Why Is Buffett Whitewashing Sokol's Exit?

More on Warren Buffett from Smart Money:
by James Stewart

"I've always admired Warren Buffett's advocacy of the highest ethical standards in business. As a journalist, I especially applaud his rule of thumb that employees consider whether they would be "willing to have any contemplated act appear the next day on the front page of their local paper." This is a far higher standard than simply adhering to the letter of the law. But does Buffett have a blind spot when it comes to implementing his own policy?

That question needs to be asked after the abrupt resignation this week of David Sokol, whom many viewed as the top contender to succeed Buffett at the helm of Berkshire Hathaway. In a press release on Wednesday announcing the resignation, Buffett said that Sokol had bought approximately $10 million in shares of chemical company Lubrizol in January -- not long before Berkshire Hathaway agreed to acquire the company at Sokol's urging.

Despite these highly suspicious and troubling actions, Buffett went out of his way to praise Sokol and stress that he didn't feel the Lubrizol trading was "in any way unlawful." He also said he had not asked for Sokol's resignation and that it came as a "surprise" to him. Mr. Sokol himself told The Wall Street Journal that his resigning had "absolutely nothing" to do with the Lubrizol situation. Buffett said that Sokol was resigning for family reasons...

Berkshire Hathaway did not respond to requests for comment.  Sokol declined to comment for this column.

Let's assume Sokol's revelations failed to make much of an impression on a busy Buffett, caught up in the excitement of a potential new deal. But why would Buffett now go out of his way to whitewash Sokol's departure? In my view, Sokol should have been fired for the simple reason that he violated Buffett's "front page" standard. However painful, Buffett should have come clean to send a message to employees, investors and regulators that Berkshire Hathaway adheres to the highest ethical standards and enforces its own stated code of behavior."

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