Issue of the week: How Buffett runs his empire
Buffett admits that he erred in initially treating David Sokol's purchase of stock in Lubrizol so lightly.
Warren Buffett hasn’t been as complacent as it first appeared about defending his company’s reputation, said Andrew Ross Sorkin in The New York Times. Questions mounted last month when the Berkshire Hathaway chairman said he saw nothing “in any way unlawful” in onetime heir apparent David Sokol’s purchase of stock in chemical company Lubrizol ahead of Berkshire’s acquisition of the company. But at Berkshire’s annual meeting last week in Omaha, Buffett changed his tune. Sokol, he revealed, had bought $10 million in Lubrizol stock after merger discussions began—not months before, as Buffett had first assumed. When Berkshire announced in March it would buy Lubrizol for $9 billion, the value of Sokol’s stake rose by $3 million. Buffett told shareholders that he had laid out what he called “pretty damning evidence” of Sokol’s Lubrizol stock trades to the Securities and Exchange Commission shortly after Sokol’s resignation. With that “measured approach,” Buffett buffed his tarnished reputation for integrity and ensured that Sokol would never work in corporate America again.
The grandfatherly, ukulele-strumming Buffett has flashed his ruthless streak, said Serena Ng and Shira Ovide in The Wall Street Journal. Calling Sokol’s actions “inexplicable and inexcusable,” Buffett said his former aide had violated Berkshire’s insider-trading rules and ethics code. Buffett acknowledged that he had erred by not expressing more outrage initially, explaining that he was reluctant to “lay out damaging facts” about a former employee “without noting all the good work Sokol did for Berkshire.” But what exactly would that “good work” have been? asked Peter Lattman and Geraldine Fabrikant in the Times. Sokol’s suggestion that sick or troubled employees “could be a danger to themselves and to the company” and should be “pushed to the side”? His lawsuit against a Berkshire unit to find out which employees there were bad-mouthing him? Sokol, like Buffett an Omaha native, joined Berkshire in 1999 when it acquired MidAmerican Energy Holdings, where he was chief executive. His record should have triggered Buffett’s alarm bells earlier.
No doubt, this was a sordid affair, said David Weidner in MarketWatch.com. But at least Buffett “reminded us that not everyone on Wall Street blames the guy who’s not in the room.” Can anyone imagine Lloyd Blankfein of Goldman Sachs—or any of the other financial executives who peddled lousy credit to investors—saying, “I obviously made a big mistake,” as Buffett did this week? “Our most admired capitalist” has lost some luster in recent years, and the Sokol affair is the worst of it. But by owning up to his failings, Buffett has “reaffirmed our faith” and kindled new hope in the face of a welter of threats to America’s financial might and influence.