The second the FBI agents left, Howie called his father, flailing, saying, I don’t know what to do, I don’t have the facts, how do I know if these allegations are true? My name is on every press release. How can I be the spokesman for the company worldwide? What should I do, should I resign?
Buffett refrained from the obvious response, which was that, of his three children, only Howie could have wound up with an FBI agent in his living room after taking his first job in the corporate world. He listened to the story nonjudgmentally and told Howie that it was his decision whether to stay at ADM. He gave only one piece of advice: Howie had to decide within the next twenty-four hours. If you stay in longer than that, he said, you’ll become one of them. No matter what happens, it will be too late to get out.
That clarified things. Howie now realized that waiting was not a way to get more information to help him decide, it was making the decision to stay. He had to look at his options and understand as of right now what they meant.
If he resigned and they were innocent, he would lose friends and look like a jerk.
If he stayed and they were guilty, he would be viewed as consorting with a gang of criminals.
The next day Howie went in, resigned, and told the general counsel that he would take legal action against the company if they put his name on any more press releases. Resigning from the board was a major event. For a director to resign was like sending up a smoke signal that said the company was guilty, guilty, guilty. People at ADM did not make it easy for Howie. They pushed for reprieve, they asked how he could in effect convict them without a trial. Howie held firm, however, and got out.
Two days later, when the announcement of his resignation became public, the reporters camped out on his doorstep. The name Buffett attached to a scandal was like red meat to rottweilers. The wisdom of moving fast was even more apparent now that he and Devon had to manage a getaway from their own home.
But Howie soon found that despite the absence of reporters, who were excluded from the event, even Sun Valley was not safe. One of the first people he saw in the lobby of the Sun Valley Lodge was another ADM board member. This man, who would be around all weekend, poked him in the chest and said, “You’ve just made the biggest mistake of your life.”2
He couldn’t have been more wrong. Howie had just saved himself from being associated with a disaster in which three top executives, including the vice chairman Michael Andreas, would go to prison in the biggest price-fixing case in American history.3 ADM paid an enormous fine to settle with the government, and its reputation took a hit that would shadow it for years.
Now, however, the contretemps had left Howie out of a job. Big Susie, who was concerned about him and also about Susie Jr., who was getting divorced from Allen, swung into action and convinced Warren to begin a tradition of giving each of the kids a million dollars once every five years on their birthdays, starting then. Buffett not only went along but bragged on himself for beginning this tradition. He had begun to loosen up significantly when it came to money. Susie’s allowance had expanded dramatically. At her behest, Buffett bought another house in Laguna next to the first, known as the “dormitory,” to house all the children and grandchildren and visitors.4 Susie’s Pacific Heights apartment, up a million stairs with no elevator but with an amazing view of the Golden Gate Bridge and Alcatraz, had been transformed to feature white lacquered walls and carpeting in her trademark sunny yellow. Almost every inch of space was covered with things she had purchased, collected from her travels, or been given by friends. There were paintings and masks created by artist friends, a Chinese altar cloth, a Balinese tapestry, Tiffany glass, souvenirs and tchotchkes of all kinds, some expensive, many cheap and offbeat. They filled her walls, cabinets, closets, and drawers to overflowing.
The effect struck observers, depending on their perspective, as colorful, beautiful, and a wonderful reflection of Susie’s personality, or a chaotic magpie’s nest of things. Susie was always lobbying for more space; along with the second apartment she had convinced Warren to buy her on the ground floor of her building, unknown to him, she had also begun to rent storage rooms around San Francisco to house her ever-expanding collections.
Susie’s ministry to the sick and dying seemed to compound as rapidly as her collections. She had carried on her work with AIDS sufferers through the 1990s. Then her sister Dottie began a battle with terminal cancer. All through Dottie’s earlier struggles—with alcoholism, with health and marital problems, with the death of her son Billy—Susie had been by her side. Susie stayed in Omaha to nurse her sister through her last months and days. When Dottie finally died, another person Susie had not, in the end, been able to save, it was the greatest loss she had suffered since her nephew’s terrible death by overdose. And Susie was now the last person alive from her original family.
In summer 1996, she had to help Warren deal with the death of his ninety-two-year-old mother. Even in her later years, Leila had never stopped berating the family. She could still work Doris over on the phone or during a visit, barely stopping for breath for an hour or more, sending Doris into tears and ending with “I’m glad we had this little talk.” Warren himself continued to avoid Leila, having relegated most of the caretaking to Susie Jr. He spoke much more often and more fondly of Rose Blumkin than he ever did of his mother. When Astrid and Sharon Osberg took him out to visit Leila, he was a “wreck,” and the two women would talk to Warren’s mother while he sat by anxiously, not participating in the conversation. As Leila’s memory faded, her story mostly wound down to the 38½ wonderful years with Howard and one other topic that seemed to have lodged itself in her mind during Warren’s infancy: “Isn’t it a shame about the little Lindbergh baby?” she would ask. “Isn’t it a shame?”
After Leila died—on Warren’s sixty-sixth birthday—the family assembled for a funeral, their grieving complicated by a cauldron of mixed emotions. She went to rest as the person she had been; any hopes of what she could have become had things been different went to the grave along with her.
“I cried a lot when my mother died. It wasn’t because I was sad and missed her. It was because of the waste. She had her good parts, but the bad parts kept me from having a relationship with her. My dad and I never talked about it. But I really regret the waste of what could have been.”
With both his parents gone, Warren was the senior member of his family, the watchkeeper at that thin boundary between life and death. It was his sisters, however, whose lives were most affected by Leila’s death. They were surprised to find themselves inheriting a sizable amount of Berkshire stock from their mother, more than they had originally owned themselves, along with the first distribution from their father’s trust set up by their brother years before. Bertie had kept all her Berkshire stock from the beginning, and had her own philanthropic interests. She had always tended to contribute her energy and effort quietly, behind the scenes and did not want to play a leading role. And Doris now had real money again, for the first time since the “naked puts” debacle had wiped her out in 1987. For Doris, her mother’s death was a new beginning. She set up her own foundation, the Sunshine Lady Foundation, and started her giving with the Edith Stahl Kraft Outstanding Teacher Award, named after their aunt Edie—and modeled on the Omaha teacher awards named after their aunt Alice that her brother’s foundation gave out.
Warren’s sisters were now rich. Two of his children also had a little money, thanks to Susie’s persuasiveness about the million-dollar birthday gifts. Buffett had never demanded an accounting of the huge amounts it took to fund Susie’s largesse, although he scratched his head and wondered what on earth she did with all the money. The tax complication of the large gifts to their children, however, required that she give Warren a history of her gift-giving. He had always been proud of her generosity, although not always pleased about those who benefited from it. He was now particularly displeased by some of her larger gifts, which flew in the face of what he had understood about the nature of their marriag
e. His impression that she had ended her other relationship stood corrected. Despite the parallel between his own complicated personal life and Susie’s, he was upset.
A discussion of Susie’s will ensued. They had sharply differing opinions about who among her friends should receive bequests. In the end, his decision ruled. Afterward, the Buffett bathtub memory went to work. Anything negative that had transpired between them simply vanished, and Susie was restored as his ideal, because he needed her to be.
Warren had stood firm on the question of Susie’s bequests to her friends. But she had gentled him enough on issues of money when it came to their children that he was not only comfortable giving them a million dollars every few years while he was alive, he was going to leave them a reasonable amount of money after his death.5 It would not fund a zoo full of bears like William Randolph Hearst’s, but they would be more than comfortable.
Howie had used his first million-dollar birthday gift to buy a nine-hundred-acre farm in Decatur, Illinois, where he still lived. Now he had two farms, one of which he owned outright. After the ADM lawsuits settled down, Don Keough suggested that he become a professional director by going on the board of another high-profile business, Coca-Cola Enterprises (CCE). Even though he had gained some business experience, Howie really preferred to sit on his combine working the fields. And while CCE was far more respectable than ADM, the CCE directorship nevertheless was a bit of a hop from the fire into the frying pan.
A giant cola bottler, CCE had been smashed together out of smaller bottlers that were Coca-Cola’s customers. They bought the syrup concentrate that Coke made, mixed it with fizzy water, and sold it, acting as middlemen, so their relationship with Coke was critical. Neither could live without the other.
Don Keough, Buffett’s old Omaha friend, was now president of Coca-Cola. His boss, the CEO of Coca-Cola, the aristocratic Cuban-born Roberto Goizueta, was revered in the business world for creating the world’s best-known brand through slogans like “Coke Is It” and “I’d like to buy the world a Coke.” Buffett felt that Coca-Cola had by now become a self-sustaining enterprise—and he admired Goizueta for having gotten it to this stage.
In 1997, Gates joined Buffett and Goizueta on a panel discussion at Sun Valley that was moderated by Keough.
“I used to talk to Bill all the time, and I’d always use this expression that a ham sandwich could run Coca-Cola. And Bill wasn’t quite housebroken then. So we were sitting on this panel, up in front of the audience, and Bill said something to the effect that it’s pretty easy to run Coke.”
“I was trying to make a point about how Coke is such a wonderful business,” says Gates, “and I said something about how I’m going to step down from Microsoft before I’m sixty because it’s a tough business and a young person may need to be in there to handle turns in the road. But it came across that I thought of Microsoft as exciting and I must have said something like, ‘Unlike Coca-Cola…’
“Goizueta thought I was an uppity, arrogant kid who was painting some kind of picture that I was engaged in some masterful act on a daily basis whereas anybody could leave at noon and go golfing if they ran Coca-Cola.”6
“And Roberto hated Bill from that point forward.”
Buffett avoided technology stocks partly because these fast-moving businesses could never be run by a ham sandwich. He thought it no shame to have a business that could be run by a ham sandwich; he wanted to get Berkshire Hathaway to the point that it could be run by a ham sandwich too—though not until after he was gone.
But by 1997, Coca-Cola had started to set goals for itself that were so ambitious that it took—not a ham sandwich, not even Goizueta—but a lot of financial engineering to achieve them.
Coke owned forty percent of CCE and tended to act as though it owned a hundred percent. The creation of CCE by rolling up a group of bottlers had been part of a larger strategy of buying and selling bottlers in order to time the profits and boost Coca-Cola’s earnings. This was neither illegal nor technically deceitful, but it was nonetheless an illusion, and Warren, who was on the board of Coke, was always aware of the potential for misrepresentation.
“Roberto did a lot of things operationally that were terrific, and I loved the guy. But Roberto got tangled up in promising numbers that eventually couldn’t be delivered. He talked about high-teens growth, eighteen percent. Big companies are not going to increase their earnings in the high teens over long periods of time. For a while you can do it, but it just isn’t in the cards to keep it up forever.
“I remember when he came in and talked to us about how he was going to add a third leg to earnings, which was profits made on buying and selling bottlers. He tried to sell the finance committee that this was the way of the future.
“The prices they paid for bottling companies were just nuts. I asked the chief financial officer all these questions. But Roberto started the board meetings at ten o’clock and finished at noon; the atmosphere was such that it didn’t lend itself to questioning. You just had a feeling when it got to be noon that it would not be at all polite to keep raising subjects or talking about things that would cause the meeting to last until one o’clock. He was just not a guy you questioned. Some people have that bearing about them, and when the bearing is backed up by a very good record, the combination of the two is pretty overpowering.” Buffett was more than simply nonconfrontational; he was of an age and from an era that viewed serving on boards as a quasisocial activity in which deference and politeness held sway. In 1998, that was the boardroom culture throughout America. This culture reflected the reality that the structure of corporate boards gave directors very little leeway with management.
“As a director, you can’t remotely tell management what to do. All this stuff you read in the press about the board setting strategy is baloney. As a board member, you can do practically nothing. If a CEO thinks a director is smart and on his side, he’ll listen to some degree, but ninety-eight percent of the time, he’ll do what he wants to anyway. Listen, that’s the way I run Berkshire. I think Roberto liked me, but he was not looking for a lot of ideas from me.”
Buffett never knew of anything seriously enough awry at Coca-Cola to make him consider the drastic step of resigning from the board. Howie had a different problem: standing up to pressure from Coca-Cola.
“I was more independent than just about anybody else on that board, because I was on the Berkshire board, and no one at Coca-Cola could intimidate me,” says Howie. “So I had no problem challenging Coca-Cola on behalf of CCE.” But Howie eventually got off the CCE board. There was just too much potential for conflict between the two boards. In the sense that people learn more from heavy seas than smooth sailing, if Keough had meant to send Howie to another crash course in business school, the CCE role was a success. Howie’s radar for danger signs in business had sharpened considerably. Even though he continued to serve on boards, the experience taught him that he wanted to fulfill his thirst for excitement outside the corporate world.
By the mid-1990s, Goizueta and his finance chief, Doug Ivester, were dosing Coke with even larger amounts of bottler profits to maintain the illusion of the company’s rapid earnings flow. Then in 1997, Goizueta died unexpectedly, only a few months after announcing he had lung cancer. The board and the company and investors were shocked. He had been a statesmanlike CEO, credited with making Coca-Cola an international giant, his persona so titanic that it was hard to imagine who could fill his shoes. The board had deferred to Goizueta so absolutely that nobody ever seemed to have thought of any alternative to his handpicked successor, the burly, table-pounding Ivester.7 The finance chief had a big reputation: He had engineered much of the company’s recent success, carving up the financial interests of Coca-Cola and its bottlers to squeeze out every last advantage in Coca-Cola’s favor. Goizueta was the aristocratic leader, Ivester the hands-on “doer.” He loved technology, and hummed along with the Silicon Valley gestalt of the times.
Buffett liked Ivester and wanted him to suc
ceed. A textile-factory mechanic’s son who had risen through sheer determination, Ivester was an analytical numbers guy.8 And, of course, under Goizueta he had enriched Buffett enormously. He had that underdog grit that Buffett liked. Moreover, Buffett laid responsibility for the accounting gimmickry at Goizueta’s door, not Ivester’s.
Juicing the earnings had certainly worked. Coca-Cola was trading at $70 per share. BRK itself was rocking with the market. Priced at $48,000 in June 1997, it flew to $67,000 over the next nine months. The higher the market went, the tougher it got for Buffett to invest, and yet the higher BRK rose. It made no sense, except that the stocks that Berkshire owned were rising with the market. As 1998 progressed, the Dow crossed 9,000 and was on its way to the magic 10,000. BRK blasted through $70,000 a share. At the shareholder meeting, Buffett told investors, “Our idea of tough times is periods like now.”9
With too much cash, too few wonderful ideas, and without calling the Air-a-holic hotline, Buffett now bought a company for Berkshire called NetJets for $725 million.10 He sold the Indefensible and became one of NetJets’ customers. This company sold time-shares in jets of various makes and sizes; its planes all had tail numbers that started with QS, or Quebec Sierra. Susie had gotten Warren to buy her a quarter share in a “fractional” jet from NetJets in 1995, worth two hundred hours a year of flight time, which she referred to as The Richly Deserved.11 She joked that QS stood for Queen Susie. Buffett took to NetJets so much that he had appeared in an ad and endorsed it even before he bought it. Still, on the surface, it was an atypical decision for a man who would, one year later, tell the moguls at Sun Valley that somebody should “have shot Orville down.”
The Snowball Page 88