April 28 (Bloomberg) - last month, the news breaks that David Sokol, who was the heir suspected of Warren Buffett Berkshire Hathaway Inc., made $ 3 million of Lubrizol Corp. stock purchases while he was pushing Buffett to buy the company.
In the statement announcing the resignation of the Sokol, Buffett has minimized the importance of the stock of Lubrizol imposed, excuse Sokol, on the grounds that it is nothing "illegal". That, writes Buffett, was all he planned to say on the subject - until yesterday.This is that Berkshire has published a report of Audit Committee condemning Sokol for having misled Buffett and society. He also said that Berkshire could sue Sokol. The report responds to the weeks of criticism about the ethical standards indifference apparent of Berkshire and comes just before that some 40,000 people descended in Omaha, Nebraska, for the annual meeting of shareholders.Buffett, sometimes nicknamed the Oracle for her acute sense of investors, the meeting is a double-edged sword. The event in which he and his Vice President, Charles t. Munger, spend about six hours, answer the questions puts considerable pressure on him to be more to come. However, Buffett will speak with a home-field advantage to a receptive audience who wants to think well of him.EnemiesHe Buffett's will need goodwill. The report of the audit committee meets a few questions about what happened with Sokol, but not those most important: why fail Berkshire to condemn his behaviour at the outset and instead praised his "extraordinary" in Berkshire contributions? And what will make Berkshire to improve its corporate governance?The company establishes a history in which Sokol misled Buffett and the financial director Berkshire, Marc Hamburg. These revelations are overwhelming, and the audit Committee concluded in severe terms that Sokol violated the code of conduct Berkshire, its Insider-trade policy and has no duties as a Manager. But, according to the report, the essential elements were known by the Board of Berkshire before March 30. When Buffett rented Sokol in a press release and said the actions of the Sokol kosher because they were "not illegal"."According to a statement made by the Attorney of Sokol, Barry Levine, Buffett" said twice, not once, "on the property of the Sokol of Lubrizol actions before Buffett began taken talks with society."It is understandable that to justify an ongoing survey taking a harsher view of the facts, but opinions of Berkshire has not evolved just. He took a turn 180 degrees. Behaviour has been explained below just a month ago is now be sentenced. Obviously, Buffett had to change his mind and understand the reasons.Missing ExplanationThe problem is not the about-face. This is why Berkshire has so easy Sokol in the first place the missing explanation. Regardless of the detailed reasons, ultimately it summarizes Berkshire dependence Buffett's personal judgment on its managers and its ability to delegate to them at the abdication. When this individual infrastructure, an error, it is difficult to accept that Buffett is at fault. Changes in the way society is managed are personal, corporate step. In the circumstances, the temptation is high to blame everything on a single employee ROE. That does not excuse the behavior of the Sokol, but the failure of surveillance must be recognized and corrected.Instead, Berkshire is struggling with how to handle this situation. For years, management quirky style of Buffet was hailed as a force, and he escaped in this type of review. His status as former Teflon makes the elusive backlash.Fat CatsBuffett has many enemies, but they have stayed underground until recently. They include fat cats who do not want to pay more taxes Buffett defenders, chief executive officers tired of being called greedy parasites by one of the richest men in the world, and of all stripes wall passers-by who think rantings of Hellfire and damnation of Buffett's in their occupations are hypocritical.Now, taken the step of the painful fall of the American narrative very known as the rise, fall and redemption, it is difficult to see how the Buffett can change the overall course of the narrative through public relations. But it can avoid making worse for himself by taking responsibility.More explicitly Buffett shoulders officials have waffled on ethics, redemption points more future he will obtain. If it pours on Sokol while trying to avoid all the entanglement in the situation or credit for having turned tough, it is convincing. Based on the report of the Audit Committee, it looks as if this is where things are directed, but it is not too late for Buffett change direction. $200 BillionGovernance, legitimately, will be high in the minds of the audience at the meeting, as Sokol is only a symptom of an underlying cause. The world recognizes that a $ 200 billion business employing approximately 260 000 people may be executed by a single man. Buffett should intensify these issues now, before an outcry he puts in conflict with its own Board of Directors.The thing of no. 1, that everyone wants to know is who would be Berkshire if Buffett disappeared today. Why not simply tell them? If it is Ajit Jain, who directs the operation of reinsurance of Berkshire, Buffett must say. It can always cover and said his choice does not bind the Commission and the subsequent events could change things.The incident of Sokol has boomeranged to become a referendum on the judgment of the buffet of people and management style, Berkshire corporate governance, institutional infrastructure, internal controls and risk management and the process of succession to a new CEO. He also raised questions about the structure of the committees of the Council, of pay and responsibilities.These issues were not addressed in the report of the audit committee, and it is a command to do so. This is probably too expect Buffett in a single weekend. But the most simple Buffett is at this meeting, the better the shareholders of Berkshire will be - and so is he.(Alice Schroeder, author of "the snowball: Warren Buffett and the Business of Life" and a former Executive Director at Morgan Stanley, is a Bloomberg News columnist.) (The views expressed are his own.)-Editors in Chief: David Henry, James Greiff.
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To contact the author of this column: Alice Schroeder at aliceschroeder@ymail.com
To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net
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