Buffett wants for answers: Is board providing them?
Warren Buffett should be directly responding to the unprecedented criticism he is facing over the behavior of his one-time heir apparent, but experts fear he is being hampered by a lack of corporate management or board depth.
Buffett has maintained his planned silence following the March 30 letter in which he disclosed David Sokol's resignation and now-questioned investment in Lubrizol Corp
Even journalists with whom he has engaged often, like Andrew Ross Sorkin of the New York Times, have taken Buffett to task.
Sorkin -- one of three reporters designated to ask Buffett questions at Berkshire's annual meeting -- has written two columns in the past week questioning his handling of the whole episode, which netted Sokol about $3 million in profits.
Image experts say Buffett cannot wait until that April 30-May 1 annual weekend gathering to address an issue that threatens to overshadow an event he calls the Woodstock for Capitalism, usually a multi-day celebration of all things Berkshire for an adoring crowd of 40,000 or more shareholders.
If I were counseling Mr. Buffett I would recommend a very frank and complete discussion soon -- 25 days is too long to wait, said Lew Phelps, head of the energy practice at Sitrick & Co., a top crisis communications firm. There's obviously a lot of concern in the marketplace about what this means. This is a situation where silence is not golden.
BAD ADVICE
The situation was compounded when Sokol went on the CNBC cable channel on March 31 and defended himself, noting that he was not the only Berkshire executive to recommend investing in a company after buying stock in it. Berkshire Vice Chairman Charlie Munger did the same, he said, with Chinese car maker
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The notoriously press-shy Munger did a few interviews this week to defend himself, but it has raised even more questions about Buffett's entanglement with a company accused of stealing competitors' designs and making cars that may be legally difficult to bring overseas.
The Sokol and Munger investments are renewing concerns about whether Buffett is getting the advice he needs. Standard & Poor's, in a ratings note this week, said the events were a distraction for management and revived prior unease about the way Berkshire is run.
More generally, this event reinforces our concern about the lack of a more traditional corporate infrastructure at the holding company level, an issue that we have previously identified in connection with our review of management succession plans, S&P said.
Buffett is remaining so silent that Berkshire is not even confirming a report that its board has set up an independent committee to investigate Sokol's behavior -- normally the kind of thing that would be announced in a regulatory filing or press release.
Buffett's assistant did not return a message seeking comment, and Berkshire employs no public relations staff.
BOARD WOES
Berkshire's board has in past been a sore spot for governance experts. The average age of the board is 69, and six of its 12 members are age 79 or older.
Four of the 12 directors are not considered independent under regulatory guidelines.
Of the eight that are, some would question whether many of them are genuinely independent of Buffett.
Two of them -- Bill Gates and Walter Scott -- have ongoing financial ties to Buffett or to Berkshire. A third, Donald Keough, was a former president of Coca-Cola Co
That leaves five other directors: David Gottesman, Susan Decker, Stephen Burke, Thomas Murphy and Charlotte Guyman.
Buffett was formerly the largest shareholder of Capital Cities, a firm founded by Murphy and by Burke's father, and considers Murphy a long-time friend. Gottesman, another long-standing Buffett pal, is the third-largest holder of Berkshire's Class A stock.
One famed governance expert said it was bewildering that this had happened and not already been dealt with.
It's a matter really of only $3 million and you would have thought every single person involved here would be glad to part with $3 million rather than put their reputation at risk, said Bob Monks, a corporate governance expert and co-founder of both Institutional Shareholder Services and The Corporate Library.
What's going on here? For $3 million you're going to take one of the great reputations in America and expose it to all measure of questions and what have you for which there's no good answer?
The ordeal, aside from damaging Buffett's image, is also hurting his stock.
In his annual letter to shareholders, Buffett likes to relate how Berkshire shares have done against the S&P 500 over the prior year. That comparison looks a touch problematic of late, with Berkshire's widely traded Class B shares down 4.2 percent since the Sokol letter and the S&P 500 up 0.3 percent.
Yet some say that no matter the reaction from investors, the media or anywhere else, hope is not lost. Buffett has almost four weeks until the annual meeting and plenty of time to try and make things right.
This can be resolved with good and prompt communication, no matter what the circumstances are, Sitrick & Co.'s Phelps said. The truth is always less gruesome than the extremes of the speculation.
(Reporting by Ben Berkowitz, Editing by Martin Howell)
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