"Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless." - Buffett during the 1991 testimony in front of Congress on Salomon Brothers
Catch the Salomon testimony here on YouTube.
The answers to Sokol questions are posted here on the Berkshire Hathaway website.
Buffett starts out his comments by referencing the above Salomon testimony. He believes the phrase that he used back then ("inexplicable and inexcusable") to describe what happened at Salomon applies to Sokol's behavior.
Some excerpts of Sokol related comments made by Warren Buffett and Charlie Munger from the shareholder meeting:
WARREN BUFFETT: I don't think there's any question about the inexcusable part that Dave violated the code of ethics, he violated our insider trading rules, and he violated the principles I laid out -- I lay out every two years in a direct personal letter to all of our managers and which I've been doing for a long time.
Buffett then goes on to explain what he sees as the inexplicable aspect of this: That Sokol did not disguise the trades, his high net worth relative to the trades, and the fact that he had voluntarily given up $ 12.5 million to an associate a decade earlier.
WARREN BUFFETT: ...one interesting point is that Dave, to my knowledge, at least, made no attempt to disguise the fact that he was buying the stock. I mean, you know, you read about insider trading cases and people set up trusts in Luxembourg or they use neighbors who know neighbors or they use third cousins -- I mean, they have various ways of trying to buy the stock so that when it's later –- the FINRA supervising organization looks at the trading activity in the months prior to the deal, they do not see names that jump out at them as being associated with the deal. To my knowledge, Dave did nothing like that so he was leaving a total record as to his purchases.
Further on Buffett also added this...
WARREN BUFFETT: ...you know, it's 20 years after Salomon. Twenty years from now Charlie will be 107, and we won't mention what I'll be, but I -- I think 20 years from now I will not understand what causes a man to voluntarily turn away 12 and a half million dollars to an associate without getting any credit for it in the world and -- and then ten or so years later buy a significant amount of stock the week before he talked to me.
CHARLIE MUNGER: I think it's generally a mistake to assume that rationality is going to be perfect even in very able people. We prove that pretty well regularly.
WARREN BUFFETT: Do you have any explanation for the irrational?
CHARLIE MUNGER: Yeah. I think hubris contributes to it.
Some other miscellaneous Sokol comments...
WARREN BUFFETT: What I think bothers people is that there wasn't some big sense of outrage or something in the -- in the release and, you know, I plead guilty to that.
CHARLIE MUNGER: Yes. I think we can concede that that press release was not the cleverest press release in the history of the world. The facts were complicated, and we didn't foresee appropriately the natural reaction.
But I would argue that you don't want to make important decisions in anger. You want to display as much ruthlessness as your duty requires, and you do not want to add one single iota because you're angry.
So Tom Murphy, one of our best directors -- one of our best directors always told the people at Cap Cities, you can always tell a man to go to hell tomorrow if it's such a good idea.
Charlie also later added this thought...
CHARLIE MUNGER: Yeah, all that said, if you look at the greatest institutions in the world, they select very trustworthy people, and they trust them a lot, and it's so much fun to be trusted, and there's so much self-respect you get from it when you are trusted and are worthy of the trust that I think your best compliance cultures are the ones which have this attitude of trust and some of the ones with the biggest compliance departments, like Wall Street, have the most scandals.
Warren Buffett to CNBC: I Should Have Been Tougher in Sokol News Release
Buffett: I Made 'Big Mistake' By Not Questioning Sokol on 'Inexplicable and Inexcusable' Trades
That's it for Sokol. My follow up posts will cover comments from Buffett and Munger on other topics.