Buffett may get heat from once-adoring investors

Warren Buffett, Chairman and CEO of Berkshire Hathaway, looks on while testifying before the Financial Crisis Inquiry Commission (FCIC) at The New School June 2, 2010 in New York City.

Jeremy Hobson: Thousands of investors are descending on Omaha, Nebraska for Berkshire Hathaway's annual meeting this weekend. Usually shareholders go to Omaha for ice cream and a chance to hear from the company's chairman, Warren Buffett.

But this year's a little different because Buffett is in the midst of a scandal. It involves his former heir apparent, David Sokol, who bought shares of a chemicals company. And then told Buffett to buy the company, which he did.

Marketplace's New York bureau chief Heidi Moore reports.

Heidi Moore: Berkshire Hathaway's annual meeting has always been like an old Southern church revival. The faithful travel to Omaha and quote Warren Buffett in Biblical terms.

Paul Argenti is a professor at Dartmouth's Tuck School of Business, who has been teaching Buffett every year in his corporate responsibility class.

Paul Argenti: Warren Buffett is almost god-like in terms of his stature in our society on issues of ethical leadership.

This year, instead of adoration, there may be fire and brimstone. Some shareholders are unsettled by the scandal around Buffett's former lieutenant, David Sokol. Buffett initially defended Sokol, leading even die-hard fans to question the Oracle's judgment. Argenti says he is considering taking Buffett out of his syllabus and putting him in his new book: Fallen Icons.

Argenti: If you set yourself up as a paragon of virtue in this world, you can expect to fall really hard when something bad happens to you.

Analyst Janet Tavakoli also feels betrayed. In her book "Dear Mr. Buffett," she argued there wouldn't have been a financial crisis if every financier shared Buffett's principles.

But she has since left the flock. And she says Buffett's defense of Sokol was "outrageous."

Janet Tavakoli: It gives the appearance of Warren Buffett using his reputation to blow smoke in the face of the investing public.

After weeks of silence, Berkshire Hathaway released a report saying Sokol misled them and violated the company's code of ethics. The strong statement comforted Whitney Tilson, a prominent fund manager and a disciple of Buffett's.

Whitney Tilson: I really had a pit in my stomach prior to that coming out.

Tilson believes Buffett was blindsided by Sokol.

Tilson: Buffett didn't do anything wrong other than trusting a top lieutenant.

Buffett's meeting features a famous six-hour question-and-answer session. Tilson hopes shareholders will focus on Berkshire Hathaway's billions of dollars in profits and not the Sokol scandal.

In New York, I'm Heidi Moore for Marketplace.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.
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give this man break! The world is a better place because of individuals like him. You are still someone to admire Mr. Buffett!

Mr. Buffett's claim to have been "completely surprised" by Sokol's resignation lacks credibility in light of revelations from the Berkshire analysis. This is not Mr. Buffett's first grey area of involvement. Everyone remembers Hank Greenberg for his alleged involvement in a transaction with a Buffett company, General Reinsurance, but no one has bothered to ask if Mr. Buffett's claim of non-invovlement in that transaction passes the credibility test. A $500 mm transaction by what was Berkshire's biggest investment in it's history would seem to have required discussion with Mr. Buffett, as the CEO of General Re claimed. Mr. Buffett was given a complete free pass as a result of his status of America's great home spun investing genius.

Likewise, Mr. Buffett always talks about how his tax rate is lower than his secretaries. He never mentions that this is a result of his gains coming in the form of long term capital gains, rather than ordinary income. Similarly, his calls for the estate tax never mention that his estate is already in tax sheltered trusts and safe from the IRS' reach.

Like everyone in financial markets, Mr. Buffett "talks his own book", and pursues his own self-interest. No sin there, but the canonization of Mr. Buffett was never warranted.

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