Berkshire Audit Report: David Sokol’s Trading Violated Company Insider Trading Policies and Procedures

Today Berkshire Hathaway‘s Audit Committee released its report, “Trading in Lubrizol Corporation Shares by David Sokol” (PDF file). Have a read. Here is a notable paragraph,

“Mr. Sokol’s answer to Berkshire Hathaway’s CFO, Mr. Hamburg, concerning the investment bankers similarly fell short of the degree of candor required of a corporate fiduciary, and suggests his answer to Mr. Buffett’s earlier inquiry noted above was intended to deceive.

Check out what Alice is saying in “World Learns New Facts Showing Buffett Was Misled” (here is an excerpt),

“However, upon several readings of this release, there do not appear to be *any* new significant facts that were unknown to Berkshire on March 30th when its initial press release was issued. These facts are only *new* to those of us who are reading the audit committee report “

and “Sokol Fights Back Round 1“.

Here are some notable media reports.

Bloomberg (Alice Schroeder), “Buffett Disciples Want ‘Oracle’ to Come Clean” [Apr 28 update] Highly recommended reading. Have a watch of Alice’s Bloomberg video interview. Here is an excerpt from the article (emphasis added),

“The problem isn’t the about-face. It is the missing explanation for why Berkshire went so easy on Sokol in the first place. Whatever the detailed reasons, ultimately it boils down to Berkshire’s reliance on Buffett’s personal judgment about his managers and his ability to delegate to them to the point of abdication. When this one-man infrastructure makes a mistake, it’s hard to admit that Buffett is at fault. Changes in the way the company is managed are personal, not corporate. Under the circumstances, the temptation is high to blame everything on a single rogue employee. That doesn’t excuse Sokol’s behavior, but the failure of oversight needs to be acknowledged and corrected. […]

Now, caught in the painful fall stage of the great American narrative known as rise, fall and redemption, it’s hard to see how Buffett can change the narrative’s overall course through public relations. But he can avoid making it worse for himself by taking responsibility.

The more explicitly Buffett shoulders some of the blame for having waffled on ethics, the more future redemption points he will get. If he dumps on Sokol while trying to avoid all entanglement in the situation, or reaches for credit for having turned tough, it won’t be convincing. Based on the audit- committee report, it looks as though this is where things are headed, but it’s not too late for Buffett to change direction. […]

The Sokol incident has boomeranged to become a referendum on Buffett’s judgment of people and management style, Berkshire’s corporate governance, institutional infrastructure, risk-management and internal controls, and the succession process for a new CEO. It has also raised questions about the board’s committee structure, compensation and responsibilities.

NYT DealBook, “Berkshire Report Faults Sokol

Bloomberg, “Sokol Violated Berkshire Ethics on Lubrizol, Board Report Finds

Forbes, “Berkshire Audit Committee: Sokol Trades Violated Code Of Ethics

WSJ, “Berkshire Hathaway Board Responds to David Sokol Controversy

MarketWatch, “Sokol violated Berkshire rules: board report

Barron’s, “What Did Buffett Know and When Did He Know It?

Also see my previous articles,

* “Whatever happened to Warren Buffett’s famous saying, “Lose a shred of reputation for the firm, and I will be ruthless”? – 96,400 free lottery tickets ($3 million winnings)

* “Barrage of questions for Warren Buffett at this month at Berkshire Hathaway’s annual meeting?

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