of time helping the Workmen’s Circle, a nationwide Jewish social, political and charitable organization that launched a network of Yiddish schools for children and ran housing cooperatives in our Bronx neighborhood. For one semester during college, I was even a member of the United Auto Workers when I worked as a drill press operator for Packard Motor Car Company.

From an early age, I saw the value of hard work. As I grew our homebuilding and retirement savings companies, I realized that our business was only as successful as the people we hired. They worked hard, and I made sure they shared in our companies’ prosperity through a generous stock option program.

This coming Labor Day, I salute the American workers—from teachers to tree trimmers, from plumbers to police officers, and the many professionals who have worked with me over the years—whose contributions have led to the strength of our economy and our democracy.  Enjoy your day off.

Thursday
Aug232012

Of Rice and Men

I don’t play golf.  If you’ve read my book, “The Art of Being Unreasonable,” you know that I’m impatient, and a golf game violates my three-hour rule that I never stay anywhere longer than 180 minutes.

But I applauded this week’s decision by the Augusta National Golf Club to admit Condoleezza Rice and Darla Moore—the first women to be invited to join in the exclusive club’s 80-year history.

In my 79 years, I’ve seen racial, gender and religious barriers come down.  The core issue is: what’s the benefit of exclusivity?

From my experiences in business and in philanthropy I know that diversity of perspectives leads to a better organization, richer conversations and a more enlightened outlook.

That’s exactly what Rice and Moore will bring to Augusta. I might have to rethink my three-hour rule.

Wednesday
Aug082012

Gold Medals Elude Students

National pride is rarely higher than during the Olympic Games, as we cheer on our athletes, regardless of the sport, because they represent America. We want to be #1 in the world, and over the past couple of weeks, Americans have closely monitored how well our teams are performing compared to athletes from other countries.

Just imagine the headlines if our women's gymnastics team ranked 17th in the world, or our men's swimming team ranked 25th. The public--fanned by the media--would be outraged.

Yet consider how American students rank academically: 25th among industrialized nations in mathematics and 17th in science. Where is the outrage?

Competition is a good thing--in business, in sports, and yes, in education. Competition raises the bar and encourages everyone to seek higher levels of achievement. Yet America is woefully shortchanging our students with our acceptance of mediocre academic performance. And the stakes are much higher in education than in sports. How well our students excel academically will affect how successful they are in life and how strong we are as a nation. The American education system is clearly in crisis, but our poor international showing has spurred too little action.

As I write in "The Art of Being Unreasonable," we need to set world-class standards for teaching, learning and operations, empower teachers with support to meet individual student needs, reasonably hold adults responsible for student growth, and make sure adequate resources reach the classroom if we want America's public schools to be worthy of a gold medal.

I join all Americans in taking rightful pride in our athletes. But I also encourage everyone to work to develop another source of national pride, to reform an education system that once was and can be again the envy of every country.

Friday
Aug032012

The Housing Market Will Rise Again

I’m always on the lookout for economic trends and market indicators that tell a story. It’s why I read four newspapers a day—not only to get ideas but also to formulate investment strategies by tracking political, business and economic news.

Ever since the housing bubble burst in 2006, contributing to the subsequent recession, market-watchers have been closely monitoring housing sales for telltale signs of an economic recovery. Just this week, there was mixed news about June home prices rising in Los Angeles for the first time in six years, yet new home sales nationally posted the biggest drop in more than a year.

But there was once piece of news I viewed as most encouraging: housing starts rose to their highest level since October 2008.

Housing starts—the total number of houses that have begun to be built in a particular period—has always been the most important indicator for the homebuilding market. It’s also a great bellwether for the economy as a whole, too.

Homebuilding creates jobs for construction workers, electricians, plumbers, and others. Right now we have an 18 percent unemployment rate among construction workers, and for them, the spike in starts is particularly encouraging. But the impact of housing goes far beyond that. Customers buying a home need carpet, furniture, landscaping, and more, helping generate healthy consumer spending. The multiplier effect of new home construction boosts the entire economy, and has for decades, as I saw during my years at Kaufman and Broad.

A full recovery may still be a few years off, and the days of double-digit real estate appreciation are probably decades away, if they ever return. In Southern California, for example, overbuilding in outlying areas means there is still too much supply relative to demand for homes. It will take time for regions like Palmdale or Moreno Valley to grow again. In the next few years, I predict that most building will occur closer to central cities or filling in between denser suburbs.

But as home prices firm up and consumers grow more confident, the housing market will rise again. And that’s a good thing not just for builders, but for all Americans.

Friday
Jul272012

An Occasion to Go Barefoot Downtown

Today I kicked off my shoes and socks and walked through a fountain to help celebrate the opening of Grand Park in downtown Los Angeles.

A dozen years ago, the Grand Avenue Project was an unreasonable idea.

Back in 2000, downtown L.A. was a very different place. There was no cathedral. There was no Disney Hall. There was no arts high school. The public space east of the Music Center was inaccessible and rundown.

At the time I was working with Mayor Dick Riordan to raise money for the stalled Disney Hall project, I realized the city and county each had parcels of land but no master plan. All world-class cities have vibrant metropolitan centers, and I saw the potential for Grand Avenue to be a cultural promenade that would draw people from around Southern California.

But everyone insisted that the county and city would never work together, that there would never be agreement on how to develop Grand Avenue. You know by now after reading “The Art of Being Unreasonable” that when I’m told that something can’t be done, that it’s impossible or unconventional, I kick into action.

It’s been 12 years, but thanks to determined civic leadership, the vision of a vibrant downtown is becoming a reality. We created a committee of citizen volunteers and then convinced the county and city to create a joint powers authority to oversee the Grand Avenue Project. We recruited a strong and committed developer, Related Companies. And through our negotiations with Related, we wanted them to have some skin in the game: they put down a $50 million non-refundable deposit.

It’s unreasonable to think that a public park could be built without taxpayer money. But that’s exactly what’s been done. Related’s deposit plus interest is what enabled Grand Park, the first step in the overall project, to be built. And the 14 million people of our region can enjoy the priceless pleasure of a stroll in the sun, and if they’re game, maybe even a skip through the fountain.

Friday
Jul202012

Be Artfully Unreasonable and Go Far

The past few years have not been kind to Yahoo.

The Internet company founded by Stanford graduate students was the one to beat in the late 1990s. But it went south in the dot-com bust and has struggled against Google and Facebook ever since.

All that could change with the announcement this week of one of the best-kept secrets in business.

Yahoo hired a new CEO: Marissa Mayer, one of the first employees of Google and its first female engineer. She managed its search engine before leading the development of signature products like Google News, Gmail, and Google Maps.

Mayer is only 37 years old. While that is not especially young for a CEO in the tech world, it is young for Yahoo. The company’s five previous CEOs and its latest interim CEO were all older than Mayer when they took the position, some by over a decade.

Yahoo followed one of my personal tenets in choosing Mayer, as I discuss in “The Art of Being Unreasonable”—bright and young often beats age and experience. I expect that Mayer will inject an energetic and fresh vision into the company, just as my successor at SunAmerica did when he took over. At the time, Jay Wintrob was just 40.

Critics have already noted that Mayer has not been a CEO before. I was a young CPA when I started a homebuilding company at age 23. I had never held a hammer, but I didn’t have to.  I hired people who were skilled at building homes. The skills that are required to lead a company go far beyond producing the product. An effective CEO needs to set the vision, energize the troops to deliver on that vision and generate Wall Street support for the company.

I’ve never met Mayer, but I congratulate her on her new position and offer this advice: be artfully unreasonable, and you’re sure to go far.

Friday
Jul132012

Municipal Bankruptcies and the Elephant in the Room

In business and in life, you can’t live today on tomorrow’s income. 

San Bernardino’s municipal bankruptcy, on the heels of others across California, will not be the last unless cities address the elephant in the room: the pension bubble.

For decades, local politicians agreed to fund generous pension benefits for public sector employees when they retired in exchange for smaller pay raises. It was attractive for the simple reason that the payouts would happen on someone else’s watch.

Some cities agreed to a retirement age as young as 50 years old. Others used formulas that allowed employees to earn more in retirement than they did when they were working. Across California, we’re seeing pension liabilities cripple a city’s finances. Now the chickens have come home to roost.

The next shoe to drop will be school districts, which are facing similar pension liabilities. That means that even less money will flow into our classrooms where our teachers and students need it most.  States across the country are facing similar fiscal challenges.

In “The Art of Being Unreasonable,” I write that in every deal or project you pursue, you have to have skin in the game. It gives your partners confidence in your commitment and it keeps you focused.

Cities need to make sure that public sector employees have more skin in the game—that they’re involved in their retirement planning, healthcare, and in preserving the longevity of the cities they serve so well in their working years.

They need to do three things:

  1. Raise the retirement age to at least 67 or ideally 70. I realize, though, that this can’t be done politically. (Now you know why I’m not a politician.)
  2. Move from defined benefit to defined contribution plans—essentially, a 401(k), like 85 percent of private sector employees. That encourages employees to be an active participant in their retirement planning and investing, and allows employers to accurately predict costs.
  3. Health benefits should include an employee co-pay for non-catastrophic medical treatment. If healthcare doesn’t cost a retiree anything, they just assume the insurance company will pay for their care.  You need a buyer and seller meeting in the marketplace to provide cost-effective, quality products and services. 

Businesses or households that live on credit eventually go bankrupt or out of business when the bills come due. Our cities, states and school districts can’t balance their budget on the backs of our children.

Thursday
Jun282012

Nurturing "Coopetition"

I’ve always believed that competition brings out the best in people and in organizations. I write in “The Art of Being Unreasonable” that this is especially true in higher education, where public and private universities compete for students, faculty and research funding.

Public charter schools are now providing long-overdue competition for traditional public schools—with the goal of not only giving parents a much-needed choice so they’re not forced to send their children to a failing school, but also by creating competition for those students, they encourage all public schools to do a better job educating their students. 

Last week, we announced that YES Prep Public Schools of Houston was the winner of the inaugural Broad Prize for Public Charter Schools.

When we started our education philanthropy in 1999, there were few charter schools and they were less accepted by the public. This year marks the 20th anniversary of the first charter school, and now charters operate in 40 states, number nearly 5,000, and enroll 1.4 million students.  

What is remarkable about YES Prep, which operates 10 middle and high schools serving almost all low-income and minority students, is that they have eliminated virtually all ethnic and income achievement gaps. And every one of their students is required to be accepted into college.

The YES Prep system of schools was started by Chris Barbic, a Teach For America alum who roomed with the founders of another top charter management organization, KIPP (Knowledge is Power Program), which started in Houston and expanded nationally.

Chris, who is now leading the turnaround school district in Tennessee, has long referred to their approach as “coopetition.” Each charter organization wanted to be the best in terms of student achievement, but they also wanted the other to succeed. YES Prep has made a practice of collaborating and sharing their successful practices with the Houston Independent School District, which won the inaugural Broad Prize for Urban Education in 2002 and is again a finalist for the award this year.

There are countless school systems across the country that could take a lesson from these schools in Houston. Coopetition isn’t about winners and losers. It’s about getting students across the finish line and declaring a collective victory.

Wednesday
Jun132012

High Rents Signal Signs of Life in the Housing Market

It has been five years since the housing bubble burst, and I’m afraid a full recovery remains several years away. Job growth is weak, money remains tight, and the world is still reeling from the 2008 financial crisis. I’m often asked about my views on the housing market, given my second career in homebuilding. I can tell you that there is one especially encouraging sign of life in the housing market: rents are going up.

Rising rents may not seem like a good thing to anyone who is a renter. But eventually, high rents will start to make mortgage payments look pretty attractive. Before the last bubble, and before Americans got into the game of flipping houses, the only way anyone bought a house was if mortgage payments were lower than the rent. When we started Kaufman and Broad, our business model was based on offering homes with mortgage payments that were less than what young families and first-time homebuyers were paying to rent a two-bedroom garden apartment. Home ownership meant building equity and belonging to a strong neighborhood. It sure beats paying increasing rents and watching your neighbors come and go.

In the middle of a recession and after one of the worst market downfalls in history, it’s understandable that consumers are jumpy about getting a mortgage. Much of the recent increase in housing sales is coming from all-cash buyers. But we can’t have a recovery without mortgages. A mortgage you can afford—one that doesn’t cut too much into your income—is still one of the best ways to leverage your money, as I discuss in “The Art of Being Unreasonable.” Smarter lending practices will make sure that consumers, banks and the country don’t overextend themselves. We can’t have a recovery without the mortgage market getting up and running again.

Wednesday
Jun062012

Happy Birthday to Me

Today is my 79th birthday. I can honestly say that I don’t feel my age, and I’m having more fun now than ever before. Age is a state of mind. I know a lot of old 30-year-olds and a lot of pretty young, energetic 90-year-olds.

I enjoy my work now more than ever, especially our philanthropic work to improve public education, improve the human condition through scientific and medical research and bring the arts to as many people as possible. I love taking on challenges I don’t always succeed at, like trying to bring a football team to Los Angeles, and some that I do succeed at, like building a museum for our family and foundation art collections. You can read more about my successes and failures in “The Art of Being Unreasonable.” I firmly believe in the expression, “He who works lives. He who retires dies.” My work is my life, and I love every minute of it.

Some of you might be wondering what I’m doing to celebrate my birthday. Although I’ve had some great birthday parties—usually to celebrate big milestone ages—Edye and I usually keep our celebrations simple and quiet, like we will today. She buys me a card or two or three (she has a hard time choosing) and when I wake up, the cards are sitting on the nightstand.

But just wait until next year when I turn 80. Party time!

Wednesday
May302012

Downtown Los Angeles: There’s a “There” There

Last week I was at the downtown Central Library to talk about my book with the Los Angeles Times’ Jim Newton. Talking with Jim, and seeing that landmark 1920s building, is always a treat. But the real pleasure for me is going to downtown Los Angeles.

For a good many years, there was simply no there there. When I first flew over Los Angeles in the late 1950s, I couldn’t figure it out. Dorothy Parker was quoted as saying it was 72 suburbs in search of a city. On that first flight into LAX, someone on the plane said, “Look! It’s one big Queens.”

But for the last 10 years, whenever I drive downtown, there is something new happening. These days, The Broad is being built, and you can watch online here. (If  I'd had a webcam when I started out in homebuilding, I could have saved a lot of trips to construction sites.) A new civic park is set to open soon, funded by the $50 million down payment I secured from Grand Avenue developers Related Companies.

But last week was particularly big for downtown. The L.A. Live complex hosted playoff games for the Lakers, Clippers, and Kings and the Amgen Tour of California for cyclists. Hundreds of thousands of people came downtown and found plenty to do.

Then, it was announced that the Wilshire Grand Hotel would be demolished and replaced with a 70-story luxury hotel to be completed in 2017. The new development will transform the downtown skyline, which always provokes some controversy. But L.A. has come to love landmarks and great architecture like the performing arts high school by Wolf Prix, Jose Rafael Moneo’s cathedral, Frank Gehry's Disney Hall, our museum by Diller Scofidio + Renfro, MOCA by Arata Isozaki—all within three blocks on Grand Avenue.

The new Wilshire Grand will be a great neighbor for The Broad set to open in early 2014, the civic park that will open this summer, and the forthcoming residential towers planned by Related, likely to break ground in the next two to three years. And of course, the best neighbors for all that development will be the new residents I predict downtown is likely to attract over the next five to 10 years.

Wednesday
May162012

Damage Control

I once tried to hire Jamie Dimon.

He was—and still is—one of the brightest stars in banking. At the time I was pursuing Dimon to succeed me as CEO of SunAmerica, he was the understudy to Sandy Weil at Citi. Dimon had high ambitions, but I couldn't convince him to jump ship to head our retirement savings company. Years later, I made the right decision to appoint Jay Wintrob as my successor.

Dimon has been in the news a lot this week because of J.P. Morgan Chase's $2 billion trading loss that resulted from using credit derivatives to hedge the company's risk. Dimon is known as a skilled risk manager, meaning he keeps an eye on the downside at all times. The loss is big, and will have consequences for the company. I write in my book, “The Art of Being Unreasonable,” that risk is necessary in business, but you should never bet the farm. While J.P. Morgan’s loss is significant, it’s a fraction of the company’s earnings. They didn’t bet the farm, or even half the farm.

If a great bank with great management can lose $2 billion, despite all the regulation enacted since 2008, mistakes like this could still happen anywhere. And that would not be good. I’m generally not a proponent of increased government regulation, but I predict the federal government will likely step in to do some damage control by limiting how much risk banks can take on.

Mistakes happen in business. What counts, though, is how executives react. Dimon has done exactly the right thing. He quickly took to the airwaves and admitted the company's mistake, accepted responsibility and took swift action. Those are the keys to damage control.

Wednesday
May092012

Make Life Better for People and Ask: Why Not?

So what drives an unreasonable man to do unreasonable things?

I’ve had four distinct careers—accounting, homebuilding, retirement savings and philanthropy—but across all of them, I’ve been driven by one goal: to make life better for people. I wanted to build affordable homes for families, create a secure future for retirees, generate high-performing returns for shareholders and employees, boost the education of American children, improve the health of people around the globe, and inspire the public through art.

As you’ll read in my new book, “The Art of Being Unreasonable,” I never thought any of those pursuits was unreasonable—even though I was told countless times that I couldn’t do what I was attempting.

I’m giving the commencement address this Saturday to graduates of the Otis College of Art and Design. My advice to them is to ignore conventional wisdom and close their ears to the negative whispers of the naysayers.

It’s hard to hold fast to what you believe can be done—especially in the face of people telling you you’re crazy. I remember how eager I was to graduate from college—I was so impatient that I changed my major from pre-law to accounting so I could graduate in three and a half years and then get to work.

Starting this month, there will be thousands of graduates facing a lifetime of possibilities. My advice to you is when someone tells you something can’t be done, ask: Why not? Continually ask questions, pursue your passion, do your research so you’re armed with facts and knowledge.

When I started my first Fortune 500 company, I was told it was crazy that a 23-year-old kid could build houses. But we did it.  When we acquired a sleepy insurance company and wanted to transform it into a retirement savings company, I was told that was a crazy idea. But we did it. Time and time again, I was told something couldn’t be done. And I proved the critics wrong.

The world is counting on you to do it, too.

Tuesday
May012012

The Paperweight

Like a lot of people with a lot to do, my desk is never clean. I keep everything where I can see it, in piles that could bury me if a strong wind blew by. Through the jumble, there’s one thing I keep my eye on: a paperweight given to me by my wife Edye back in 1954, inscribed with a quote from George Bernard Shaw. It reads: 

“The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”

I owe much of my success over the last sixty years in the worlds of homebuilding, financial services, and philanthropy to the philosophy contained in that quote. It inspired me to write my book, “The Art of Being Unreasonable,” which will be released on May 8. I hope you’ll read it.

Not a day goes by when I don’t think and act unreasonably. I approach every encounter—news of the day, meetings with colleagues, events around the world—through the lens of unconventional thinking, relentless curiosity, and unwavering focus.

Writing a book was a new experience for me—in much the same way as writing this blog will be. I’m often asked for my advice and perspective, and I hope to share that with you at this site. In short weekly posts, I’ll offer my take on the market, politics, current events, Los Angeles happenings, contemporary art, philanthropy, and my day-to-day life—events I attend, people I meet, and how I spend my (rare) downtime. By sharing this with you, I hope to show you what it means to live each day unreasonably, how you can apply the approach to your own life, and why the unreasonable way comes with great rewards.