Buffett’s stox-flap flip-flop
Even when praised as the “Oracle of Omaha,” Warren Buffett has always tried to act humble — but perhaps not as humble as at yesterday’s annual meeting of his holding company.
Caught in his worst controversy in 20 years, Buffett yesterday attacked the issue straight-on, admitting he’d made “a big mistake” by not questioning a former trusted lieutenant harder about a possible insider-trading deal — and used a combination of folksy humor and prairie values to defuse a potentially damaging situation.
Buffett, 80, the chief executive of Berkshire Hathaway and America’s wealthiest person, had been attacked over the last month for his lax management style after he appeared to condone the purchase by David Sokol, the CEO of Berkshire’s NetJets, of $10 million in stock in Lubrizol just weeks before he brought the deal to Buffett.
Berkshire then bought the lubricant maker and Sokol pocketed a $3 million profit on his share.
Sokol resigned from NetJets when news of the stock purchase emerged and Buffett, in a self-penned corporate announcement of Sokol’s resignation, said his close associate did nothing wrong.
Buffett had said nothing since the March 30 letter — until yesterday.
Before a rapt crowd of about 20,000 inside the Qwest Center arena in Omaha, Neb., Buffett changed his tune and called the Sokol stock purchase, documents of which Berkshire had turned over to the Securities and Exchange Commission, “very damning evidence, in my view.”
It’s “a sad situation for Berkshire, sad for Dave and inexplicable,” Buffett said.
Of the Buffett letter, which downplayed Sokol’s purchase and kicked off the firestorm of criticism, Buffett partner Charlie Munger chimed in, saying it “wasn’t the most clever press release in the history of the world.”
When one shareholder asked Buffett why he wasn’t incensed over the Sokol affair and why he didn’t fire the executive on the spot, it drew some applause from the crowd.
“What I think bothers some people is that there wasn’t some big sense of outrage in the release,” Buffett said. “I plead guilty to that. This fellow had done a lot of good.”
Buffett then turned on his Midwest charm, saying, “You don’t want to make important decisions in anger.”
Munger, picking up on the folksy cue, added: “You can always tell a man to go to hell tomorrow.”
Buffett praised Sokol more than he buried him — despite the fact that the Berkshire board days earlier said it might sue the former executive to get back his $3 million in Lubrizol profits.
It was classic Buffett. Forced to play defense for much of the morning session of the annual meeting, he did so while pulling on heartstrings, not pushing a host of new Berkshire regulations for executives to follow.
Perhaps it is only Buffett who can find his company in an insider-trading scandal and attempt to work his way out of it by saying rules don’t really work — but that trust is a better way.
“This general culture of trust is important,” Munger said. “And you know Berkshire hasn’t had that many scandals of consequence.”
You got that, SEC?