The Snowball

by Alice Schroeder

  While Rood was interviewing Wegner, Williams was trying to nail the archbishop. They had tried to schedule his interview simultaneously with Wegner’s but were unable to get both on the same day. Sheehan—possibly cued in at that point—confirmed statements Wegner had made but declined to add anything more. With confirmation in hand, however, the team, accompanied by photographers, showed up at the fund-raising office, which was a separate operation located in an Omaha building marked “Wells Fargo” rather than in Boys Town. They walked in the door uninvited and snapped photos of long rows of women typing solicitation letters and thank-you notes to donors. They also managed to talk to some of the fund-raisers, who said, “Please don’t mention the fund-raising operation in your article. It’s easy for the public to get the wrong idea. People will think we’re rich,” and “We want people to think the boys send out the letters.”33

  Meanwhile, the other reporters descended on the board of directors. It was made up mostly of people with little incentive to tip over the sacred cow. They included the banker who ran the Boys Town investment portfolio, the son of the architect who built the place and who ran the firm that stood in line to do any current building work, the retailer who supplied all the boys’ clothing, and the lawyer who handled Boys Town’s legal affairs. Apart from the financial interests many of them had in it, all the directors enjoyed the prestige of sitting on the board of Nebraska’s most respected institution while doing very little work on its behalf. Wegner considered them a nuisance and had told Rood, “They’ve never been of much help,” and “They don’t know anything about social welfare…they don’t know anything about education.”34 According to Williams, whatever they may have actually known, the board’s reactions to the reporters’ questions ranged from “dismay to innocence or downright ignorance.”35 Another Boys Town official would later put it this way with hindsight: “The board has not been all that good in serving Father Wegner…. The board could have advised him about slowing down on the fund-raising.”36

  And that was indeed the irony. It was Boys Town’s background of Depression-era poverty that had probably led Wegner to accumulate money as if the “wolf was at the door,” as Randy Brown put it.37 This same background had very likely lulled the board into overseeing Wegner’s activities without questioning whether they made sense. But Warren Buffett, a product of the very same environment, who had the very same impulses, was going to bust them for it. The crime, in his eyes, was not just accumulating the money. It was piling it up mindlessly without a plan to use it. Boys Town didn’t even have a budget.38 The sin to Buffett was an abdication of fiduciary responsibility, the failure to manage money responsibly on others’ behalf.

  The reporters worked feverishly on the story all weekend, Buffett and Lipsey reading copy as it progressed. “We were this little nothing weekly paper,” says Buffett, but they intended to meet the journalistic standard of a top national daily. Finally they all trooped over to Paul Williams’s living room, spread everything out on the floor, and tried to figure out headlines and captions. The story’s banner lead asked: “Boys Town: America’s Wealthiest City?” An eight-page special section with sidebars, it led off with a kicker in the form of a Bible verse, Luke 16:2—“Give an account of thy stewardship.”

  On the Wednesday afternoon before publication, Williams sent the story to the Associated Press, UPI, the Omaha World-Herald, and television stations. The next day, March 30, 1972, would be recalled by Buffett as one of the greatest of his life. The story not only fulfilled his wish to run a business as a church, but the section opened with a Bible-quoting headline about a favorite concept, stewardship—the lens through which he now viewed duty, moral obligation, and the responsibility that went along with a position of trust. By the end of that week, the wire services had broken the Boys Town story across the country and exposed a national scandal.39 On Saturday, the Boys Town board held an emergency meeting and decided to cancel all fund-raising, including the spring mailing for which envelopes had already been partly stuffed.40 In a new era of investigative reporting, the drama was of such magnitude that it gave an immediate push to reforms in the way nonprofits were governed all over the United States. The story was picked up by Time, Newsweek, Editor & Publisher, and the LA Times, among others.41 An informal survey of twenty-six boys’ homes showed that immediately after the exposé, more than a third of them said that their fund-raising efforts were affected.42

  But Monsignor Francis Schmitt, an understudy of Wegner’s who had begun assuming some of his duties, quickly circulated a letter to Boys Town supporters calling the Sun “a kind of Shopper’s Guide.” It said, “There can only have been yellow journalism, prejudice, jealousy, and, for all I know, bigotry involved in the story,” suggesting that the motive was anti-Catholic bias. In fact, the reporters had bent over backward to avoid such a bias. Moreover, Schmitt said, the story was full of “snide innuendos” that cut into his vitals all “because of a cheap editor of a cheap paper, whose owner is himself a millionaire many times over.”43 Wegner also remained unrepentant. “Boys Town,” he said, “will still be here when that yellow rag, what’s it called”—the Sun—“is forgotten.”44 To people who wrote asking about the Boys Town story, Wegner was sending out a form letter saying the Sun story was spreading “sensational views of local issues,” and that while at the present time, Boys Town was not seeking donations, as “our properties and facilities have multiplied in value…SO HAVE OUR COSTS.”45 The letter was printed on the usual stationery, with “your contribution is an allowable income tax deduction” and “we employ no solicitors or fund-raising organization—we pay no commissions” at the bottom.

  A couple of months after the Sun’s coverage appeared, the Omaha Press Club put on its annual show. A team of singers got up and entertained the Who’s Who of Omaha (and more than a few from out of town). Their song satirized Monsignor Wegner and Boys Town:

  We started up a home for boys,

  ’Bout fifty years ago;

  We asked for contributions

  And the dough began to flow.

  We asked for all the charity

  The traffic would allow;

  Our homeless waifs were finally

  Quite liberally endowed.

  But then we had a tragedy,

  Our bankroll was exposed,

  And thanks to Warren Buffett

  All those pocketbooks were closed.

  (chorus)

  Who threw the monkey wrench

  In Father Wegner’s poor box?

  Now we’re as popular

  As if we had the smallpox.

  It’s a dirty trick, you know,

  Why did Warren Buffett throw

  The monkey wrench in Father Wegner’s poor box?

  Some folks came out from Hollywood,

  To make a movie show;

  Mickey Rooney showed the people

  Where their cash should go.

  Spencer Tracy played his part

  With Roman piety;

  We made enough off popcorn sales

  To buy AT&T.

  We passed the tin cup all around

  To land on Easy Street;

  Then Warren Buffett came along

  And read our balance sheet.

  We built palatial cottages,

  To give our boys some class;

  Instead of fish on Friday

  We had pheasant under glass.

  We talk a lot of poor mouth

  But we’re never in the red;

  It figures out to something

  Like 200 grand a head.

  Buffett blew the whistle

  On a spiteful, jealous whim;

  He must have figured we were getting

  Just as rich as him!46

  Buffett had never had so much fun reading a tax return, and wanted to keep the momentum going to make sure that, contrary to the monsignor’s prediction, the Sun would not be forgotten. The thought of a Pulitzer, the grandest prize in journalism, “started my adrenaline flowing,”
he said.47 He got Paul Williams working on the paper’s submission for the prize. Williams prepared a detailed outline for Buffett, who had some strategic thoughts of his own, drawn from a long history with the newspaper business. “In a country where economics inevitably lead to one-daily towns,” Buffett wrote, the Sun’s submission should stress “the necessity for another printing press.” Another paper, even a weekly suburban, adds “value in terms of worrying Goliaths”—whereas the dominant paper may fear to do so, because it “may look silly.”48

  Mick Rood wrote a follow-up piece about Boys Town—a good story that was also meant to keep worrying the Goliath—that drew on some racially bigoted comments Father Wegner had made in his interview, as well as certain disclosures he had made about the boys growing marijuana at Boys Town down by the lake. Paul Williams spiked it, saying the Sun had to take the high road, in part not to jeopardize future stories and in part to avoid looking anti-Catholic. Also, at this time the Pulitzer was pending. “Too bad,” wrote Rood in a note to himself.49

  The Sun team knew it had strong competition for the Pulitzer. It would be up against the series of articles penned by Washington Post investigative journalists Carl Bernstein and Bob Woodward, who had followed what appeared to be a minor burglary inside the Watergate offices of the Democratic National Committee during the 1972 Nixon-McGovern election campaign, and uncovered what turned out to be an enormous political spying and sabotage operation. But the Sun would fare very well in the prizes awarded for 1972 journalism.

  In March 1973, Sigma Delta Chi, the national journalism society, gave the Sun its highest award for public service; the Washington Post won for investigative reporting. During the cocktail hour before the awards ceremony, as Stan and Jeannie Lipsey milled among the guests, waiting to catch a glimpse of Woodward and Bernstein, Jeannie nudged her publisher husband in the ribs and said, “I’ll make you a bet. I’ll bet you a hundred dollars that you’ll win the Pulitzer.” A few weeks later came the phone call. The Sun had won a Pulitzer for local investigative specialized reporting, sending the newsroom into a jubilation of cheers and applause.50 This time it had swapped awards with the Washington Post, which won the Pulitzer for public service. Susie Buffett threw a party to celebrate, fixing an oversize pretzel that spelled out “Sun Pulitzer” to the paneling in the family room. In part they were also celebrating some tangible results. Boys Town had started throwing money at projects and quickly announced a center for the study and treatment of children’s hearing and speech defects. It was something, and it would do some good. Boys Town from now on would have a budget and would disclose its financial status publicly.

  Instead of the annual Christmas fund-raising letter that year, there was only a Christmas card expressing thanks, as well as a letter from Archbishop Sheehan, announcing with “deep regret” that Monsignor Wegner would retire “due to his failing health.” While he was genuinely frail and ill, some cynic at the Sun circled this before filing it and added, “due to something he read.”51

  The following Easter, 1974, Jet Jack Ringwalt sent Warren a copy of the letter he had received from Father (no longer Monsignor) Wegner. Instead of whining that there would be no joyous Christmas for the homeless, abandoned boys, the letter talked at length of the costly new projects that Boys Town had just built and was going to build and the experts who had been hired “to assist us in planning for our future.”52 While down from previous highs, the contributions that rolled in after the letter was sent came to $3.6 million, never mind the scandal.

  Thus, the story ended as such things usually do: a mixed triumph with a certain amount of ass-covering and reforms that came about because of public embarrassment rather than an institutional change of heart. While Boys Town eventually turned over its board of trustees and management, it did not happen easily or overnight, and the conflicts of interest on the board also did not disappear, at least not immediately.

  And even the Sun’s glory proved short-lived. It was failing financially, and its muckraking editor, Paul Williams, retired not long after the Pulitzer. One by one the investigative reporters dispersed to other papers and the wire services. Unless Buffett was willing to run it as a money-losing hobby, the economics of the Sun couldn’t support a future like its past. And the Washington Monthly had already proven that—even for great journalism—Buffett would not do that. In a sense, the Sun was one of his cigar butts, from which he had been able to enjoy one huge personal puff.

  In another sense, the temporary boost of fame he had gotten from the Sun was a sidebar compared to something else. Buffett had recently exploded in investors’ minds for a different reason. Under the pen name Adam Smith, a writer named George Goodman had published Supermoney, a fire-and-brimstone critique of the 1960s stock-market bubble, which sold more than a million copies.53 It demonized the fund managers who had ascended to the stratosphere almost overnight and then crashed, in a parabola as dramatic as if their engines had suddenly run out of rocket fuel. They were featured as devil-horned, pitchfork-bearing tempters of the ordinary Joe Investor. But when it came to Ben Graham and his protégé Buffett, Goodman knew he had met a couple of very different characters, and he devoted an entire chapter to the two of them, in which he captured them brilliantly.

  Goodman respected the Latin-and French-spouting Graham and had been highly entertained by him, but when Graham was quoted in Supermoney, he sounded painfully affected, speaking in a style that bordered on self-satire. Buffett, however, appeared as a blue-ribbon, All-American, Pepsi-quaffing, investing fundamentalist, one who plied his trade in glorious solitude, far from the Lucifers of Wall Street. Presented alongside Graham this way, Buffett came across like a two-inch-thick T-bone next to a dab of goose liver pâté on a plate. Everyone went for the steak.

  One hundred percent of the book’s reviewers mentioned Buffett. John Brooks, dean of the Wall Street writers, described him as a “Puritan in Babylon” among the “greedy, sideburned young portfolio wizards.”54 Overnight, he was a star.

  Even in Omaha, Supermoney created a minor sensation. Buffett had been crowned as the king of investors in a best-selling book. After fifteen years, the jury had come in. He was now “the Warren Buffett.”

  36

  Two Drowned Rats

  Omaha and Washington, D.C. • 1971

  Buffett had craved a niche in the publishing big leagues for quite some time. Since newspapers, which were mostly family-owned businesses, had recently gone through a spasm of selling themselves and now looked cheap, he and Charlie Munger had worked ceaselessly to buy one. They had tried, unsuccessfully, to buy the Cincinnati Enquirer from Scripps Howard,1 and Buffett had tried to buy another Scripps company, the New Mexico State Tribune Company, which published the Albuquerque Tribune,2 for Blue Chip, but that bid failed too.

  In 1971, Charles Peters, publisher of the Washington Monthly, had gotten a call from Buffett, asking him to introduce Buffett and Munger to Washington Post publisher Katharine Graham. Buffett said that he and Munger had bought some stock in the New Yorker and wanted to buy the whole magazine. They had talked to Peter Fleischmann, chairman of the New Yorker and a large shareholder, who was willing to sell, but they wanted a partner in the purchase and thought the Washington Post might be the right choice.

  Peters wasn’t surprised to get the call. Aha, he thought, Buffett must be interested in the Post stock now that the Graham family is taking the company public. Perhaps all the recent public offerings of newspapers were why he continued to own the Washington Monthly. If the Monthly turned out to be an entry point for making a killing on the Post, then the failed investment could be justified financially.

  On the brink of the Post’s initial public offering in 1971,3 Peters set up the meeting to explore a partnership to buy the New Yorker. Buffett had never bought public offerings, which he felt were overhyped and overpromoted; they were the opposite of the unloved cigar butts or great-company-at-the-right-price choices like American Express or See’s Candies that he and Munger sought. So B
uffett had no plans to buy Post stock, but he and Munger flew to Washington and went to meet Kay Graham at the Washington Post headquarters, a monolithic eight-story 1950s white building with the paper’s name in its distinctive Gothic-style typeface above the door.

  Though publisher of the Post, Kay Graham had come late in life to running a newspaper. When she took it over eight years earlier, at age forty-six, she was a widow with four children and had never worked in a business. Now she found herself preparing for the challenge of running a public company under the unremitting scrutiny of investors and the press.

  “Charlie and I met her very, very briefly, for twenty minutes. I had no idea what she was like. The idea that she’d be frightened of her own business—I didn’t know any of that. It was raining like hell, so we came in looking like a couple of drowned rats, and you know how we dress anyway.”

  As they sat in her office, “She couldn’t have been nicer to us. Then she suggested we go see Fritz Beebe, the chairman of the board, who was really the guy kind of running the place up in New York, which we did. But we weren’t going anyplace with it.”

  At the time, Graham had no interest in the New Yorker purchase that had prompted the visit—and there was nothing in the meeting to suggest that she and Buffett would one day be great friends. He made no impression on her whatsoever. For his part, he did not find her particularly attractive—even though she was a handsome woman—for she lacked the soft femininity and caretaking qualities of his ideal, Daisy Mae. Moreover, their backgrounds were worlds apart.

  Katharine Graham, born just before the twenties started to roar, was the daughter of a rich father, investor and Post publisher Eugene Meyer, and a self-absorbed mother, Agnes—“Big Ag,” as the family called her behind her back because of her imposing stature and, as the years passed, increasing girth. Agnes, who had married her Jewish husband at least in part for his money, was passionate about Chinese art, music, literature, and other cultural interests, but indifferent to her husband and their five children. The family shuttled among their pinkish-gray granite mansion in Mount Kisco, overlooking Westchester County’s Byram Lake; their full-floor apartment on Fifth Avenue in New York City; and a large, dark, red-brick Victorian house in Washington, D.C.