Buffett's fan club demands answers

Warren Buffett faces his investors in Omaha today. Stephen Foley reports

"I have held back nothing in this statement," Warren Buffett wrote at the end of March, when he first announced the bombshell resignation of the man who had been his heir apparent, David Sokol. "Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release."

Of all the controversial things written in that press release on 30 March, which triggered the biggest crisis for Mr Buffett in at least two decades, that is one sentence that we now certainly know is not true.

Today, in front of tens of thousands of his devotees, the shareholders in his conglomerate Berkshire Hathaway, the billionaire investor will be forced to address the share trading scandal that prompted Mr Sokol's resignation – and the still baffling issue of why he defended Mr Sokol at the time.

"We can answer any question that gets asked," Mr Buffett said, in a TV interview ahead of the meeting, promising to be as frank as ever. "You will not hear 'no comment'. Even if our lawyer gets up and wrestles me to the ground, I will still talk."

In particular, Mr Buffett is expected to make clear that he had not intended to condone Mr Sokol's share dealing, contrary to the impression given by that first press statement.

It has been a bruising few weeks for the man they call the Oracle of Omaha, as investors questioned his judgement and his management of the conglomerate as never before.

It was revealed that Mr Sokol began buying $10m of shares in Lubrizol, a chemicals company, one day after picking it from a list of potential acquisition targets and instigating talks with a view to a takeover by Berkshire. When the takeover did indeed happen, Mr Sokol's shares soared $3m in value.

The resignation announcement, penned by Mr Buffett in the style of his folksy letters to shareholders, contained no condemnation of the share trading. In fact, it concluded: "Neither Dave nor I feel his Lubrizol purchases were in any way unlawful."

And the statement also included lavish praise for Mr Sokol's contribution to Berkshire since he first arrived with the acquisition of MidAmerican Energy, the utility company where he was chief executive.

Since then, he has regularly acted as Mr Buffett's firefighter, going in to run troublesome subsidiaries, a role that made him the obvious choice for chief executive should ill-health force Mr Buffett, now 80, to retire.

Mr Buffett, it has since been revealed, originally sought to tie the resignation to the share dealing, but when Mr Sokol insisted he was quitting for unrelated reasons – to fulfil his long-standing desire to set up a mini-Berkshire Hathaway of his own – Mr Buffett acquiesced.

More shocking than the facts of Mr Sokol's dubious share transactions was the fact that plain-speaking Mr Buffett not only failed to condemn them, but he appeared actually to defend them.

Every Berkshire annual meeting begins with a video clip of the company's darkest hour, in 1991, when Mr Buffett was hauled before Congress over regulatory breaches at the investment bank Salomon Brothers, which was then a subsidiary.

The clip includes what has become the most famous of his many famous sayings: "Lose money for the firm and I will be understanding, lose a shred of reputation for the firm and I will be ruthless."

In that context, the Lubrizol affair has raised numerous questions. First of all, why had Mr Buffett not asked more questions when Mr Sokol told him in January that he owned shares in Lubrizol? Does Berkshire have adequate corporate governance checks in place to ensure fair dealing by its executives? Does it have any checks in place?

And above all, why was Mr Buffett not following through on his threat to be ruthless?

Belatedly, Berkshire has come out swinging against Mr Sokol, and Mr Buffett this week made public the damning conclusions of an internal audit committee report into the affair. It concluded that not only did the share purchases violate Berkshire's ethics code, which is punishable by sacking, but Mr Sokol deceived Mr Buffett and Berkshire's chief financial officer when telling them about his holdings.

The committee added that it was considering legal action to recover Mr Sokol's $3m profit, plus some more to make up for reputational damage the company had suffered, and it suggested that his actions could be illegal under Delaware law if he is found to have violated his duty of loyalty to his employer.

For his part, Mr Sokol continues to insist he has done nothing wrong, and his lawyer complains that Berkshire's investigators did not speak to his client in the process of compiling their report.

The annual Berkshire shareholder meeting is known usually as the Woodstock of Capitalism, but the atmosphere this year looks likely to be anything but celebratory. Even the new, fuller statements from the company reveal only scant details of the goings-on inside Berkshire as executives began to learn about Mr Sokol's share dealing. In particular, they do not address when Mr Buffett himself was told that Mr Sokol had deceived him, and what he felt about it.

For that, shareholders will have to ask the Oracle himself. Today, they get their chance.

PROMOTED VIDEO
Life and Style
fashionHealth concerns and 'pornified' perceptions have made women more conscious at the beach
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
High-flyer: Chris Pratt in 'Guardians of the Galaxy'
filmHe was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
footballA colourful discussion on tactics, the merits of the English footballer and rebuilding Manchester United
Life and Style
Sainsbury's could roll the lorries out across its whole fleet if they are successful
tech
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Travel
The shipping news: a typical Snoozebox construction
travelSpending the night in a shipping container doesn't sound appealing, but mobile crash pads are popping up at the summer's biggest events
Arts and Entertainment
'Old Fashioned' will be a different kind of love story to '50 Shades'
film
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Arts and Entertainment
Smart mover: Peter Bazalgette
filmHow live cinema screenings can boost arts audiences
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Project Manager (HR)- Bristol - Upto £400 p/day

£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

Day In a Page

Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
How live cinema screenings can boost arts audiences

How live cinema screenings can boost arts audiences

Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
Shipping container hotels: Pop-up hotels filling a niche

Pop-up hotels filling a niche

Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
Native American headdresses are not fashion accessories

Feather dust-up

A Canadian festival has banned Native American headwear. Haven't we been here before?
Boris Johnson's war on diesel

Boris Johnson's war on diesel

11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
5 best waterproof cameras

Splash and flash: 5 best waterproof cameras

Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

Louis van Gaal interview

Manchester United manager discusses tactics and rebuilding after the David Moyes era
Will Gore: The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series

Will Gore: Outside Edge

The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series
The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz