Charlie started going into his windup. "In the end," he said, "I'm like old Valiant-for-Truth in The Pilgrim's Progress, who said, 'My sword I leave to him who can wear it.'" Good Lord, thought some of the Buffett Group members.

Eventually Nancy went out onto the stage and gently led Charlie away.

Buffett went straight back from Charlie's party to San Francisco to see Susie, who had just finished her twelfth treatment. The radiation schedule drew out his protective instincts.

"Four and a half weeks left. Martin Luther King Day is in January. Those radiology technicians-oh, believe me, they take every holiday there is. But, anyway, I would say so far so good. They're saying that this week is when it starts hitting her hard, but it hasn't hit her hard yet. She drinks what she calls this motor oil, and that's protecting her throat."

Nonetheless, Susie was spending most of her time in bed. "It's just amazing how little she is up. She's either asleep, or getting ready to go to sleep, or getting up from being asleep, I would say seventeen or so hours out of twenty-four. We make it a point, no matter what-we walk for six blocks or so every day. The rest of the time, I just hold her, basically."

The man who had always been on the receiving end was now learning to give. Rather than being taken care of by his wife, he was taking care of her. Buffett, of course, had not become some other person. But by acting out his values-loyalty, stewardship-he seemed, in his own way, to have incorporated some of the lessons of Susie's life into his own.

60.

Frozen Coke Omaha and Wilmington, Delaware * Spring 2004 Toward the end of her radiation, Susie's mouth was so burned and dry that some days she could not eat or drink. The doctors put her back on the feeding tube because her throat was choked with a thick, dry mucus. She spent most of the time sleeping. But every day, she and her daughter or Kathleen walked a few blocks on Sacramento Street. As spring stole over San Francisco, Susie stayed bundled in a coat, gloves, scarf, and earmuffs to stay warm.

She hated to be alone. "Can't you just sit on the couch and look at magazines while I'm awake?" she asked Susie Jr. Then she scribbled, "WHT," her father's initials, on a piece of paper, a wry reference to the family trait of becoming anxious when alone.

She was cared for by her nurses, Kathleen, her daughter, and John McCabe, her former tennis coach, who after many years of looking after her once they had both moved to San Francisco, was well-schooled in acting in a one-hundred-percent supportive role. Anyone else, however, was likely to trigger her "giving" impulses and to drain her of energy.1 On the weekends, when Warren came, he sat with Susie in the TV room watching old episodes of Frasier, or simply hung around in his bathrobe, reading the paper. Susie was comfortable with him there; he made her feel secure-but decades of her "giving" and his receiving didn't disappear overnight. Sometimes Susie was so sick from the radiation that even Warren had to leave. But he was doing his best to immerse himself in the day-to-day needs of his family in a way that he had never done before. To give his daughter a break from endless days in Susie's apartment, Warren would take her to Johnny Rockets for a burger. The rest of the time he spent with Sharon.

He had even gotten involved in the minutiae of Susie's radiation treatment, however. "Her taste buds aren't gone yet. I talked to the radiation oncologist, and it's conceivable that some of the tongue won't get hit by what they're doing, which could presumably mean a fair number of taste buds would stick around."

Warren Buffett-the man who ducked the subject of a common cold and used terms like "not feeling up to par" as euphemisms for illness; the man who changed the subject uneasily whenever anyone spoke of physical complaints and who professed ignorance of the most basic points of anatomy-was using terms like "radiation oncologist" and doing medical homework for his wife.

But as he grew more optimistic about Susie's recovery, he started to become more irritable and needy. The business events of the year 2004 began to consume him, in between the trips he made back and forth to San Francisco every weekend. Unlike the ascending journey to glory of 2003, this would be a very different kind of year. Moreover, early in 2004 he was deprived of his regular source of support. Sharon Osberg had gone on a lengthy trip to Antarctica with his sister Bertie. On a ship cutting through the ice, she was reachable only by occasional e-mails. He filled the hours by scribbling away at his letter to shareholders, e-mailing it back and forth to Carol Loomis, and by serving as teacher and unpaid father confessor to corporate America. He had become the elder statesman of the business world. Buffett always said, Be long-term greedy, not short-term greedy. People turned to him because they trusted his direct way of getting to the heart of things and his sense of right and wrong. Although rich beyond even his own wildest dreams, he had passed up a lot of opportunities to make more money or to make it faster. This had brought him power and respect of a different sort. He was not feared like so many businessmen. He was admired.

Prominent people made the pilgrimage to Omaha or sought him out at events to ask for his influence and help. Sports figures like Michael Jordan, LeBron James, Cal Ripken Jr., and Alex Rodriguez came for advice. Bill Clinton stopped by for lunch to get advice on fund-raising for his new charity. Buffett was also pals with Mike Bloomberg, got along with John McCain, and maintained a good relationship with the senior Bushes and other Republicans like Chris Shays. He endorsed Senator John Kerry for president, but Kerry was not The Candidate, and unlike the entertaining triumph of the Schwarzenegger campaign for governor of California-Schwarzenegger most definitely was The Candidate-Buffett found himself associated with a respected senator who had no charisma.

The less-than-electrifying Kerry campaign meant that Buffett focused far more on his business relationships during 2004. CEOs like Jeffrey Immelt of General Electric, Anne Mulcahy of Xerox, and Jamie Dimon of JP Morgan showed up in Omaha to pick his brain.2 The Internet-search firm Google was going public that summer, and its cofounders, Sergey Brin and Larry Page, were stopping in to see him because they admired his shareholder letters. The previous fall, after her indictment for lying to the government in connection with allegations of insider trading-for which she was never charged-Martha Stewart and her CEO Sharon Patrick had come out to Omaha to visit him. Buffett bought Stewart and Patrick a steak dinner, but couldn't solve Stewart's legal problems.

The environment for prosecution of white-collar fraud was changing rapidly, partly because there was just so much white-collar fraud to prosecute these days. New York Attorney General Eliot Spitzer, who had launched a merciless attack on corruption in business and on Wall Street, now led the SEC and the Department of Justice in a three-legged race to see which agency could prosecute most zealously. The others hopped along desperately trying to keep up with Spitzer's pace; all their charges got bundled into one trial or settlement in the end. Spitzer was diabolically inventive at using the new electronic tools of the Internet-especially e-mail-as evidence, at harnessing an accommodating press as a weapon, and at wielding an arcane New York statute, the Martin Act, that gave him virtually unlimited powers, checked only by his personal-and virtually nonexistent-sense of prosecutorial discretion.

With these tools, he had forced two prominent CEOs to resign-Buffett's business colleague Hank Greenberg, who was now the former CEO of AIG, and his son, Jeffrey Greenberg, the former CEO of insurance broker Marsh & McLennan. A pall of fear hung over corporate America; Spitzer was so successful at execution-by-media that the bitter joke had become that he was saving the government the cost of indictment and trial. Juries that formerly treated white-collar malefactors with deference were now routinely sending them to prison like any other criminal; under new mandatory sentencing guidelines, judges were imposing harsh sentences on them. Some of this mayhem was well-deserved. Greed, hubris, and lack of enforcement had given many people in business the impression that the rules did not apply to them. Just as stock options and the Internet bubble had engorged the senior echelons of business's wallets at an exponential speed, so had the backlash arrived in gargantuan proportions. Buffett-like most of corporate America-had not fully adjusted to this new environment; his view of proportion was shaped by the earlier era: defined by the careful prosecutorial calibrations of former SEC Enforcement Chief Stanley Sporkin and U.S. Attorney Otto Obermaier; by the travails of Salomon, when even Paul Mozer, who nearly brought down the whole financial system after Gutfreund failed to report his crime, had only served four months in prison. His viewpoint would eventually be revised, however, by the outcome of events that had occurred at Berkshire Hathaway itself.

Buffett usually arrived at the airport to pick up his guests personally. He took them on a nerve-racking ride to the office (if, that is, they were not too dazzled by him to notice), spent a couple of hours listening to their issues and throwing out ideas, then usually escorted them to Gorat's and treated them to a T-bone and hash-brown meal. He told them to be plainspoken with shareholders in annual reports, to pay employees in alignment with shareholders, not to run their business according to the whims of Wall Street analysts, to deal with problems forthrightly, not to engage in accounting shenanigans, and to choose good pension-plan advisers. Sometimes people asked how to manage their own money, but while he gave them some basic ideas, he didn't hand out stock tips.

To all those who felt the life of a CEO under scrutiny was not what it used to be, Buffett talked about "the ninety-eighth floor" in terms a CEO could understand. People who were looking down from the top at everybody else had to keep things in perspective. So what if they got knocked down a few pegs or lost some of their money? Those who still had their family, their health, and a chance to do something useful for the world should try to count their blessings, not their curses.

"If you go from the first floor to the hundredth floor of a building and then go back to the ninety-eighth, you'll feel worse than if you've just gone from the first to the second, you know. But you've got to fight that feeling, because you're still on the ninety-eighth floor."

He considered himself on the hundredth floor most of the time. However, during the spring, 2004 was definitely shaping up to be a ninety-eighth-floor kind of year. He waited with impatience as Susie suffered through her radiation until the moment later in the spring when her doctors would perform an MRI to determine whether the treatment had knocked out the cancer cells. Business was also problematic on various fronts: Buffett felt that he had "struck out" when it came to bringing home the gingersnaps: new acquisitions and new stocks to buy. Berkshire had around $40 billion in cash or the equivalent, which was "not a happy position."3 Most of the companies within Berkshire Hathaway were doing well-even the beleaguered General Re had finally but truly reversed course and posted an underwriting profit in 2003. But GEICO had just emerged from a bitter price war and was locked in a battle for customers with its archrival, Progressive. GEICO had run a commercial in 1999 featuring a popular new character, the GEICO gecko. But GEICO's Internet presence was lagging behind Progressive's Web page, which let customers comparison-shop. Buffett had been thinking about the Internet and auto insurance for a decade now; he went to meetings at the company's headquarters near Washington and repeated one statement over and over: "He who wins the Internet, wins the war." He waited impatiently for the Internet business to reach its potential. Berkshire had appointed a new board member, Charlotte Guyman, a former Microsoft executive. The board now had its first woman, who also lowered the average age. Buffett said, however, that he did not seek board members for their demographics. He wanted "owner-oriented, business-savvy, interested, and truly independent" board members.4 Now Buffett sent Sharon Osberg and Guyman to Washington to help GEICO speed up its Web site improvement. "I have total confidence in GEICO," he said, all the while invoking his new Internet mantra, He who wins the Internet, wins the war.

Buffett paid more attention to GEICO than almost any other business he owned, simply because he loved it. He was also a great fan of both Tony Nicely and his co-CEO Lou Simpson, whose investing track record he now trumpeted to shareholders in his annual newsletter for the first time. For the past twenty-five years, Simpson had averaged 20.3 percent, beating the market by an average of 6.8 percent a year. The stocks he bought were different from Buffett's, but the method was the same, and his record was almost as good as Buffett's own. Now it was obvious why Buffett granted him so much autonomy and paid him so well. Simpson qualified as another of the Superinvestors of Graham-and-Doddsville. Admittedly, however, as competition increased, the Superinvestors' job was getting harder all the time.

Still, the challenge of finding new investments wasn't nearly as severe as bird-dogging the ones that Berkshire already had. Coca-Cola was again evolving into a nightmarish preoccupation. Since the death of Goizueta, quarter by quarter, month by month, its business had grown steadily worse. New evidence of accounting manipulation appeared like barnacles on Coca-Cola's earnings; the stock had sunk below $50, from a high in the $80s. In percentage terms it was hovering somewhere around the sixtieth floor.

Doug Daft had earned a reputation for volatile moods and byzantine politicking; a number of senior members of management had departed during his tenure.5 His subtle tweaking of the four main Coke brands had produced unspectacular results, along with column after column of copy meowing at inept ads.6 Pepsi had pulled off a huge success with Gatorade after Coca-Cola failed to make that deal with Quaker Oats back in 2000. Then, a whistle-blower declared that Coca-Cola rigged a marketing test for a fountain product called Frozen Coke to impress a longtime customer, Burger King. The whistle-blower had also accused Coke of accounting fraud, and the SEC, the FBI, and the U.S. Attorney's office started investigating. The company's stock price shrank to $43. Buffett had had enough of the "managed earnings" that underlay these problems, in which the Wall Street analysts' predictions of what a company would earn enticed managers to dig behind the sofa cushions in order to "make the numbers," thereby meeting or beating "consensus" expectations to please investors. Because the vast majority of companies had tried to set, then surpass Wall Street's expectations instead of simply reporting what they earned-making the practice uniform-even a penny-per-share shortfall made them look as though they were having problems and often led to precipitous declines in stock prices. Thus, companies claimed they "must" manage earnings, in a vicious, self-fulfilling game. But "earnings management" was a sort of Ponzi-ing. If carried on long enough, a petty form of cheating snowballed into larceny.

"I can't tell you how much I hate managed earnings in terms of what they do to people. The nature of managed earnings is that you start out small. It's like stealing five bucks from the cash register and promising yourself you'll pay it back. You never do. You end up the next time stealing ten bucks. Once you start that kind of game, it draws everybody in. The organization picks up on it, people get cute and clever, and it snowballs. I gave these speeches after we discovered it. I told them, 'Now the monkey's off our back. We don't have to predict anything to the analysts. Let's just give the damn handout showing the results every year, and whatever we earn, we earn.'"7 Buffett wanted out of the game. If asked off the record what his worst business mistake was, he no longer listed "sins of omission" instead, he said, "Serving on boards." He was weary most of all of the way it tied his hands. Coca-Cola had changed its policy of requiring directors to retire at age seventy-four to one that merely required directors at that age to submit a letter of resignation for the board to consider. Leaving the Coke board would have let him tap-dance off into the sunset. But for the savior of Salomon to snub a company in trouble would be like sticking a dagger in the stock. "I wouldn't stay on the board, except I don't feel like leaving the other guys" to deal with the mess at Coca-Cola, Buffett said. His pro forma letter was, of course, rejected. This was seen externally as a power play to maintain the coziness of a board of cronies. Buffett had no idea what a plateful of misery he had just ordered.

As soon as the proxy statement was filed with Buffett's name listed for election as a director, Institutional Shareholder Services, a powerful organization that consulted on shareholder voting and voted proxies on behalf of institutional investors, told its clients to withhold their votes for him. ISS said that Buffett's independence as a member of the audit committee could be affected by the fact that Berkshire Hathaway companies like Dairy Queen and McLane bought $102 million of Coca-Cola products. At a time when scandals involving conflicts of interest had shaken confidence in institutions ranging from the church to the military, the government, and business and nonprofit organizations, accusations of conflicts of interest and questions of governance were taken with a new seriousness. The cronyism of Coca-Cola's board could have been attacked on other grounds, but ISS lacked any sense of proportion in applying its principles regarding conflict of interest. Its lack of proportion was in keeping with the lack of proportion shown by most who were attacking business at the time (which, to be fair, some in the business world had more than earned)-but nonetheless, disproportionate it was. Since Berkshire's purchases of Coke for its businesses were trivial when compared to Berkshire's ownership stake in Coke, which was huge, how could Buffett's behavior as a member of the audit committee or the board of Coca-Cola be said to be compromised?8 The rules of ISS, however, were based on a checklist, with no leeway whatsoever for common sense. CalPERS, the powerful California Public Employees' Retirement System, also decided to withhold support for half of Coke's directors, among them Buffett, in his case because the audit committee on which he sat had approved the auditors to do nonaudit work.9 While CalPERS was taking a principled stance on auditors, this recommendation was sort of like putting out the candles on a birthday cake with a fire extinguisher.

Buffett made a quasi-joke of it in public, saying that he was paying CalPERS and ISS to rally votes against him as an excuse to get off the board. But in fact he was mad, especially at ISS. It seemed obvious to him that the billions of dollars' worth of Coca-Cola stock that Berkshire owned grossly outweighed the Coke products that Berkshire Hathaway bought.

"If I were a wino off the street, those amounts they're talking about might be significant. But I own eight percent of Coca-Cola. We've got so many more dollars in Coke than anything else. How would I possibly favor Dairy Queen's interests over Coke's when I own so much more of Coke's stock?"

Herbert Allen sent an emotional letter to the Wall Street Journal, citing the Salem witch trials, when "reasonably stupid people accused reasonably smart and gifted people of being witches and casting spells. Then they burned them.... Up until the geniuses at ISS said it, nobody knew that Warren was really a witch."10 When corporate board members were surveyed, they unanimously thought Buffett was their dream director. "We would come and wash Buffett's car to have him on our board.... There's not a person in the world who wouldn't take himon their board.... CalPERS's action shows the stupidity of corporate governance run amok...analogous to an NFL coach preferring an unknown quarterback from a Division II college instead of a Super Bowl quarterback.... If you were a shareholder, given the choice to have Warren Buffett on that board or not, you'd want him."11 The Financial Times referred to ISS as the Darth Vader of corporate governance, citing a position that "smacked of dogma."12 With inkwells of backlash spilling all over them, CalPERS and ISS began to look foolish, "somewhere between hideous and self-promoting populists," as one retired CEO put it on the survey. "How could you bring yourself to a position where you would vote against him as a director and think that was a pro-shareholder thing to do? What a ridiculous piece of advice."13 Throwing Buffett off the board to improve the audit committee was like firing your doctor because you were still sick. What Coca-Cola needed was more Buffett, not less. ISS responded by saying that it was not advocating a vote against Buffett. Rather, it was saying to "withhold" votes from him because of his position on the audit committee.14 But withholding a vote was not voting for Buffett, no matter how you parsed the words or why you said you did it. The more ISS explained, the less anyone was convinced.

The bigger problem was that ISS was not just giving advice. Because so many investors had simply delegated their voting rights to it, ISS was more like a single behemoth shareholder that controlled as much as twenty percent of all the board votes for major corporations in the United States. The securities laws had not anticipated that a situation could arise in which one unregulated, magisterial "shareholder" held so much power over American businesses. But there it was.

Buffett had a passionate view of corporate board responsibilities, founded in his partnership and based on alignment of interests. "I think owners should behave like owners, and I think they should care about independence. And so those guys are right on two out of three. It's just that they don't have the faintest notion of what independence is about or how boards actually work. This checklist approach is totally crazy. If we'd gone out and found somebody in the unemployment line and paid them $125,000 to be a Coke director, they'd be considered 'independent.' And CalPERS and ISS would have no problem voting for him, even though he depended completely for his income on that paycheck from Coke."

Studies, however, had shown either no correlation or negative correlation between board independence and a firm's performance.15 But for the Coke board to rail against ISS also lacked a certain credibility and seemliness. Now that Coke's stock was barbecue, its board members could convincingly summon no more than low to middling dudgeon. The accusations of a "crony board" neared the mark. Although it had factions, one faction ruled; or rather misruled; Buffett admitted that he should have done more to try to steer things right at Coke. Indeed, if Coca-Cola had been run by him, assisted only by a six-pack of Cherry Coke, perhaps many of its woes could have been avoided.

Instead, a brew of important people-several of them titanic personalities, and all of them accustomed to being in charge-could not sit back and simply allow themselves to be led by a weak CEO; they had spun into a vortex. That Daft had improved Coca-Cola's profits, sales, and cash flows and had mended poisonous relations with the bottlers were not enough to turn things around for him. In February, Daft suddenly told the board he was resigning.

Daft was unpopular in many quarters, but his announcement set off dismay at the prospect of more bad publicity for Coca-Cola. This time the next guy in line could not be simply plugged into the job. Some board members viewed that as the chance to finally do the job right. In a move that had instantly attracted controversy, however, concurrent with the announcement of Daft's resignation, seventy-seven-year-old Don Keough had joined the board; Keough, who had been sometimes referred to as the "shadow" CEO, became chairman of the search committee. He and Buffett now spent hours on the phone trying to find a leader for Coca-Cola.

The search for a fourth CEO in eight years quickly turned into a spectacle. The board looked at Coca-Cola's president, Steve Heyer, once considered a shoo-in, but the board members split over him, and once outside candidates were proposed, his chances began to fade. Various celebrity CEOs considered then turned down the job. Each rejection fed the media another bit of Schadenfreudenfodder. Slit-eyed rumors gathered for a chat. Maybe Coke would buy another company. Maybe it would sell itself to Nestle.

Buffett flew to the April 20 board meeting in Wilmington, Delaware, the evening before the Coca-Cola shareholder meeting, prepared for two days of intense work. He was not looking forward to the reading of the results of the director election, which would show a significant percentage of the vote withheld from him.

In the faded grandeur of the old Hotel du Pont, Buffett began with the meeting of the audit committee, which was still conducting the inquisition and preparing to do corporate penance over the SEC investigation of earnings management.16 "If you don't come clean the first time you discover it, you're stuck. And that may mean giving up your job too. I can see how it happened. Roberto was a wonderful guy. He did a good job of running the company. And the rest of them were decent people, pretty much. But if Roberto told them, 'I want you to ship some extra cases,' it would have been unquestioned at the Coca-Cola Company."

The audit committee felt all this had been concealed from them. Buffett, sentenced to remain on the Coke board for another year, knew of no real solution except: Clean up the damned mess and never do it again. He moved on to the finance committee, then the executive committee. The board had various thorny issues to address. At last the evening ended.

The next morning, as he was getting dressed before heading down to the meeting, he reflected on the coming day's events. The Teamsters would already be clogging the street in front of the hotel with their blue tractor-trailer truck parked among the students waving signs that said "Coca-Cola Destroys Lives, Livelihoods, and Communities" and "Killer Cola, Toxic Cola, Racist Cola." He couldn't see from the window, however, whether the Teamsters had brought their twelve-foot-high inflatable rat. The Coke shareholder meeting was becoming a rite of brand-building within the activist community.

Then the phone in his hotel room rang. He picked it up and found the last person he was expecting on the other end of the line-Jesse Jackson. Jackson merely said that he wanted to express his admiration for Buffett. They talked for a minute or two of things of no consequence, and hung up. That's odd, thought Buffett. In fact, it was the first sign that this was going to be the Coca-Cola shareholder meeting to end all shareholder meetings.

Downstairs, protesters in the lobby outnumbered the shareholders. The glassblowers' union handed out bumper stickers to protest the company's purchases of bottles from Mexico.17 Protesters handed out leaflets accusing Coca-Cola of conspiring with paramilitary groups in Colombia to assassinate labor leaders. College students protested Coke's presence on their campuses. Buffett quick-stepped across the lobby to the ballroom, where he was recognized and let inside, along with the rest of the directors. He sat down in the front row. The other attendees picked up credentials, then passed through security, their packages scanned by metal detectors as they surrendered cell phones, cameras, recorders. The security check amid the gilded molding and crystal chandeliers gave the place the feel of a crowded and unpleasant government palace in some former colonial outpost that had suffered through one too many dictatorships. The travelers seemed to have arrived at some dreary but dangerous destination. Coca-Cola put little brochures around the lobby highlighting its community projects and offered a cooler of Coke and Dasani water for people to grab on their way to the stiff-backed shoulder-to-shoulder seats into which the shareholders wedged themselves for the two-hour journey through the Kafka novel that a modern annual meeting had become.

Doug Daft made some brief introductory remarks from the podium between the two long, funereal, white-covered tables behind which the other executives had barricaded themselves. He asked if there was any discussion of the proposal to elect directors. Buffett, seated up front with the rest, turned around when Ray Rogers, president of Corporate Campaign, Inc., an agitator-for-hire group that worked mainly for labor unions, stood up and yanked the microphone from the floater who was working the aisles. Rogers started yelling that he had withheld votes "until a number of terrible wrongs are righted by this board." Coca-Cola, he said, was "rife with immorality, corruption, and complicity in gross human rights violations, including murder and torture." Daft was a liar, he screamed, the company's leadership operated with "unrestrained greed," and the company was an "utter pariah" in the United States that made its money "on the destruction of a lot of communities." As Daft tried to reassert control of the meeting with all the success of a substitute teacher, Rogers continued shouting, shuffling through what appeared to be many pages of text. Daft told him his time was up and asked him to stop speaking, but Rogers carried on. The audio people turned off the microphone's sound, but Rogers's vocal cords were far too well-exercised to be daunted by the mere absence of amplification. Finally, a group of six security guards wrestled him to the floor and carried him away as the audience stared in shock and Daft stood by helplessly, trying to restore order, pleading, "Be gentle, please," to the security guards. Then he muttered audibly to a colleague, "We shouldn't have done that."18 After this steer-wrestling session ended, the room settled into a jittery hush. Sister Vicky Bergkemp of the Adorers of the Blood of Christ took the microphone next. She gave a short speech about AIDS and asked the management of Coke to inform the stockholders of the business effect of the AIDS pandemic on Coca-Cola. Since AIDS had nothing to do with Coca-Cola's business, management agreeably supported this proposal. Then shareholders introduced other proposals having to do with their view of excessive compensation given to management. The company recommended votes against all of these.

At last, the results of the election of directors were reported. This was the moment Buffett had been dreading. "Each of the nominees for election of director have received over ninety-six percent of the votes," said the general counsel, "with the exception of Mr. Buffett. Mr. Buffett received over eighty-four percent of the vote."19 Being singled out in public as the least-wanted director at Coca-Cola was humiliating. Never before had a group of shareholders rejected him. Even though CalPERS and ISS accounted for virtually all of the sixteen percent of the votes against him, and institutional investors had for the most part ignored CalPERS and ISS and championed him, it didn't feel like a triumph. Rarely had Buffett regretted serving on boards as much as he did at this moment. However, there was little time for him to dwell on it, because Daft opened the microphone to shareholder questions, and the Reverend Jesse Jackson promptly stood up and hijacked the meeting.

"Mr. Daft, and members of the board," he began in rolling tones, "let me say at the outset...that while many disagreed with the first person making a comment...his violent removal...was beneath...the dignity...of this company. It was...an overreaction.... It was...an excessive use of power.... I...would like to know," Jackson asked rhetorically, "if there is a person of color...in the mix under consideration for the job" of CEO. The college students' complaints about Coke on campus and accusations that the company had murdered union leaders in Colombia now seemed anticlimactic. Daft struggled to conclude the most disastrous shareholder meeting in Coca-Cola's history, as board members vowed to themselves that the way this meeting had escaped the CEO's control must never be repeated.

After the fiasco, the search for a CEO took on the feeling of an emergency. Steve Heyer, the internal candidate, had been ruled out at the last board meeting and was heading off to pursue other business interests at Starwood Hotels, complete with a huge and controversial severance package that would, once again, embarrass Coca-Cola. Finally, the board reached out to another candidate they had been discussing, sixty-year-old Neville Isdell, who had retired after being clotheslined years before by Doug Ivester. A tall, charismatic Irishman who had been raised in South Africa, Isdell was popular with the board. By then, however, Coca-Cola could do nothing to please its audience. "Bringing in the old guys" was the reaction. "They hired another Daft."20 Isdell was already presumed a future victim of the board's ax, for the board had earned a fearsome reputation for irksomeness and whimsical behavior.21 Yet this was the same board that had sat primly for years as if it were Goizueta's footstool. It was only after Goizueta's untimely death left the leadership in shambles that the board, which for the most part consisted of the same people who had served under Goizueta, had split in two. During the six-year interregnum, a small group of directors had grabbed for the reins of the Real Thing's runaway stagecoach. All the while, the company missed consumer trends and made strategic mistakes. To catch up and correct the problems, Coca-Cola needed a determined and tough CEO who could tame the faction on the board that became overbearing when deprived of a dominant leader to keep them in line. How long Isdell would survive would depend on how strong a leader he turned out to be.

Buffett gave his speech about managing earnings; Keough started to help Isdell, as he helped every new CEO. Isdell accepted the help, but as it turned out, he wouldn't need all that much.

61.

The Seventh Fire New York City, Sun Valley, Cody * MarchJuly 2004 Buffett had spent twenty-six weekends in San Francisco. He and Susie had watched almost a hundred episodes of Frasier together. The family remained protective. She still saw almost no one else.

She was starting to eat fresh food. Her friend Tom Newman, a caterer and chef, tried to interest her in something healthier than ice cream and chocolate malteds, and made her pureed carrots, creamed spinach, mashed potatoes, egg salad, and "anything where I could get her some proper nutrition."1 In March, she went for her first MRI scan since the surgery. Buffett knew the stakes associated with this event. Susie had said she would have no more surgery.

"She won't go back into the hospital. She won't. I think the odds are reasonably good, but..."

The MRI came back clean. Buffett was overjoyed; he said that Susie's doctors told her that this meant she had the same odds of a recurrence as if she had never had cancer. Susie may have put it this way to Warren because she thought that this was what he needed to believe, but what Dr. Schmidt had actually told her was that she could probably count on one good year. After that, the future was uncertain.2 Months of being trapped inside by illness, just as in her childhood, affected Susie predictably. As weak as she was, her pent-up urge to live her life again exploded. "I'm going to see my family," she said. "I want to see everybody. I'm going to do everything I want to do until Dr. Schmidt tells me not to."3 The first thing she wanted to do was go to the Laguna house and have the grandchildren come visit. For Warren's sake, she wanted to attend the Berkshire shareholder meeting. She wanted to be strong enough to attend the premiere of Peter's multimedia show, Spirit-The Seventh Fire, which was to take place in Omaha in July. She had a long list of other goals as well.

Susie's hair, which had been light-colored for the last few years, was close-cropped now; her youthful face looked a little slimmer but otherwise no different than before. She spoke with a slight lisp, but it was easy to forget what had happened and not notice how little energy she had.

Buffett's preoccupation was whether she would be able to attend the shareholder meeting in May. The meeting had taken on such symbolism to him that a measure of how much people cared about him was their willingness to travel to Omaha for this event. Susie's presence reassured him; she was not a spectator but part of the show. If she could not attend, it was as though his leading lady would be missing from the stage.

The Buffetts had triangulated the shareholder weekend so that Astrid (who considered the whole thing a bore and was pleased to be excused) accompanied Warren only to the backstage social events, just as she did in real life, while Susie attended the "official" public social events in the role of "wife." She sat in the directors' section at the meeting and sang onstage with Al Oehrle's band in the mall at Borsheim's on Sunday afternoon. Buffett's supporting cast of loyal Daisy Maes had grown larger over time, and he cared very much that they attend as well. From time to time throughout the weekend, a clanking sound heralded the approach of Carol Loomis wearing her bracelet hung with a collection of twenty-seven matchbook-size gold and enamel charms, facsimiles of the Berkshire Hathaway annual reports-one for each year she had edited Buffett's words. Sharon Osberg became part of the show by taking on any shareholder who wanted to play bridge with a champion on Sunday afternoon in the big white tent outside Borsheim's. Buffett had not yet figured out a way to put his latest Daisy Mae, Devon Spurgeon, to work. Spurgeon, the former Wall Street Journal reporter who had covered Berkshire for a while, was starting law school in the fall. Buffett had made Spurgeon one of his new people, a great rarity that now occurred only at intervals of years. Buffett had actually suggested that she get married at the meeting, where he would walk her down the long, long center aisle to the front and give her away as a bride. "Imagine how many gifts you would get from Borsheim's," he said. Genuinely touched by his offer-but warily envisioning news stories portraying her nuptials as the Berkshire version of a Moonie wedding-Spurgeon and her fiance Kevin Helliker decided to get married in Italy instead. Buffett had granted her a seat with the managers in their reserved section;4 Osberg and Loomis, who were de facto family, sat in the section reserved for family and directors.

Everyone else had to scramble to avoid a place in the rafters. This year, so many requests for passes had come in that almost twenty thousand people were expected.

A black market of scalpers had sprung up on eBay, selling meeting credentials for as much as $250 for four passes. Buffett was mildly awestruck. Who ever heard of tickets scalped to a shareholder meeting? The eBay listing said: "Possibly meet in person Warren Buffett or ask him a question at the meeting.... Winning bidder also receives the visitor's guide. The pass also allows you employee pricing at Nebraska Furniture Mart and Borsheim's Jewelry Store.... BBQ party...Cocktail party at Borsheim's...Shareholder party at Buffett's favorite steak house...View displays from many of the Berkshire companies."

As much as the P. T. Buffett loved it, Howard Buffett's son wanted the scalping stopped. He couldn't allow people to be gouged by scalpers just to attend the shareholder meeting. The man who, a year or two earlier, had professed (for good reason) ignorance of technology set up his own e-tailer on eBay, hawking meeting credentials at $5 a pair. People e-mailed anxiously. Would these credentials be "real," or would they look different, stigmatizing the buyer as not a "real" shareholder? The question implied that this would be awful, labeling them as not a member of the "club."

But, no, the credentials would be real, however obtained. And with that, Berkshire Hathaway-once a cozy club made up of rich partners whom Buffett considered friends-suddenly became a fan club. Buffett had opened up the tent and invited everybody in.

Omaha's brand-new Qwest Center rose like a great silver circus tent near the Missouri River. Its facade reflected like a mirror on the grimy old Civic Auditorium across town, scene of the last four meetings. Kelly Muchemore strode around the floor for days ahead of time with her walkie-talkie, overseeing forklifts filled with bales of hay and crates of flowers, lampposts, and tons of mulch that would be landscaped into garden and seating areas in the exhibition hall. Construction crews built neighborhoods of booths to display awnings, air compressors, blocks of knives, encyclopedias, vacuum cleaners, and picture frames. Workers installed signage marking the "Berkyville" streets and avenues that snaked in between the furniture showroom, the kitchenware store, the Western bootfitting area, the Bookworm book shop, the candy store, the insurance sales counter, and the women's shoe store. Upstairs in the arena, the stage crew set up the white-covered table with microphones backed by oversize screens where Buffett and Munger would sit, while the lighting crew tested the panel that created the orchestrated light show that would open the event. A "star" private dressing room was outfitted backstage so that Susie would have a place to rest. An armored truck pulled in with a $250,000 pair of jeweled cowboy boots destined for the Justin exhibit. A movie projector and screen and giant pillows waited in a casbah party room, where the hundreds of exhausted Berkshire Hathaway employees who would be working free of charge could drag themselves to collapse after the event.

Buffett bounced around the office like a teenager. Visitors, including a group of college students, dropped in to see him. His voice grew hoarser as the week wore on and the number of visitors kept increasing. Everyone nagged at him to save his voice for the presentations, but he ignored them, sprayed his throat, and kept talking anyway. Requests for more than a thousand tickets had come from Texas, two thousand from California, and another fifteen hundred from outside the United States. A group of seventy-seven people had chartered a plane to fly from Australia.

By Friday Buffett's voice sounded like someone recovering from a bad cold. Still, he refused to stop talking. But Buffett never had stopped talking, never once in his life. Since he was a little boy and astonished his parents' friends with his precocity; since he gave his high school teachers advice on stocks; since the Alpha Sigs gathered around to hear him lecture at fraternity parties; since he and Ben Graham held a duet around the conference table at Columbia; since he had sold GEICO as a prescriptionist; since he'd first picked up a stick of chalk and taught investing at night; since he'd bewitched people at cocktail parties in Omaha and dinner parties in New York; from the first meeting of the partners to the last; from the day he answered Conrad Taff's questions at the original Berkshire shareholder meeting in Seabury Stanton's old loft to the latest group of students who had shown up at his door-as long as he could be teaching something to somebody, Buffett had never ceased talking.

On Friday night, he spoke to a small group at a dress rehearsal,5 then headed to a private dinner hosted by Charlie Munger. Before dawn the next morning, caterers arrived with food for the press box, the backstage area, and the vendors' Beehive Cafe. People dressed in sport coats and polo shirts and T-shirts and shorts and big yellow foam hats were already lined up in a scene resembling Macy's the morning after Thanksgiving. When the doors opened at seven a.m., they ran for the arena and marked out the best seats. By eight-thirty, every seat was filled. When the lights dimmed, talking ceased instantly. Nobody whispered, nobody straggled in late. The audience was waiting, rapt. The music began and the movie rolled.

The filming of the introductory movie for this year's meeting had consumed a large portion of Buffett's energy in the spring, in between trips to San Francisco and long phone calls about the problems of Coca-Cola. For the first time, it had involved real Hollywood scripting, professional studio camerawork, and-to Buffett's almost orgasmic delight-the use of a body double. His very own doppelganger! He had been watching it over and over in the office, anticipating the audience's reaction.

The new governor of California's face appeared on the screen. Arnold Schwarzenegger was wearing drill-sergeant gear and sitting behind an elaborate desk in a fully stocked workout room. The movie rolled through a parody of An Officer and a Gentleman, in which Arnold, in the Lou Gossett Jr. role, browbeat Bufffett's body double through a torturous workout, as punishment for having talked indiscriminately to the Wall Street Journal about California's bizarre, inequitable property tax laws during the gubernatorial election. Buffett had feuded with the Journal over its selective use of his words, and won an apparently resounding victory in readers' minds by writing a letter to the editor about his viewpoint and posting it on the Berkshire Web site. Since then, he had been simultaneously playing the incident up and trying to live it down.

"You want to quit! Say it! Say you want to quit!" roared Arnold.

"No sir! You can't make me say it! No sir! I've got nowhere else to go!" shouted Buffett. But then he started cruising through the workout as easily as if he were sitting in his chair at home, reading the Journal.

The scene dissolved to the governor's office, Arnold sleeping, head on his desk.

Aide: "Mr. Governor."

Arnold: "I got nowhere else to go!...Huh?"

Aide: "Power-nap time is over, sir. Time to get to work on some more propositions to fix this mess we're in."

Arnold: "What? Oh, okay. Wow. I just had the strangest dream...."

He picked up a magazine on his desk and his face twisted. On the cover of Muscle & Fitness was Buffett's smirking face superimposed on the bulked-up, posing, Pumping Iron Schwarzenegger body. Arnold reared back, his expression a strangled mask of fear.6 Here it was, Buffett's delirium dream. To pull it off had taken hanging out with the world's best bodybuilder and a little camera magic, but he had finally done it. He had made it into the modern-day equivalent of the Big Arms book. Pudgy Stockton would be so impressed.

The audience roared. Then the movie rolled on, featuring Warren and Charlie, but especially Warren as a superhero, in any number of guises. Most of the skits and cartoons emphasized Buffett and Munger as cheapskates.

Afterward, the auditorium went dark for a moment. Then while the stage lights rose, Susie, in a pink sweater and skirt, looking a few pounds lighter, walked briskly out onto the floor toward the directors' section immediately in front of the stage and sat down. Next, Buffett and Munger entered like a couple of graying talk-show hosts and sat down at a white-cloth-covered table. Enormous screens displaying them had been positioned all around the arena, so everybody got a close-up look. Buffett was staring out at a dark arena filled with flashing lights and as many people as would show up in Nebraska to see the Rolling Stones.

Before taking questions, Buffett kicked off the meeting with rapid efficiency to cover a normally perfunctory five-minute business agenda of electing directors, ratifying auditors, and the like. This year, almost immediately, one of the shareholders stood up at a microphone and said in a timid voice that he was withholding his vote; he offered a motion from the floor. He asked that Buffett consider using some of the CEOs of his companies as directors because they were better qualified than Susie and Howie Buffett.

An audible ripple shuddered across the auditorium. The motion, even though presented in a respectful tone, fell like a big wet blot to mar the smooth, engraved surface of the shareholder meeting agenda. Most of the audience was shocked. Berkshire was now the fourteenth-largest business in the United States, with over 172,000 employees, $64 billion in revenues, and profits of $8 billion a year. But it remained at heart a family corporation; as the largest shareholder, Buffett had the votes to elect a couple of board seats for family members if he wanted. He saw his family's role in Berkshire as similar to the Walton family's at Wal-Mart, a nexus between the Buffett Foundation and the company. Unquestionably, the way he chose his board was purely personal, although some board members happened to be successful businessmen.

"Thank you," said Buffett. "Charlie, do you have any thoughts on that?"

This punting to Munger-no quick comeback or pithy comment-was a measure of Buffett's complete discomfiture. However, it also put Munger on the spot, since anything he said might imply that he had some influence on how Buffett chose his board. He had none whatsoever, so Munger simply said, "I think we should go on to the next item."

Another motion came to the floor. Tom Strobhar, on behalf of Human Life International, one of the organizations that had boycotted Berkshire Hathaway and successfully forced the company to end its charitable-contributions program, gave a speech about abortion that was, as he later wrote, "ostensively [sic]" disguised as a proposal that Berkshire publish a list of its political donations.7 Buffett merely said in response that Berkshire hadn't made any political donations. The motion was voted down.

The business section of the meeting had now consumed half an hour instead of its usual five minutes and for the first time had borne a vaguely unpleasant resemblance to the Coca-Cola meeting. All this time, shareholders holding written-out questions had been patiently lined up at the numbered platforms equipped with microphones stationed all around the arena. Now Buffett opened the questioning by asking to hear from "microphone number one." As the questions began, his wheels churned on the issue that was bothering him. He used a question on another topic as an opportunity to address the issue of his family as board members. His wife and son, he said, were on the board as "guardians of the culture. They're not there to profit themselves."

It was a remarkable moment. For the first time, he had to defend in public the way he ran his company. Afterward, however, nobody else asked anything related to this topic. The shareholders of Berkshire Hathaway were content with things as they were. Buffett had earned the license to run his company any way he damn well pleased, as far as they were concerned; they were a happy lot. How was the investing climate? they asked. Our capital is underutilized now, he said. It's a painful condition to be in, but not as painful as doing something stupid.

Somebody asked Buffett about ISS recommending a vote against him on the Coca-Cola board. The issue still lingered. "I think it was Bertrand Russell," he said, "who said that most men would rather die than think. Many do."

"The cause of reform is hurt, not helped," Munger added in a tart voice, "when an activist makes an idiotic suggestion like the one that having Warren on the board of the Coca-Cola Company is counter to the interest of the Coca-Cola Company. Nutty activities do not help the cause for which the person speaks."8 As happened every year, someone asked what Buffett was doing with all those warehouses of silver he had bought a few years ago. He paused for a minute, then said he couldn't comment. Munger made some unintelligible noises in the background and the shareholder sat down, unenlightened. In fact, the silver had been sold.

Buffett and Munger started eating peanut brittle, and people went downstairs to the basement exhibition hall, where thirty-seven Berkshire Hathaway subsidiaries were selling products, and bought out all the peanut brittle in the See's Candies shop. When Buffett and Munger started eating Dairy Queen Dilly Bars, the Dilly Bars sold out. Many people bought boxes of candy and took them back to the meeting upstairs, where they sat listening to Buffett and bingeing on sweets.

In the course of answering the many repetitious questions he was asked in between the new and insightful ones, Buffett managed to work many of the items he wanted to discuss into his responses. This year he used the meeting to expound on his "Why I'm Down on the Dollar" theme. The U.S., he said, was like a family that spent more than it earned. Americans were buying huge amounts of products from other countries and didn't have the income to pay for them, because we weren't selling as much to other countries as they were selling to us. To make up the difference, we were borrowing money. Those who were lending it to us might be less willing to do so in the future.

Now, Buffett said, we were spending more than two percent of all our income just to pay the interest on our national debt, and that meant the situation would be hard to turn around. Most likely, he thought, at some point foreign investors would decide they liked our real estate and businesses and other "real assets" better than our paper bonds. We would start selling off pieces of America, like office buildings and companies.

"We think that over time the U.S. dollar is likely to decline in value against some of the major currencies," he said. Therefore, the economy-which had been pretty wonderful over the past twenty years, with both low interest rates and low inflation-could at some point reverse. Interest rates probably would be higher, as would inflation, which would be an unhappy situation. As always when he made predictions, he couldn't say when. In the meantime, however, he had bought $12 billion of foreign currency to hedge Berkshire's dollar risks.

While Buffett and Munger were talking about the perils of debt, people rolled down the ramps and escalators to the shoe department and waited in lines to pull out their credit cards. Fitters from Tony Lama and Justin sold a pair of boots a minute: workaday plain Westerns to fancy lizard models. Over at Borsheim's, on the west side of town, more than a thousand watches and 187 engagement rings were being sold. The Furniture Mart was doing a record $17 million of business.

The convention center had many of the elements of a carnival; a GEICO gecko waved at passersby next to a NASCAR race car. A character dressed as a foam Acme brick hooked up with a foam ice-cream-cone character. A rodeo clown stalked the floor on stilts among the air compressors and boat anchor winches. At the south end of the exhibition hall, rising above the crowd, just as Buffett had pictured it, stood a full-size Clayton Home, clad in beige siding with a tidy front porch, sand-colored shutters, and a real grass lawn and brick foundation bedecked with shrubs. And just as he had foreseen, a queue snaked back and forth behind a zigzag rope, as if it were Space Mountain at Disneyland.9 But it was the Fruit of the Loom booth that epitomized Berkshiredom. The Fruit of the Loom booth never had to hand out key chains or free playing cards. People stood waiting in long lines to buy a five-dollar pack of men's briefs and have their picture taken with the guys wearing grape and apple suits. By the end of the day, nearly every pack of underwear would be sold.

The black-and-white See's Candies store, conveniently positioned in the middle of the exhibition hall, also had jammed aisles-so jammed that it ran out of lollipops, salted nuts, and peanut brittle in less than three hours. Many of the customers did not bother to pay. Those taking the five-finger discount hooked huge amounts of candy as well as dozens of pairs of shoes from the shoe store, while, above their heads, Buffett and Munger talked about honesty and the ethical way of life.

As yet unaware of the thievery taking place beneath their feet that might force them to consider installing a Berkyville jail by the bookstore next year, Buffett and Munger ambled on, answering questions and chomping on sweets as they talked their way through the entire six hours.

Any normal person would be exhausted after putting on a six-hour live, unscripted performance, but when the meeting ended, Buffett and Munger went upstairs to a large room and parked themselves at a desk, signing autographs so that shareholders who had come from foreign countries could get closer to them. This was a recent idea of Buffett's. Munger sat through it patiently, but he was getting tired and sometimes talked with bemusement of this circus that Warren had created. He, too, enjoyed being worshipped, but never would have gone to the trouble to stage-manage and encourage it, the way his partner did.

Susie had left to go lie down after the first couple hours of the meeting. She skipped the Sunday brunch, but flew to New York with Warren on Monday. She stayed in bed in her hotel room until one in the afternoon, mashing up pills in room-service ice cream. Susie Jr. watched over her to make sure she didn't get trapped into overextending herself. She wanted her mother to limit her outings to one thing a day-one visitor, one shopping trip, one fifteen-minute visit to the hotel lobby.10 Susie did attend the traditional dinner party that Sandy and Ruth Gottesman held in their honor every year. Since the mid-1990s, this had become the one time that many of the people in the Buffett Group could count on seeing their old friends during the annual New York trip. Now Susie Jr. said to Ruth Gottesman, "She's going to try to do more than she should. She's going to say she's fine. She's going to lie to you," and she asked for help in protecting her mother. Most of those who gathered at the Gottesmans' had not seen Susie at all during the past year, except perhaps at the shareholder meeting, and then only briefly. She sat in one room and Warren in another, while people came in to greet them and chat. Many people would later recall the event as emotional. Susie declared that she was glad she had gone. But afterward, she was exhausted.

Warren also wanted her to do an interview with public-television talk-show host Charlie Rose. Susie said many sentimental and flattering things about her husband, and explained that she provided Warren with "unconditional love." She also discussed her move to San Francisco, saying she left, as she told Warren, because "I would like to have a place where I can have a room of my own. It would be nice." On Astrid, "She took care of your man for you?" asked Rose. "She did, and she takes great care of him, and he appreciates it and I appreciate it...she's done me a great favor," Susie said. Perhaps because of the set-up question, this exchange made clear that Susie viewed Astrid as the tool through which she managed Warren-something that Susie may not have intended to reveal quite so bluntly. Afterward, she said to Susie Jr., "Let's go to Bergdorf's."11 There, she sat on a chair and looked at some things but soon said she was tired and went back to the hotel.