Warren Buffett on Saturday called "inexplicable and inexcusable" David Sokol's failure to notify Buffett of his contact with Citigroup and how recently he had purchased Lubrizol stock when he recommended that Berkshire Hathaway buy the company.
Sokol netted $3 million profit from the deal and a Berkshire audit committee this week said he violated company policies on, among other things, insider trading.
"He never said a word about the purchase of the stock prior to recommending it to Berkshire," Buffett said. "For reasons that are laid out in the audit committee report, I don't think there's any questions about the inexcusable part. (Sokol) violated insider trading rules and code of ethics -- you can read the audit committee report."
It was his Buffett's first comment since a March 30 press release announcing the resignation of Sokol, long thought to be a candidate to succeed Buffett as Berkshire CEO. Buffett said Saturday that assumption wasn't warranted.
He added: the top candidate, a "he," is a "very straight arrow."
Buffett told of discussing a proposed compensation package for Sokol and another executive, Greg Abel, at MidAmerican Energy. Berkshire was going to offer Sokol $50 million and Abel $25 million if they hit a certain guidance with MidAmerican Energy, which Berkshire purchased in 1999. Sokol voluntarily said that the difference between his compensation and Abel's compensation should be split, Buffett said.
"I think 20 years from now I will not know what causes a man to turn over $12.5 million to an associate then, ten years later, buy stock before talking to me about Lubrizol," Buffett said.
Questioned about how he initially handled Sokol's resignation, praising his past performance and saying he had done nothing unlawful, Buffett said, from his standpoint: Dave was gone. There was minimum severance and no lawsuits. Plus, Berkshire turned over damning evidence on Sokol's Lubrizol trades to the public, media and to the SEC.
"What I think bothers people is that there wasn't a big sense of outrage in the release. I plead guilty to that," Buffett said.
Within minutes of the end of the question-and-answer session, Sokol's attorney issued a statement saying Sokol was "deeply saddened that Mr. Buffett, whom he considered a friend and mentor, would disparage him as he has done today."
Neither Buffett or the audit committee has spoke to him since his resignation was made public, attorney Barry Wm. Levine said in a statement. He stressed that at no point has Sokol attempted to withhold information from Buffett or the company.
"It is alarming that Mr. Buffett would be advised to so completely flip-flop and resort to transparent scapegoatism," Levine wrote. "After 11 years of dedicated and hugely successful service to various Berkshire Hathaway subsidiaries, Mr. Sokol would have expected to be treated fairly. That would have been in Berkshire's interest.
Let me be clear about central facts: At no time did Mr. Sokol violate the law or any Berkshire policy. At no time did Mr. Sokol intend to personally profit at the expense of Berkshire or its shareholders. At no time did Mr. Sokol mislead or deceive. Such a conclusion would be wholly out of character and the Berkshire Board is keenly aware of that. At all times he faithfully discharged his fiduciary duties to Berkshire, a company he heroically served and continues to regard with reverence.”
Earlier in the day, Buffett opened the meeting by talking about preliminary first-quarter earnings.
He said the quarter represented the second-worst for the insurance industry in terms of catastrophes around the globe. That's with more to come, since the second quarter typically is the worst for natural disasters Buffett said it's unlikely Berkshire will have an underwriting profit for 2011.
Still, at the end of the quarter, Berkshire had $38 billion in cash, and that's not including the $5.5 billion received in April from Goldman Sachs.
"Overall, we got very hit very hard in the insurance business, but had gains in most of our other businesses," said Buffett. Most Berkshire businesses, with the exception of those that are related to residential housing, are getting better, quarter by quarter, he said.
A light drizzle welcomed hundreds of "Berkies" who waited outside Qwest Center Omaha this morning. Some had waited through the night. Aaron and Mildred Mitchell, of Baltimore, began their wait at midnight when they arrived in Omaha after a 24-hour train ride from the east coast.
At about 7 a.m., when the Qwest Center doors opened, a slow rumble turned into a full-on rush for floor seating. Grown men and women raced to secure a folding chair, hoping for a close view of Buffett and Charlie Munger, who beginning at about 9:30 a.m. were scheduled to field questions for the next five or six hours.
Hear the sounds and see the sights of the annual Berkshire Hathaway shareholders meeting.
Watch video of Warren Buffett swarmed by reporters, shareholders and devotees at the Berkshire Hathaway shareholders meeting Saturday.