Merryn's Blog

Warren Buffett's halo is slipping fast

Whatever your view on Warren Buffett, it's always been hard to criticise his moral standards. But that might be about to change.

Earlier this week I wrote about Warren Buffett and the way his folksy star is slowly fading. It wasn't a particularly popular piece with all our readers. One even wrote in to tell me that I will "never have the class of Warren Buffett." But I'm not entirely sure I want to have his kind of class.

Time was when you could accuse Buffett of being a bit of a bore; of running the most nauseating shareholders' meeting ever; and of slightly over-egging the pudding on his frugal lifestyle. But you probably couldn't find an easy way to take a pop at his moralstandards.

No more. When Netjets CEO David Sokol resigned last week as it emerged that he had bought shares in a Berkshire Hathaway target in advance of news onpossible negotiations going public, Buffett said that he had done "nothing unlawful".

Really? Terry Smith points out to me that it isn't entirely clear cut. On Monday, in an updated regulatory filing the company in question, Lubrizol, says that Sokol chose it as a target from a list of possibilities presented to it by Citibank, and told the bankers to let the firm's management know. However the interesting point here is not just that Sokol was interested. It is that Lubrizol's CEO James Hambrick was too: he told Citi who told Sokol that he would discuss "Berkshire's possible interest with the board."

So Sokol knew the board would meet to discuss a possible deal before he went out and bought $10m worth of the company's shares he had share-price sensitive information the rest of the market didn't have. That, says Smith, "puts a clear construction on his reasons for purchasing the stock." Indeed some people might consider it a form of front running. And some might call it insider trading. And that is unlawful.

So much for morality trumping greed at Berkshire Hathaway and for Buffett's once famously good judgement. Still it isn't just Warren Buffett who is finding that reputation is hard won and easily lost. His sidekick Charlie Munger isn't looking so good these days either. Seems that despite the fact that Berkshire Hathaway companies have benefited massively from the various public bail-outs of the last few years, he thinks the under- and unemployed in the US should shut up with their whining about falling living standards. Instead they should just "suck it in and cope". Classy. You can read one of the better rants on this at the zerohedge site.

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