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.