What was Charlie Munger's assessment of 'corporate litigation culture'?

Charlie Munger's View on "Corporate Litigation Culture"

Hey, that's an interesting question! I’ve always enjoyed studying the investment philosophies of Munger and Buffett—their insights are incredibly practical. Charlie Munger, Vice Chairman of Berkshire Hathaway and Warren Buffett’s legendary partner, isn’t one for flashy talk, but his views always hit the nail on the head. Let’s dive into his take on "corporate litigation culture." I’ll keep it straightforward—no jargon, just plain talk.

What Is "Corporate Litigation Culture"?

First, a quick definition. It refers to the business environment, especially in places like the U.S., where companies or individuals rush to sue at the drop of a hat. For example, you buy a faulty product and sue the company for compensation, or businesses drag each other to court over minor disputes. This culture thrives in the U.S. because the legal system allows people to cash in through lawsuits—sometimes like buying a lottery ticket: spend a little to sue, and if you win, you hit the jackpot.

Munger’s Take: He Hates It!

Munger is a fierce critic of this culture. He sees it as a scourge that makes society and business inefficient and wasteful. Why? Let me break it down point by point:

• Unnecessary Costs: Munger argues that America’s lenient litigation system forces companies to waste billions on lawyer fees and settlements. That money could’ve been invested in R&D, new products, or shareholder dividends—instead, it vanishes into a "litigation black hole." He calls this a "hidden tax" that even well-run companies can’t escape.

• Encourages Unethical Behavior: To Munger, this culture incentivizes opportunists who stir up disputes for profit. Think "ambulance-chasing lawyers" or "professional plaintiffs"—they treat lawsuits as a business, not a solution. This clashes with Munger’s belief that business should be built on trust and long-term partnerships, not constant legal battles.

• Harms Investment Decisions: As an investor, Munger avoids companies drowning in lawsuits. He and Buffett prefer firms with strong "moats"—those focused on their core business, not petty disputes. Munger believes excessive litigation slows the economy because energy spent in courtrooms could’ve fueled innovation and growth.

I recall Munger saying something like this at a shareholder meeting (paraphrased): America’s tort system is a "crazy casino"—it rewards greed and speculation over rational problem-solving. This echoes his investing philosophy: pursue simple, reliable, ethical businesses, not troublemakers.

Why Does Munger Think This Way? It’s Personal.

Munger isn’t just theorizing. As a former lawyer and corporate leader, he’s seen lawsuits destroy good businesses firsthand. He champions "inversion": instead of following trends, identify what’s broken and avoid it. To him, corporate litigation culture is clearly "broken"—and society pays the price.

If you’re an investor or just business-curious, Munger’s insight is practical: when evaluating a company, don’t just check financials—scan for lawsuits too. They’re often red flags.

In short, Munger’s stance is clear: this culture is toxic and best avoided. For deeper dives, I recommend his book Poor Charlie’s Almanack—his speeches read like a wise old man chatting with you. Got more questions? Ask away anytime!