Has Warren Buffett’s Star Lost Its Luster?

Warren Buffett is not a happy man. His company, Berkshire Hathaway has been receiving a lot of press recently and for all of the wrong reasons. Buffett’s company has been in the news a lot recently as the company is being investigated because of its connection with a scandal.

 

Warren Buffett’s former heir apparent David Sokol engaged in insider trader while at Berkshire Hathaway. Sokol owned shares of Lubrizol and never disclosed it to anyone at Berkshire Hathaway. He was not a long time shareholder either. He only bought shares of the company when he started to believe that a firm would acquire Lubrizol. When Berkshire made a bid for Lubrizol, Sokol was able to pocket a $3 million dollar profit from the proposed acquisition.

The thing that made matters even worse is that Berkshire decided to acquire Lubrizol at the urging of David Sokol. It appears that the only reason that Sokol recommended the company to Warren Buffett is so he could profit from the transaction. Things are just starting to get ugly as Berkshire Hathaway is distancing itself from Sokol and may even file charges against the one time employee.

The problem for Buffett is that this scandal has caused Berkshire Hathaway to be seen in a negative light. People are starting to question the integrity and guidance of some of the members of the Berkshire team. This has to be especially disheartening to Buffett who worked very hard to build up the reputation of his holding company.

Buffett dos not leave this scandal unscathed as he initially defended Sokol’s actions and was not as vigorous in finding out exactly what occurred in detail. I don’t think that this issue will permanently stain Buffett or Berkshire Hathaway but I do think that the issue will remain a short term hiccup for the firm. It may place more importance on Buffett finding an ethical successor to take over for him when he is no longer with Berkshire.

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7 Responses to “Has Warren Buffett’s Star Lost Its Luster?”

  1. avatar Phil says:

    Based on what I’ve read about Buffet I’m sure this action by someone he trusted has hurt him greatly on a personal level. In the end he’ll be fine as will Berkshire as he’s been through some really challenging situations before like fixing an investment bank back in the 90s.

  2. It will take some time to overcome this, but I think he will get through just fine.

  3. avatar Jordy says:

    One bad apple doesn’t spoil the entire bunch. I’m confident that Warren hasn’t lost any sleep over the incident.

  4. I see it as just the opposite. This is a proud defining moment for Berkshire.

    In most companies, these kind of shennaigans are just business as usual. They probably would have bought their prodigy executive a new jet and had the lawyers and PR people cover everything up.

    Berkshire and Buffet are renowned for their integrity, because they have made it their only way of doing business. The way they bounced Sokol shows the financial world and their other executives they won’t tolerate any double-dealing.

    I just wish more American companies operated like this.

    • avatar Mark says:

      Bret I don’t see it as a proud moment but they did the right thing in the end. Sokol should have been let go from the beginning.

  5. avatar Riku says:

    in my mind, no way. sure he could have been harder. I have a feeling that he couldnt really believe what Sokol did.

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