The Snowball

by Alice Schroeder

  “He had a sour-ass, little wizened actuary at his side who had been fired by some insurance company and had a bone to pick,” says Byrne. Sheeran said his numbers didn’t justify a rate increase. “I did all the arm-waving and stuff that I could, and Mr. Sheeran was intractable.” Byrne pulled the license out of his pocket and threw it on Sheeran’s desk, saying, “I have no choice but to turn in the license,” or something to that effect but containing more four-letter words.65 He then drove back to the office with tires screeching, sent out telegrams to thirty thousand policyholders canceling their insurance, and fired two thousand New Jersey employees in a single afternoon, before Sheeran could go to court and get an injunction to stop him.66

  “It showed everybody, all audiences, I was serious about this,” recalls Byrne. “And that I was going to fight for the life of this company no matter what, including walking out of a state, which wasn’t done back then.” Byrne’s impalement of New Jersey had exactly that effect. Everybody knew he was serious.

  “It was like he had trained all his life for that position. It was like he’d been genetically designed for that particular period of time. If you’d searched the country, you could not have found a better battlefield commander. He had to assemble a team of people, he had to chop thousands of heads, and he had to change the thinking of those heads that stayed around. It was a Herculean job. Nobody could have done it better than Jack. He was a tough, disciplined thinker about pricing and reserves and he demanded rational business principles and actions. Everybody knew exactly what GEICO was all about, and he worked extraordinary hours focused on a single objective. He was always interested in what made sense rather than what had been done in the past.”

  Byrne walked through GEICO’s door each morning, sailed his hat fifty feet up to the upper floor of the atrium, and hollered hello to the secretaries.67 “If I don’t whistle by the graveyard, who is going to?” he asked. “If I don’t dance, who’s going to dance?” He had a way of making people feel tah-riffic about the place where they went to work every morning, despite the career-threatening status of their employer. He chopped forty percent of the company’s customers, sold half of its profitable life-insurance affiliate to raise cash, and withdrew from all but seven states plus the District of Columbia. Byrne seemed to run on rocket fuel. He called his executives into meetings at the Sheraton and Westin hotels near Dulles Airport and questioned them for fifteen hours at a stretch, sometimes for days at a time.68 He interrupted GEICO’s human-resources manager at the podium during a meeting by saying, “You’re out,” and named his successor from the audience that very moment. His attitude was: “You’re not running a public library here, you’re trying to save a company.”69

  “Jack was unmerciful on me,” says Tony Nicely, who had worked for GEICO since he was eighteen years old. “He liked picking on young, aggressive people. But he taught me a lot and I will always be indebted to him. He taught me to think of the business as a whole, not separate functions like underwriting or investing. I learned the importance of a disciplined balance sheet.”

  Byrne told his workers if they couldn’t meet a certain sales figure, they would have to hoist his 240 pounds on their shoulders into a sedan chair like a Roman emperor and bear him into company meetings for a year.70 They made the numbers. Wearing a huge chef’s hat and a giant shamrock, “I cooked Irish dinners for them,” he says. “Colcannon, which is turnips and potatoes and sour milk. It tastes terrible. I’d have these big kettles, and I’d pound these turnips, saying, ‘Oh, this is going to be wonderful!’”

  Buffett grabbed Byrne and his wife, Dorothy, and immediately pulled them into his circle of friends. Now, between GEICO, Washington Post meetings, Pinkerton’s board meetings, West Coast trips for Blue Chip and Wesco, business trips to New York, board meetings for Munsingwear, a board that he had joined in 1974, and Kay Parties, he was traveling much of the time. Buffett decided that he needed help in the office. Pushed by Big Susie, one of her tennis friends approached Warren about a job as a sort of general apprentice. Dan Grossman, a bright Yale graduate with a Stanford business degree, even offered to work for free. Buffett didn’t take him up on that, but latched on to Grossman with his usual intensity. Some thought that since neither of his sons wanted to work in the business, he saw in Grossman the chance at a surrogate son, someone who could potentially succeed him.

  Buffett remodeled the office in order to install Grossman next door to himself. Gladys ran interference while Buffett spent hour after hour with him, explaining float, reviewing financial models of insurance companies, outlining regulatory filings, telling Grossman his stories, and leafing through the old Moody’s Manuals. He played hours of tennis and handball with Grossman and added him to the Graham Group, where Grossman became friendly with many people.71 Warren had found yet another object of obsession.

  41

  And Then What?

  Omaha • 1977

  Susie’s friends would say that she created a separate life for herself within her marriage as a way to accommodate Warren’s obsessions. As one put it, Warren’s “real marriage was to Berkshire Hathaway.” There was no getting around that fact. However uneasily, however, their routine had worked for them. At least, that is, it worked for them until another of Buffett’s obsessions—with Katharine Graham—reached the point that it began to push Susie offstage. That was when she finally took action.

  Warren now spent much of his time elephant-bumping at black-tie events in New York and Washington with Graham, or staying at her house for her Kay Parties. Despite his residual awkwardness and cackling laugh, he was meeting a circle of powerful, celebrated friends and acquaintances of Kay’s that opened his eyes to a new world. “I met Truman Capote,” he says about the author of Breakfast at Tiffany’s and In Cold Blood, who had thrown the legendary Black and White Ball in Graham’s honor at the Plaza Hotel in New York; the event became known as the “party of the century.” Capote had been a confidant of many rich international society women.

  “He would come down to her place and sit there, this little guy all kind of hunched down on the sofa, talking in this voice you couldn’t believe. But he knew all the secrets of all of them. He really did know them, because they all talked to him. He was terribly canny. The one person he really liked was Kay. Unlike the rest, he just didn’t feel she was a phony, I think.”

  Buffett had even been summoned by former British ambassador Walter Annenberg, who owned Triangle Publications, which held, among other lucrative properties, the Philadelphia Inquirer and Buffett’s childhood favorite, the Daily Racing Form.

  “Walter read about me in the Wall Street Journal in 1977. I got this letter that read, ‘Dear Mr. Buffett,’ and he invited me to Sunnylands,” his California estate. Having heard stories about the famously thin-skinned ambassador from Tom Murphy as well as from Kay Graham, who had reason to know about how easily offended he was, Buffett was intrigued. Annenberg’s father featured in many of the stories. Besides the publishing interests that he had bequeathed to his son, Moe Annenberg had also left him a legacy of scandal and shame, having gone to prison for tax evasion in connection with a racing wire he ran that telegraphed horse-race results to bookies all over the country. Of dubious legality, it was linked to organized crime, and added to his reputation for having mobster connections. Reportedly to save his son from prosecution along with him, Moe Annenberg copped a plea and was led into jail wearing a homburg hat and chains. Walter was later to say that his gaunt, pain-racked father, dying of a brain tumor in St. Mary’s Hospital, whispered as his last few words, “My suffering is all for the purpose of making a man out of you.”1 Whether this scene was real or imagined, Walter would later act as though he believed it.

  Consumed by a drive to redeem his family’s honor, Walter was now responsible for the support of his mother and his sisters. He learned the publishing business through trial by fire and proved a gifted entrepreneur. He dreamed up Seventeen magazine, then a booklet-size magazine called TV Guide, a bril
liant conception that fed the public’s appetite for information about television schedules, shows, and stars. By the time he met Buffett, he had not only become a great business success story but had reached the pinnacle of social respectability after Richard Nixon appointed him ambassador to England’s Court of St. James’s. Yet even though he restored the family name, he never overcame the personal scars of his legacy.

  Buffett arrived at Sunnylands filled with curiosity to meet Annenberg. The two already had a connection; Annenberg was the brother of Aye Simon, the “spoiled, spoiled” widow of Ben Rosner’s former partner Leo Simon—the same Aye Simon whom Rosner had decided to screw when he had sold Associated Retailing to Buffett too cheap, because she was no longer his partner. On the one occasion that Buffett had met her, Aye Simon had entertained him in her vast art-filled apartment in New York City. Maids tiptoed back and forth carrying silver trays of cucumber sandwiches; Aye explained to Buffett that her “Pop,” Moe Annenberg, once had his goons, known as “the boys,” “take a few shots at Leo” to improve his attitude toward Moe. You can still see the bullet holes on a building on a certain corner of Michigan Avenue in Chicago, she told Buffett. Aye then asked for her son to join the Buffett partnership. Warren, “envisioning bullets” if he turned in a year of bad results, had “tap-danced” his way out of the situation.

  Her brother, Walter, had spent decades establishing a reputation for propriety about as different from the image of bullets on Michigan Avenue as you could get. Sunnylands was a vast, opulent oasis in the desert in Rancho Mirage, California. Amid a garden filled with the images of Mayan sun gods, Rodin’s bronze sculpture of Eve stood in a reflecting pool, covering her face in shame. Hundreds of floating bromeliads gazed up at her from the water beneath her feet. At Sunnylands, Annenberg had entertained Prince Charles, hosted Frank Sinatra’s fourth wedding, and given his friend Richard Nixon peace and quiet to write his last State of the Union address.

  “He had a courtly way about him and was very formal. We went outside in back by the pool, and Walter sat down. He was beautifully dressed and looked as though everything he was wearing had been bought that morning. He was about seventy at the time, and I was about forty-seven. And he said, in a nice, kind manner, as if he were talking to a young man he was trying to help, ‘Mr. Buffett, the first thing you should understand is, nobody likes to be criticized.’ That was setting the ground rules for getting along.”

  Nothing could be easier for Buffett. “I said, ‘Yes, Mr. Ambassador. I’ve got it. Don’t worry about that one.’

  “And then he started in on ‘Essentiality.’

  “‘There are three properties in the world,’ he said, ‘that have the quality of ‘Essentiality.’ They are the Daily Racing Form, the TV Guide, and the Wall Street Journal. And I own two out of three.’

  “What he meant by ‘Essentiality’ was that, even during the Depression, he saw the Racing Form being sold for two and a half bucks down in Cuba.”

  The Racing Form had that quality because there was no source of better or more complete information about handicapping horses.

  “It sold a hundred fifty thousand copies a day, and it had for about fifty years. It cost more than two bucks, and it was essential. If you were headed to the racetrack and were a serious racing handicapper, you wanted the Racing Form. He could charge whatever he wanted, and people were going to pay it. It’s like selling needles to addicts, basically.

  “So every year, Walter would go in and say, ‘Mirror, mirror, on the wall, how much should I raise the price of the Racing Form this fall?’

  “And the mirror would always say, ‘Walter, charge another quarter!’”

  This was when you could buy the entire New York Times or Washington Post for a quarter. And yet, thought Buffett, the New York Times and the Washington Post were great businesses! That meant the Daily Racing Form was an incredible business.

  Annenberg enjoyed owning two of the Essentialities, but he wanted to own all three. The visit to Sunnylands was the beginning of a reel that he and Buffett would dance from time to time: talking about whether and how they could buy the Wall Street Journal together.

  But “the real reason that he had me out there was to send a message to Kay.”

  The Annenbergs and the Grahams had once been friends.2 Then, in 1969, during the confirmation hearing for Annenberg’s appointment as ambassador to Great Britain, the Post’s muckraking columnist, Drew Pearson, penned a column saying that Annenberg’s fortune “was built up by gang warfare” and repeated an unsubstantiated rumor that his father had paid $1 million a year in protection money to mob boss Al Capone.3 Annenberg, enraged, accused Graham of using her paper as a political weapon against President Nixon, the man who had restored the Annenberg family to respectability by taking the risk of nominating him for the ambassadorship. “President Nixon may have had his flaws,” Annenberg said later, “but he paid me the highest honor that anyone ever paid the family.”4

  The morning of his confirmation hearing, Annenberg read another Pearson column that described at length his editorial vindictiveness at the Philadelphia Inquirer. He clutched his chest and his face turned purple. His wife thought he was having a heart attack.5

  Annenberg called Graham to ask for a retraction. She tried to soothe his feelings, but said she never interfered with the editorial page.

  That evening, after a stressful day of hearings in which Walter had had to defend himself one by one against the points made in the Pearson columns, the Annenbergs reluctantly went to Graham’s Georgetown mansion to attend a dinner party for fifty guests to which they had been invited many weeks before. Upon entering the gilded splendor of Graham’s drawing room, Annenberg—who cared deeply about protocol and who was well primed to take offense that night—did indeed take offense when Graham seated someone else next to herself and seated him between two of her friends, Evangeline Bruce, wife of the outgoing British ambassador David Bruce, and Lorraine Cooper, the wife of a prominent senator.

  Annenberg’s prickliness about anything he took as a slight resembled in many ways his friend Nixon’s lack of perspective. He and Nixon also shared an unfortunate inability to charm and disarm.6 Thus, a feud that had been brewing between Mrs. Annenberg and Vangie Bruce over the decoration of the ambassadorial residence soon escalated and overshadowed the meal.7 Compounding this, Mrs. Cooper offended Annenberg by supposedly implying that he wasn’t rich enough to be ambassador.8 Feeling that he had been set up, Annenberg stalked out of the party early and stopped speaking to Kay Graham.

  “Kay was distraught about it. She wanted enormously to get along with Walter. Kay was not looking to have fights with anybody. That was not her style. She liked being in charge, but she did not like to show off. She liked big shots, and she liked big-shot guys, particularly. So it was not comfortable for her to be in a fight with him. But she also wanted Walter to understand that she wasn’t going to tell Ben Bradlee what to write about in the paper.

  “So by the time I went out to see him, he was thinking about having a book commissioned about Phil Graham, and how Phil’s teeth were in a funny way.”

  Phil Graham’s teeth.

  “Walter had a theory that if you were gap-toothed, that was a sign of mental instability. And if Walter had a theory, you didn’t argue with it. Walter liked me, but one reason that he liked me was that I never disagreed. If Walter said to me, black was white, I just wouldn’t say anything.

  “So I became the go-between with Kay.” Annenberg expected Buffett to deliver the message that if he published the book about Phil Graham’s teeth, well, that’s show business.

  “Meanwhile, he couldn’t have been nicer to me. He put me in this super-fancy guest room. And he took me into his office, where he had a little display in a glass case of a Prussian coin, a pocketknife, and one other thing. It was all that his grandfather had in his pocket when he landed in this country from Prussia. And he said, ‘Everything you see here is a product of that.’ In a period of not that many years
, Walter had rehabilitated his family. He did his father proud. And that was his number one goal in life, to do his father proud.”

  Buffett understood Annenberg psychologically yet never seemed to notice certain resemblances between the ambassador and himself. Probably this was because they were so different in other ways. Annenberg’s humorlessness, his fondness for opulence and formality, and his enmity toward the Grahams set him strikingly apart from Buffett, and they were at opposite poles politically. Nonetheless, beneath their similarly paper-thin skins, these two shrewd businessmen shared a deep drive to prove themselves—both in business and in the social world—and a reverence for fathers whom they felt the world had treated unjustly.

  They struck up a correspondence. Annenberg would come to think of himself, in an avuncular sort of way, as training Buffett in philanthropy. He thought rich people should give it all away before they died lest their appointed stewards dishonor their obligations.9 He wanted to warn Buffett of the potential pitfalls. Mistrustful by nature and always testing people—again, like Buffett in both respects—Annenberg had made a close study of failed foundations and the perfidy of foundation trustees. He sent Buffett examples of foundations gone wrong after their benefactors had died, along with chitchat about stocks and courtly correspondence. Buffett—a budding philanthropist and a publisher whose paper had won a Pulitzer Prize for exposing the failed stewardship of a major charity—read this material with interest. Annenberg conveyed to him his dread of an imperial administrator for his money, one who would conduct what he referred to as “foundation rapings” after he was gone.