Warren Buffett's handling of David Sokol's resignation and stock purchases is drawing both criticism and defense both in this country and internationally.
Sokol resigned March 28 as chairman of three divisions of Berkshire Hathaway Inc., the Omaha investment company that Buffett heads. Buffett announced the resignation in a press release and disclosed that Sokol had purchased shares of Lubrizol Inc., an Ohio chemical company, that Berkshire later decided to purchase for $9 billion. Sokol had talked to Lubrizol executives and to Buffett about a possible acquisition but the decision was not up to him.
The acquisition boosted the value of Sokol's shares by about $3 million. The transaction reportedly is under investigation to determine if Sokol traded illegally on insider information. Sokol has defended the stock purchases and said they were not a factor in his resignation. Buffett said in his press release that he believes the trades were not “unlawful” and said he would not comment further on the matter.
Buffett's no-comment stance caused Bloomberg News columnist Jonathan Weil to wonder “whether Buffett had lost his mind.”
“So, it wasn't just some questioners who would get the ‘Great Oz Has Spoken' treatment,” Weil wrote. “All questioners would, which is nuts. I mean, what's he going to do if and when the Securities and Exchange Commission asks him about Sokol's trades? Take the Fifth?
“This should be a defining moment for Buffett, and for the public whose rock-star adulation he craves. Maybe now the world will realize we never should have held him up — or bought his act — as some moral paragon. ...
“... Let's put to rest the exaltations about his plain talk and his eye for strong character. He's a corporate chief executive officer, for goodness sake. These are the kinds of dodges we've come to expect from many CEOs.”
Anand Datla of India, a columnist for the online magazine Moneylife, said the Sokol matter was a “breach of trust” by Berkshire and Buffett, calling disclosure of the stock purchases “disturbing.”
“The episode is significant as Berkshire derives significant benefits from its unquestioned integrity. Besides, the self-serving dismissal of the matter by Warren Buffett makes matters worse,” Datla wrote. “Some critics, who had slipped into a stupor under the spell of the charm of its iconic founder, have now woken up in packs over the lack of transparency and the absence of systems at one of the world's most admired investment organizations.
“Mr. Buffett is an old hand in the reputation game — after all, the image of this folk hero from Nebraska has been hand-crafted carefully through annual letters that showcase his disciplined approach to investing and incorrigible integrity in leading life.”
Hedge fund manager Michael Steinhardt said on CNBC that the Sokol's actions have become “common American practice, sort of, but it's not common for Buffett to get caught in that sort of thing. But it's sort of a peculiarly ugly phenomenon.”
Steinhardt also said Buffett was the “greatest PR person of recent times” for portraying himself as a philanthropist when he waited too long to donate money, and questioned whether Buffett's investment returns really are exceptional.
Later on CNBC, another hedge fund manager, Leon Cooperman, said Steinhardt's criticism was “inappropriate and misses the point,” adding, “I have enormous respect for Warren for what he's accomplished. He's an investment genius.”
Cooperman is a former general partner at Goldman Sachs, a company Buffett has supported in the past.
In a commentary for the Wall Street Journal, Ronald Barusch wrote: “You don't need to be a high-powered lawyer to shudder at Warren Buffett's hollow attempt to defend David Sokol's Lubrizol stock trading. For any CEO who is knee-deep in the incident to hastily proclaim that the conduct was not ‘in any way unlawful' lacks credibility.”
Timothy R. Clark, a business consultant writing in the Deseret Morning News of Salt Lake City, said Buffett may need to strengthen the accountability in Berkshire because “most people are not like him. ... When it comes to money, the man is incorruptible.”
“The genius of Warren Buffett is his rare combination of mental and moral discipline, and it is that combination — the business acumen wrapped around an ethical core — that is the source of his competitive edge as an investor,” Clark wrote. “When integrity guides your analysis and decision-making, it gives you a different lens, different criteria and a different way to assess risk. It restrains you from impulse.”
Yet Buffett finds himself “under the lamp” for the Sokol matter, Clark wrote. “Rest assured that the avuncular gentleman will bear scrutiny. To understand Warren Buffett is to understand Emerson's statement that ‘character is higher than intellect.' This is why we trust Warren Buffett. My question is, where do we find more like him?”
No impact
Separately, Lubrizol Chairman and CEO James Hambrick said the Sokol matter will not have an impact on the Berkshire acquisition, according to the industry publication Chemical Week.
A story quoted Hambrick as saying: “The matters discussed in that (Berkshire) press release do not in any way alter the terms or the timing of our proposed transaction with Berkshire Hathaway. We are continuing to work with Berkshire Hathaway to complete the merger as quickly as possible.”
Lubrizol shareholders are to vote June 9 on the acquisition.
Investor conference
David Sokol had been a headliner for the Value Investor Conference on April 28-29 in Omaha, but his resignation from Berkshire last month led him to withdraw from the conference, too.
Author and Berkshire-watcher Robert Miles, who organizes the $1,095-a-seat conference, added Robert Cialdini to the speakers' lineup. Cialdini is author of “Influence: The Psychology of Persuasion” and will talk about influence during times of uncertainty.
Other speakers include Bill Child, chairman of the R.C. Willey Home Furnishings division of Berkshire. So far 160 people have signed up, with 30 more seats available.
The conference, to be held at the University of Nebraska at Omaha's College of Business Administration, is not affiliated with Berkshire, which will hold its annual shareholders meeting April 30 at the Qwest Center Omaha.
Ice cream
The latest group of college students to meet with Buffett in Omaha included a graduate of the same high school as Todd Combs, the Connecticut money manager that Buffett hired last year to take over some of Berkshire's investments.
This Riverview High School graduate was Greg Bockhold, Riverview Class of '07, now a Stetson University senior and one of 250 students from several universities who met with Buffett, reported Kevin McQuaid in the Sarasota (Fla.) Herald Tribune.
During a Q & A session with Buffett, Bockhold asked: “If you could eat ice cream with any person in history, who would it be? And what type of ice cream would you get?”
Everyone laughed, but Buffett also gave a serious response — he'd like to eat chocolate chip ice cream with his father — and later said, “Sometimes I get tired of financial questions.”
Bockhold has a job lined up at a financial services firm but said he would jump at a chance to work for Berkshire.
Contact the writer:
402-444-1080, steve.jordon@owh.com
twitter.com/buffettOWH
Copyright ©2012 Omaha World-Herald®. All rights reserved. This material may not be published, broadcast, rewritten, displayed or redistributed for any purpose without permission from the Omaha World-Herald.
