It's a Shame That Ethics Placed Second at Berkshire Hathaway

Were you shocked when David Sokol announced his resignation from Berkshire Hathaway last week?  He was the apparent successor to Warren Buffet at Berkshire Hathaway. What made his resignation so surprising was that it followed the disclosure that he had purchased shares in a company that he later recommended that Berkshire Hathaway buy.

Whether it's legal or not isn't the point. When Sokol made his decision to recommend the company he had stock in, why wasn't he thinking about how bad it looked?

When the story first broke I knew it looked bad, and I knew there was more to the story.  Every newspaper story seems to have the early details, and then more flood in later. This was no different.

The early story hinted at an ethics violation. The idea that there was the possibility at Berkshire Hathaway was surprising. Warren Buffet is a revered businessman who is admired for his integrity.  The early details were that Sokol owned stock in Lubrizol and recommended that Berkshire Hathaway buy it. Any savvy investor knows that when Berkshire Hathaway buys your company, the stock goes up. That meant Sokol’s stock was heading up.

Sokol said he did tell Buffet that he owned the stock when he made the recommendation to buy. He says he did nothing wrong, either. He should have the right to buy stock with public information which was what he did when he got the reports from Citibank.

He may be legally right. Here’s where he’s wrong. When Charlie Munger, the vice chairman of Berkshire Hathaway, made personal stock purchases, he did it years before Berkshire Hathaway did. He also stepped out of the purchasing discussions because he had a personal interest.

I’m sure most organizations have codes of ethics and discussions about what’s legal and not. I was in the oil business, and it was very clear to me that pricing discussions were illegal and were not ever condoned by management. It seemed like every meeting had a presentation on legal issues.

I’m not talking about legal issues here. There is a difference in being legally right and morally wrong.

Here’s a guy whom Buffet trusted and who has now put him into a tough position of explaining himself.  What was Sokol thinking? You have to figure that in business what you do has to be evaluated against the perceptions of others. When you say you did something in someone else’s best interests does it really sound believable when you gain as well?

It doesn’t. I’m saddened for Buffet, for Sokol and the employees at Berkshire Hathaway who now have to deal with this distraction instead of going on with their every day business. It’s a shame, too. Buffet lost a great talent with possibly a momentary failure of his ethical compass.

Buffet once said, "It takes 20 years to build a reputation and five minutes to ruin it."  In this case, it seems like it didn’t even take that long.

Maura Schreier-Fleming is a sales strategist and founder of Best@Selling, a sales training and consulting company. She wrote Monday Morning Sales Tips and works with sales professionals who want to sell more and get more business.