Well, Mr. Sokol, the Barometer can shed some light. There is a big difference between what’s legal and what’s ethical.  Too many people occupy that space between the two as they cloak themselves in self-righteousness, victims of another’s willingness to call them out in their gray territory. Mr. Sokol simply escaped the law’s long arm. The SEC’s decision to close Mr. Sokol’s insider trading case is not a vindication. Mr. Sokol bought $10 million in Lubrizol Corporation shares in 2011, just a few months prior to Berkshire Hathaway’s acquisition of the company, an acquisition that increased the value of Mr. Sokol’s shares by $3 million. The SEC simply struggled with the proof standard of our times, “What did he know and when did he know it?”
The ethical standards were spelled out in Berkshire’s insider trading policy that applied to all employees — you can’t trade in stocks in companies that Berkshire is exploring for acquisition purposes. Mr. Buffett could talk himself blue telling shareholders, other employees, and the world that Mr. Sokol did not violate SEC rules, but the perception would never change. A rich guy on the cusp of assuming leadership of one of the country’s most admired companies is making money personally on potential acquisitions. Even if you buy before Berkshire announces the acquisition, the reality is that a few months before the company is taking a look and top executives know about the look-sees. Mr. Sokol said he was exploring Lubrizol in 2010 and Berkshire’s acquisition was in 2011. The Barometer does not doubt him; the problem is the ethical step of halting that personal acquisition when Berkshire begins its efforts.
But there was more, after the fact. That pesky board report concluded Mr. Sokol misled Mr. Buffett about the details of his stock trades.  Misleading the boss (think loss of trust) is enough for Mr. Buffett to accept Mr. Sokol’s resignation. Mr. Buffett simply held Mr. Sokol accountable for his questionable, not illegal, conduct. In fact, Mr. Buffett praised Mr. Sokol’s abilities at the time of his resignation and stated that he did not believe Mr. Sokol’s purchases “were in any way unlawful.” Accountability is a necessary quality in personal growth and an indispensable one in leaders.  The Barometer faced many indignant students with their age-old question, “How could you give me a ‘C’ ?”  Those who hold themselves accountable, recognizing that not being in class and failing to study are not professorial functions, conclude, “I earned a ‘C’.
Mr. Buffett did what he did because Mr. Sokol earned it. Mr. Sokol, not Mr. Buffett, hurt his family when he made the decision to buy the stock. Mr. Buffett was the face of consequence. For a multimillionaire, Mr. Sokol’s dabbling in Lubrizol stock for an extra $3 million was a silly risk. Not a violation of the law, but a serious lapse in judgment — in other words, an ethical thing. Unfortunately for Mr. Sokol and fortunately for Mr. Buffett, the standards of judgment day, as the Barometer has studied and understands them, focus on what we should have done, not on what the law allows. Could vs. should — therein lies the secret of ethics and the answer to Mr. Sokol’s question as to why Mr. Buffett responded as he did to Mr. Sokol’s conduct.   For his own and his company’s credibility, and for the sake of future acquisitions, he had no choice.
