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“CEOs know what their option grants are worth. That’s why they fight for them,” he wrote, and repeated the questions he had raised before.

“If options aren’t a form of compensation, what are they?

“If compensation isn’t an expense, what is it?

“And if expenses shouldn’t go into the calculation of earnings, where in the world should they go?”

At Sun Valley in July 2002, emotions ran high over stock options. Buffett’s loudly expressed view, combined with his influence, hung ominously over the heads of the stock-option lobby. The thermometer hit triple digits, and the sweating celebrities and corporate chiefs headed off in buses to go rafting and escape the heat.

Buffett himself went somewhere else shortly after he arrived, somewhere he needed help to face. Katharine Graham’s condominium had been right next to Herbert Allen’s, in the Wildflower group, a spot that people passed by often on their way to and from events. The Coca-Cola board would be convening later for a meeting at Allen’s, since most of its members were on site. The purpose was to discuss stock options, and he would not miss this. But first:

“I was with Bill and Melinda, and we went up to the spot where Kay fell. I wasshaking, and I couldn’t stop. It was like I had the chills or something. And, you know, they were probably embarrassed. I really wasn’t. I was just overcome at that point.”

Afterward, Buffett was able to perform his ongoing miracle of the bathtub memory, and carried on with composure. The Coca-Cola board made a decision during its meeting and announced in a press release that it would start to book the cost of its employee stock options as an expense, which was currently allowed but not required. Nobody else did that. They used an argument like the kid who tells his parents: It didn’t happen, but if it did I wasn’t there. And if I was there, I didn’t do it; and if I did, my friends made me. Businesses said that stock options weren’t an expense; but if they were an expense, nobody knew how to calculate it. And if they could, the expense shouldn’t be deducted from earnings. It should only be disclosed in a footnote. Because it might confuse investors to know just how much the executives’ stock options were worth. So Coca-Cola’s announcement hit corporate America like a cluster bomb, its force magnified by the venue at which the new policy was proclaimed—the Sun Valley gathering where the press had dug in outside its flowerpot barricades like an encampment. Buffett’s thinly veiled hand could be seen behind this announcement. Right after Sun Valley, the Washington Post Company emulated Coca-Cola and announced that it, too, would expense stock options.38 Buffett followed up this victory with another salvo, a New York Times editorial, “Who Really Cooks the Books?”39

“I have a proposition: Berkshire Hathaway will sell you insurance, carpeting, or any of our other products in exchange for options identical to those you grant yourselves. It’ll all be cash-free. But do you really think your corporation will not have incurred a cost when you hand over the options in exchange for the carpeting?”

Strangely, no one took him up on this offer. Instead, Silicon Valley suited up for another fight in Congress. But one by one, other companies began to follow in the footsteps of Coca-Cola and the Washington Post Co., announcing that they, too, would recognize the expense of stock options on their books.

A year later, on the final Saturday morning of Sun Valley ’03, Bill Gates spoke, and announced that Microsoft was discontinuing the use of stock options. It would simply pay people a different way. From now on it would use restricted stock—stock that could not be sold for some time. This move took considerable guts.

“There was a lot of pressure on Microsoft not to do it—a lot, a lot. The Silicon Valley reaction was—traitor. Microsoft had a lot of PR people around, advising him what to do. One of them told Gates it was like tossing a match into a room full of gasoline.

“And my reaction to that was, they