Thursday, April 28, 2011

Sokol: Under the Bus

As of yesterday, when it comes to David Sokol their has been quite a change in tone coming from Berkshire Hathaway compared to the one found in the letter that Warren Buffett wrote less than a month ago.

Up to now, Buffett's handling of Sokol's departure has brought on a fair amount of criticism.

From the 18-page report released yesterday by the Berkshire Hathaway (BRKa) Audit Committee:

Berkshire Hathaway's top priority is to maintain the highest standards of business ethics. Company policies require the employees of Berkshire Hathaway and its subsidiaries to uphold those standards. The Audit Committee has considered the conduct of David Sokol in connection with his trading in the shares of Lubrizol, and has determined that it violated those standards. In particular:

-His purchases of Lubrizol shares while serving as a representative of Berkshire Hathaway in connection with a possible business combination with Lubrizol violated company policies, including Berkshire Hathaway's Code of Business Conduct and Ethics and its Insider Trading Policies and Procedures.

-His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the Company.

-These events should serve as an opportunity to reinforce to all officers, directors and employees of Berkshire Hathaway and its subsidiaries the importance of adhering to those policies and avoiding conduct that comes close to, or strays over, the line of propriety. To that end, we authorize Warren Buffett to release this report.

The report more or less portrays Buffett as a victim of deception and said the company should weigh suing Sokol.

From this Bloomberg article:
"They're throwing Sokol under the bus," said Stephen Bainbridge, a professor at the UCLA School of Law who has written and taught about corporate governance. 

A separate Bloomberg article added this point of view:
It's certainly not the outcome any who knew Sokol imagined for the assertive executive, who was not born to power or wealth and relied on his energy, competitiveness, and outsider's will to become the ultimate insider, Omaha-style...

Later in the same article...
"About the smartest business guy I know," [Terry L.] Moore says. "We're all baffled by this -- what happened, and why did it happen?"

The Berkshire committee's report provided a devastating version of the "what," suggesting that Sokol "intended to deceive" Buffett about several key aspects of the Lubrizol episode.

The "why" remains more of a mystery: Why was Sokol, already a rich man with a vacation retreat near Jackson Hole, Wyoming, and a yacht to go with a third home in Fort Lauderdale, dabbling in the stock of a company he suggested that his boss acquire?

On Wall Street, this kind of trading is often considered front-running. It's usually a firing offense, if not necessarily illegal.

From heir apparent to this.

Baffling.

Adam
 
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