So much for Warren Buffett's philosophy of leaving his managers alone. A key Buffett lieutenant resigned this week, 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.
"The key is the people. That's been his playbook ever since he's started. He knows the rules, and he expects the people he works with to know them too," said Michael Holland, chairman of Holland & Co, which oversees $4 billion in assets and owns Berkshire shares.
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.'"
He added: "We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter." 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.
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