NEW YORK— So much for Warren Buffett’s
philosophy of leaving his managers alone.
A key Buffett lieutenant has resigned,
and said he bought shares in a company he later pitched to his boss.
While Buffett said his employee,
David Sokol, did nothing unlawful, governance experts said the entire episode
was a black mark for a company that has long prided itself on its rectitude.
“It’s the kind of behaviour
that, as a matter of corporate governance, sophisticated companies try to
avoid,” said John Coffee, a law professor at Columbia University.
Experts said that part of the
problem may be that Buffett’s company, Berkshire Hathaway, prides itself on
having few of the internal controls that other major companies have, and
instead banks on the honour of its senior employees.
Changing the way he runs his
business would sting for Buffett, who bets everything on his reputation —
something he made crystal clear in a July 2010 memo to his managers that he released
this past February.
“We can’t be perfect but we
can try to be. As I’ve said in these memos for more than 25 years: ‘We can
afford to lose money — even a lot of money. But we can’t afford to lose reputation
— even a shred of reputation.'”
Buffett likes to brag about the way
he runs companies — by not running them, leaving them instead in the care of
what he considers capable executives who do not need his oversight.
Investors say in this case, he may
have picked the wrong person to help him lead.
“If I had any knock against
Buffett, is how much he espoused his successor, how this was the right guy, how
much he rallied the flag around him as his successor … and now this guy is
gone,” said Matt McCormick, portfolio manager at Cincinnati-based Bahl
Gaynor Investment Counsel.