At today's Berkshire Hathaway’s annual shareholder meeting, the topic at the forefront of everyone's minds was the lawsuit against David Sokol and Warren Buffett relating to Sokol's trading in shares of Lubrizol, which Berkshire eventually acquired.
Initially Buffett insisted that Sokol did nothing wrong, although later a Berkshire committee said the opposite in "a scathing report," according to Reuters. Now Buffet is done defending Sokol. During the meeting, he said he should have probed more deeply when Sokol first revealed in January that he owned Lubrizol stock. "I obviously made a big mistake by not saying, 'Well when did you buy it,'" said Buffett. He called the Sokol situation "inexplicable and inexcusable."
Apart from openly stating that Sokol violated the rules, Buffet also said he regretted the lack of initial outrage over the matter. From Dealbook's liveblog of the event, Buffet said:
I think that for reasons that are laid out in the audit committee report, I don't think there's any question about the inexcusable part. He violated the code of ethics. He violated our insider trading rules. He violated the principles i lay out every two years... The inexplicable part I'll tell you what goes through my mind when I think about it. He made no attempt to disguise the fact that he was buying the stock,
What I think bothers some people is that there wasn't some big sense of outrage in the release. I plead guilty to that. This fellow had done a lot of good.
Berkshire's Vice Chairman Charlie Munger, seated beside Buffett, attributed Sokol's behavior to "hubris." He added to Buffet's description of the tepid initial reaction that "the facts were complicated, and we didn't foresee appropriately the nature of the reaction. But I feel like you don't want to make important decisions in anger... You can always tell a man to go to hell tomorrow."
Prior to his resignation, David Sokol was a top contender for succeeding Buffett. As to who the leading candidate might be now, Buffett said, "I would lay a lot of money on him being straight as an arrow."