In 1971, when the Post had gone public, Graham had begun to shift her attention toward the bottom line. But she had left financial matters to her board chairman and adviser, the lawyer Fritz Beebe. As Graham put it, “I sort of thought figures were for men.” Then, in the spring of 1973, Beebe died. Graham now became the first woman chairman of a Fortune 500 company. She gamely declared to security analysts that she hoped to win a figurative Pulitzer Prize in management.8 But the world of Wall Street terrified her. As it happened, this was precisely when Buffett began to buy her stock.
Graham had met Buffett once, through Charlie Peters of the Washington Monthly. Still, she had no idea who Buffett was or what he was up to. Within the Post Co., the alarm was general. Kay’s son Donald, then working his way up the ranks, feared that the company was being pursued by some “super-right-wing type from Nebraska.”9 Kay herself was petrified. She made inquiries about Buffett with publisher friends—“stalked him like a dog circling a snake,” according to Bradlee. This was unnecessary, because the Post had two classes of stock. Only the Class B stock, which had very limited voting rights, traded publicly. Control of the company rested in the A shares, which were owned by the Graham family. But Kay was new to the game. Peter Derow, senior vice president at the Post’s Newsweek division, kept telling her, “Don’t worry about it. You’ve got the A shares.” But Graham was scared stiff. She’d say, “What is he up to? Someone is making a run for us!”
Buffett suspected that as a 10 percent shareholder he might ruffle some feathers. He wrote her a letter—“Dear Mrs. Graham …”—in which he recalled his escapades as a Post paperboy and disclaimed any hostile intent.10 She took this to a couple of streetwise friends, André Meyer of Lazard Frères and Robert Abboud, a Chicago banker. Each warned that Buffett’s charm could be a ruse, and recommended that she not go near him.
If anything, Graham relied too heavily on advisers. But in this case, she went with her instincts. She wrote to Buffett, suggesting that they get together, and when Graham was visiting the Los Angeles Times, Buffett drove up from his home in Laguna Beach. They spent what Graham recalled as a perfectly pleasant hour together. Buffett, sensing that she was apprehensive, offered to stop accumulating stock.11 Though still uncertain about her suitor, Graham invited him to see the paper when he was in the East.
Warren and Susie checked into Washington’s Madison Hotel, a block from the Post, during a tense time. The pressmen were in a slowdown, and cops and union men were squaring off in the streets. Buffett managed to borrow a black tie and scooted his wife to dinner chez Graham, where he sat between Barbara Bush and Jane Muskie. Then he waited for Graham to make a move.
But none came. Finally, Tom Murphy, the Capital Cities chairman and Buffett’s pal, had lunch with Graham and suggested that she ought to invite Buffett onto her board. When Graham visited Buffett at Laguna, he was still trying to please. He bought an umbrella and beach chair—which got a big rise out of Buffett’s family, who had never seen him near the water. Graham inched closer. She said, “Someday, I’d like you to be on the board.” Buffett said, “Well, what are you waiting for?” When Buffett drove her back to Los Angeles, she said, “If you want to tell me something, do so, but do it gently. If people bark at me, I’m apt to curl up.” Buffett did not need to be told.
Buffett became a director in the fall of 1974. The other directors—a clubby bunch including Graham relatives, Post executives, and Kay’s friends—were wary of him. Quoting Derow, the Newsweek executive:
Warren was an outsider from Omaha. He ponies up 10 percent of the company. Our reaction was, “How come we never heard of him?” It was a little scary. He was the first guy at the table who had bought his own seat.
Buffett, of course, knew this. He would tell the executives why he liked the Post Co. as an investment and how, in a personal sense, the paper was a homecoming for him. Like the new guy in the club, all he talked about was how thrilled he was to be there.
He signed his proxy over to Don Graham (letting Kay’s son and heir cast Berkshire’s votes)—an unusual show of faith in management. He also declared in writing that he expected Berkshire to keep its Post stock “permanently”—another of those phrases that would have mystified the modern portfolio manager.12 In every way, Buffett intimated, as he had with Betty Peters, that he considered himself not just an investor but a partner.
And Buffett began to come to Washington often. The night before directors’ meetings he would put up at Graham’s stately Georgetown home. Bradlee, not exactly a rube, said, “We were stage-struck. We didn’t know anybody who had that kind of dough.”
He seemed to be in awe of us, glamorized by us. And we were awed by him. For years all he wore was a blue suede jacket. Everybody used to shit on it. I think he wore it for that reason. At board meetings editors would come by and chat about stories. He really got off on that. He loved being involved. He liked the informal relationship that Kay and I had. Once, we were playing tennis and I drove her back into a fence. Warren said, “I have to admire anyone who drives his boss into a fence.” He had a marvelous, contagious enthusiasm.
Post executives were used to thinking of themselves as journalists-doing the Lord’s work, so to speak. Buffett began to sprinkle them with droplets of finance. One time, he popped into Derow’s office and asked about Newsweek. Buffett gradually got around to explaining what he saw in the Newsweek franchise—and used the analogy of a hamburger chain, to keep it simple.
“By the time I finished, I understood it better,” Derow said. “He was like a laser beam. He got you to focus. But he didn’t make you feel as if you were stupid.”
In particular, Buffett became a personal tutor to Graham. When he came to Washington, he would bring a stack of annual reports and take her through them, line by line. One day, Buffett sent her the back cover of a Walt Disney report, depicting a child asleep in a stroller. Buffett’s note: “This is you after the 20th annual report.” Some of her colleagues thought that Buffett was manipulating her, but Graham thought he made sense. He didn’t tell her what to do. He advised, he counseled. The secret to his seduction was his patience. It seemed to exert a magnetic pull on her. And the more she got to know him, the more she liked his ideas.
Before long, Buffett made a major suggestion—that the Post buy back a big portion of its own stock. Graham thought this was crazy. If a company returned its capital, how could it grow? Buffett’s point was that overall growth didn’t matter—merely growth per share. It was like shrinking the number of slices in a pizza. If the shares could be retired cheaply—and Post stock was still quite cheap—there would be more cheese on every slice. Buffett took her through the math, penciling it out in the book-lined study in Georgetown.
When Graham was sold on the idea, she talked it up to other executives at the Post. They noticed that her vocabulary was becoming spiced with financial lingo. She would quote Buffett openly and, in the view of some, ad nauseam. She had an irritating way of responding to a suggestion from the staff by saying, “That’s interesting—let’s ask Warren.”
A year after Buffett joined the board, Graham, who was eager to reduce the chronic overstaffing in the Post pressroom and to recapture control of it from the militant pressmen’s union, decided to take a strike at the newspaper.13 Some of the pressmen trashed the plant, and the strike turned bitter. (An infamous placard declared of Kay’s late husband: “Phil Shot the Wrong Graham.”) The Post put out a paper with the help of scabs; however, the second-place Washington Star began to steal its advertisers.
Graham feared that the Post would win the strike and lose the war. “What I needed,” she said, “was someone I could rely on totally.” That would be Buffett. He promised that he would monitor the business and warn her if he thought the strike was permanently jeopardizing the Post’s franchise—which was the raison d’être for his investment. He never did. After four months, the union was crushed, and the Post resumed its lead.
Later, Time Inc., which purchased the failin
g Star, asked the Post to consider a joint operating agreement, which would reduce costs and have the civic virtue of keeping Washington a two-paper town.* Under the formula proposed by Time, each company would take a designated share of the papers’ combined profits.
Buffett strongly argued against it. In his view, the Post, which had 66 percent of the circulation in Washington, was on the verge of seizing the market, and had no need to make nice with number two. Largely because of Buffett,14 Graham made a much tougher counteroffer, which the Star rejected. Soon after, the Star went out of business-creating a windfall for the Post.
Graham estimated that she talked to Buffett “maybe every other day or so, several times a week.”15 When Graham had to give a speech, which she found frightening,16 she would call Omaha, and Buffett would deliver a perfectly metered response, off-the-cuff. She actually taped their conversations.
He speaks in finished paragraphs. I’d say, “What?—Could you say that again?” He can’t do it. It comes so fast he can’t retrace it. It takes your breath away.
Don Danly, Buffett’s high school pinball chum, was visiting Buffett in Omaha once when Graham called. She was worried about what USA Today could do to the Post, and he was consoling her. To Danly’s amazement, she kept him on the phone for half an hour.
After Buffett had been on the board awhile, he began to push her to be more self-reliant. One time, she asked him to come to Washington to negotiate a swap of the Post’s television station in Washington, plus some cash, for a station in Detroit.
“No,” Buffett told her. “You do it.”
“Okay, tell me how much to give them,” Graham said.
“No—you figure it out. You can do it.”
But Buffett’s influence was felt in virtually every major decision. In particular, he restrained Graham from jumping into the red-hot (and expensive) bidding wars for media properties. Graham, as a relative newcomer, was daunted by such media high-fliers as Tom Murphy, chairman of the quickly growing Capital Cities, and by Times Mirror, which seemed to be buying everything in sight. And she was sorely tempted to follow suit.17 Buffett kept reminding her that it was okay not to spend the money.
When Barry Bingham, Sr., the Kentucky publisher, offered to sell the Louisville Courier-Journal and Times to the Post if Graham would match a bid by Gannett, she naturally put in a call to Buffett. He observed that the price was awfully high, but was careful not to give explicit advice.18 In a subtle sense, he was more effective that way. The schoolmaster had trusted her; now the earnest pupil did not want to disappoint. “You have to know how eager Kay was,” Don Graham said of the Courier-Journal. But Kay let it pass.
Another time, David Strassler, the investor who had once tried to buy Dempster Mill from Buffett, was pitching a cable company to the Post. He had dinner with Buffett and Graham in New York, and was impressed at how easily they worked together. But Strassler sensed that his mission was doomed.
“Kay had the hots for cable,” he recalled. “She was sophisticated. She was thinking in strategic terms. But I said to myself, ‘He won’t let her pay these kind of numbers.’ ”
It should not be surprising that Graham began to rely on Buffett as more than just a business adviser. As a rich widow, she was mistrustful of potential suitors and somewhat cloistered. Her brittleness kept people at arm’s length, as did her stiff, Brahmin enunciation. Charlie Peters, of the Washington Monthly, said, “I think Kay desperately needed a friend.” She found Buffett unthreatening, and the two became intimate. Graham invited Buffett to her farm in Virginia and to her home on Martha’s Vineyard. Buffett countered with invitations to Laguna Beach, and Graham began to attend meetings of Buffett’s Ben Graham investors group.
The two of them had a certain playfulness, arising in part from their unlike backgrounds and levels of refinement. When Buffett talked Graham into visiting Omaha, he knew that she hadn’t the faintest idea of where it was, and decided to poke some fun at her. When they got on the plane he asked her to draw a map of the United States, and to mark the location of Omaha. The map was so awful that he grabbed for it, intending to stash it as a keepsake, but Graham nimbly tore it to shreds.
Another time, when they landed at La Guardia, Graham was in a hurry to make a telephone call and asked if he had a dime. Buffett fished a quarter out of his pocket. Not wanting to waste the fifteen cents, he started outside to change it, like any other multimillionaire from Nebraska. Graham hollered, “Warren, give me the quarter!”
In Washington, which Buffett usually visited without his wife, he squired Graham around town. “Kay widened his circle enormously,” according to the writer Geoffrey Cowan. Another friend said that “the Washington Post really changed his life. It changed whom he was exposed to.” Suddenly, Warren Buffett of Omaha was mixing with the likes of Henry Kissinger. Liz Smith, the gossip columnist, reported that Buffett was the rage since emerging as “a frequent guest and adviser to the powerful Katharine Graham.”19 Smith added: “Washington society is agog because Mr. B. drinks Pepsi-Cola with his meals, no matter how chic the gathering.” Buffett did not like splashy affairs, but he liked meeting bigwigs in the controlled setting of Graham’s home.20
At one VIP dinner, a birthday party for Graham, Malcolm Forbes, the publisher-cum-cultural connoisseur, brought a fancy wine that had been bottled the year she was born, and that he intimated had cost him plenty.21 When the waiter got to Buffett, the Pepsi drinker stopped him. “No thanks,” he said, putting a hand over his glass. “I’ll take the cash.”
Graham told her cook to make hamburgers when Buffett was in town, and stocked her Manhattan apartment with Buffett’s favorites-greasy peanuts and strawberry ice cream. “When he arrived,” she said with reflexive snobbery, “it was only cheeseburgers and fried—what do you call them?—french fries, all of it doused with salt.” Succumbing to the urge to refine, she got to him to try haricots verts and spruced up his wardrobe.
Buffett, on the other hand, took Graham to such cultural monuments as the Hathaway textile mill in New Bedford. “He wanted me to see it,” Graham noted. She considered him her “closest friend” and relied on him for personal as well as business advice. Buffett also became a sort of uncle to Graham’s kids. He was in Washington at least once a month and kept a change of clothes in the Graham guest room. Even Buffett’s children were unsure what to make of it.
During an interview, Graham referred without prompting to the persistent rumors of a liaison. “I was still young enough”—fifty-seven when Buffett joined the board—“that it raised eyebrows.” Tom Murphy called on Buffett, too, she said defensively. “If I used him it was sort of frowned on.”
Buffett had an unusual number of woman friends—Fortune writer Carol Loomis, Ruth Muchemore, Barbara Morrow. Morrow thought him a “feminist,” in the sense of treating women as people. “There is a sensitivity toward women,” she said. Buffett had an aspect of the now so unfashionable chivalry. He detested coarseness and off-color jokes, though he did go in for a tactful variety of bedroom humor.†
Susie was very relaxed about Warren’s having women friends. When someone called her attention to all the time that Warren was spending in Washington, Susie replied—Susie could say such things without blushing—that she wasn’t interested in the form of things, but in the purity of your heart. (When the Buffetts were in Washington, both of them stayed at Graham’s.)
But, by the mid-seventies, the Buffetts’ lives had become somewhat disjointed. Susie had done so much catering to Warren; now, she told a friend, she wanted to arrange her own calendar.22 She was active in a campaign to save a local high school, which was losing students due to racial problems. She also began to travel a bit by herself. She certainly had no interest in Warren’s work. Peter, who was the last child at home, noticed that the household was getting pretty loose. Dad was often in Washington; Mom often seemed to be out. Peter was fixing a lot of his own dinners.
Buffett sensed that his wife needed a Washington Post in her life. At one point,
referring to their nearly grown kids, he said, “Susie, you’re like somebody who has lost his job after twenty-three years. Now what are you going to do?”23
Susie’s dream was to be a chanteuse. This was no surprise to the family, given her habit of traipsing around in song while Warren was working. Now that she had some free time, she worked out tunes with a local band, the Bob Edson Trio, and performed at some private parties. The prospect of going public unnerved her, but Warren pushed her, telling her that if she chickened out she’d regret it later.24 In 1975, with the help of a friend, Eunie Denenberg, Susie overcame her fright and appeared for a run at the Steam Shed, a nightclub on the outskirts of Omaha.
After that, she took her lounge act to the French Café, a restaurant in Omaha’s artsy cobblestone market district. The café was owned by a pair of well-traveled Omahans, Michael Harrison, a dancer, and Anthony Abbott, and was something of a cultural outpost. Susie had once used the café to host a benefit for Planned Parenthood (Charlton Heston turned up and ate nothing but caviar at $175 a pound). Another time, she staged a benefit for African relief—dressed, like her guests, in a billowing gingham dress, a bandanna, and bare feet.25 In Omaha, it was considered odd, to say the least, for a fortyish housewife to take to the stage. But the town had known Warren’s wife to be a free spirit before such things were popular.
At the French Café, Susie performed in a darkened stone cellar, looking slinky and sexy and glittering in sequins. She was prettier than when she had gotten married—high cheekbones, a great bob of brown hair, and big searching eyes. Her speaking voice was a bit thin, but when she sang it had a throaty character. She did stylized jazz and popular tunes, such as the melancholy Stephen Sondheim number “Send in the Clowns.” Her first run lasted six weeks. She drew good crowds, and the audiences were responsive. Kent Bellows, an Omaha artist, said, “Susie was a cabaret singer—all passion and nuance. I remember seeing Warren there one night. Seeing the expression on his face. He was digging it.”
Buffett Page 23