As I did last time, I would like to start this with the public counterarguments from Sokol’s attorney:
“David Sokol is deeply saddened that Mr. Buffett, whom he considered a friend and mentor, would disparage him as he has done today. Neither Mr. Buffett nor the Audit Committee at Berkshire has requested to speak nor has spoken to Mr. Sokol since his resignation was made public by Mr. Buffett on March 30th. Mr. Buffett drafted the March 30th press release announcing Mr. Sokol’s resignation in cooperation with Mr. Charlie Munger and Mr. Ronald Olson both of whom are Berkshire Board Members. They know the law and they know the Berkshire policies. In that context, Mr. Buffett correctly declared Mr. Sokol’s conduct lawful and indeed was effusive of his praise of him. There is no new information or new fact which has become available to them since that press release was issued on March 30th. At no time did Mr. Sokol attempt to withhold information from Mr. Buffett, Berkshire Hathaway or the Audit Committee. Every question asked of Mr. Sokol on or prior to March 30th and any information requested of him has been provided. The Audit Committee report, which was prepared by the law firm of Munger Tolles & Olson contains errors and omissions, both of which could have been avoided if the Audit Committee had inquired of Mr. Sokol.
It is alarming that Mr. Buffett would be advised to so completely flip-flop and resort to transparent scapegoatism. After 11 years of dedicated and hugely successful service to various Berkshire Hathaway subsidiaries, Mr. Sokol would have expected to be treated fairly. That would have been in Berkshire’s interest.
Let me be clear about central facts: At no time did Mr. Sokol violate the law or any Berkshire policy. At no time did Mr. Sokol intend to personally profit at the expense of Berkshire or its shareholders. At no time did Mr. Sokol mislead or deceive. Such a conclusion would be wholly out of character and the Berkshire Board is keenly aware of that. At all times he faithfully discharged his fiduciary duties to Berkshire, a company he heroically served and continues to regard with reverence.”
First, a note to the lawyer: I know this is a press release, but why issue a press release at all? If you have good evidence that is not known to the public, better you should keep it to yourself, and wait for your day in court, because what you did write today will be unlikely to persuade the directors of Berkshire Hathaway from their current course of action, which may include pursuing claims against your client. It certainly won’t change any results in the current shareholders lawsuit.
Look, let me tell you the facts of life. Authority comes in two flavors: formal and informal. And there is no telling initially which will be more important. Buffett is the Chairman and CEO of BRK. And as things commonly works at BRK, ordinarily he acts as a king, with Bonnie Prince Charlie aiding him. ;) But that is informal, and in our society, the informal must always be approved by the formal.
The Chairman of the Audit Committee, who has formal authority, did not receive the full data he needed. Neither did Buffett. Buffett’s failure to request data was one thing, but the formal responsibility was for Sokol to disclose the data in full, which he didn’t do. Buffett’s transgression is a far lesser matter, which I believe he made up for by admitting his fault, and if BRK pursues a claim against Sokol.
The formal authorities were ignored by Sokol. That will be the basis of any court case. He did not follow the explicit rules, of which notifying Buffett is not a part of the deal.
Now, in one sense, the audit committee is rallying behind Buffett to protect him and the company. All other things equal, I think Buffett wanted to let Sokol go out of gratitude for prior actions. But the legal world does not trade past goods for present bads. Instead, we have to justify our lives every day, and any infraction can bring judgment on us, no matter how much good we have done in the past.
I am stisfied by the apologies that Buffett offered today, and would only add that it is in the interests of BRK to pursue a case against Sokol. As for my own opinions, I am satisfied, and I have no grudge against BRK or Buffett.
As for David Sokol, I would only say this: negotiate the best settlement that you can. And find better legal counsel, if you insist on contesting this.