Natural catastrophes are not only causing great human suffering, but also a financial hit on Berkshire Hathaway insurance subsidiaries. CEO Warren Buffett, though, spent part of Saturday trying to clean up the debris from a different storm — the David Sokol-Lubrizol affair.
Because of a perception that, among other things, he hadn't come down hard enough on his former lieutenant a month ago, Buffett had endured a deluge of criticism. At Berkshire's annual meeting at the Qwest Center Omaha, the first question from a shareholder wasn't just pointed. It was accusatory.
Recalling Buffett's famous statement 20 years ago that he would be “ruthless” with anyone damaging a shred of the company's reputation, the shareholder demanded to know why the Berkshire chief's March 30 press release praised Sokol.
Why wasn't Buffett incensed? Why hadn't he expressed anger? The questioner asserted that the release, in which Buffett wrote that he would not elaborate or answer questions about its contents, was “totally inadequate.”
The tone of the shareholder's question, read aloud to Buffett by a journalist to applause in a packed arena, was far out of the ordinary for the annual Berkshire love-in, which always includes comedy, quips and quotable financial analysis. Rarely is the boss, who has made millionaires of many attendees, put on the defensive in such a way.
Buffett had changed his mind in advance of the annual meeting and agreed to answer questions. In an opening statement, he said Sokol's actions were “inexcusable and inexplicable.”
Sokol personally had bought stock in Lubrizol and then touted it to Buffett. After Berkshire bought the lubricant company for $9 billion, it appeared that Sokol's efforts had helped grease the skids for a smooth deal — and Sokol made a $3 million profit on his stock.
Sokol, an Omaha native and a local business and civic leader, resigned from Berkshire but says he did nothing wrong — that he merely told Buffett of a good investment.
Buffett, 80, had long admired Sokol, a generation younger in his mid-50s. Sokol once voluntarily transferred $12.5 million of a bonus to a colleague.
Charlie Munger, Berkshire's 87-year-old vice chairman, sardonically conceded that the March 30 statement “wasn't the cleverest press release in the history of the world.”
He said Buffett was trying to be fair to Sokol by mentioning his contributions. “I don't think it's wrong,” Munger said, “to review a man's virtues as well as his errors.” But what contributed to Sokol's actions, Munger said, was “hubris,” or arrogance.
Shareholders I spoke to seemed satisfied with the long explanations by Buffett and Munger.
Alan Robertson of Hastings, Neb., said Buffett was honest and admitted his “slight error” in not questioning Sokol more closely about his Lubrizol stock.
Donald Sheeler of Akron, Ohio, said Buffett “didn't dig in the way he should have at first” in questioning Sokol, but appropriately reported the matter to the Securities and Exchange Commission. Sheeler added: “Now it's up to the federal government.”
Doug Schillinger of Park City, Utah, attending with three former classmates at Harvard Business School, said Buffett had shown that “generally good people can do really stupid things.”
They and others were interviewed in the Qwest Center exhibition hall, which became a one-day shopping mall of Berkshire companies. Shareholders could buy or order books, boots, bricks and briefs, as well as vacuum cleaners, sump pumps, jewelry, cutting tools, carpet, flooring, ice cream bars and much more.
As Buffett says, Berkshire companies are a cross-section of the national economy. And except for those related to house construction, he said, all are on the upswing.
In an improving economy, all that glitters is not gold. Rather than investing in gold, Buffett said, he prefers putting his money on companies that produce things — not on something you can merely fondle, polish and stare at.
The Oracle of Omaha was bullish on the future of America, despite the daunting problems of deficits and debt, praising the “resuscitative power of capitalism.”
The Sokol matter drew much attention, but the 2011 Berkshire Hathaway meeting covered much more ground. And many seemed to think the controversy had been talked out.
“It's gotten to be overblown,” said shareholder Gary Vogel of Kansas City, Mo. “It's behind us. It's time to move on. I liked Warren's optimism and his vision of the future.”
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