Buffet's Policies: Still Effective?

“Buffet’s Policies Went Unheeded”

The Wall Street Journal: April 6, 2011

By: Leslie Scism, Erik Holm, and Jean Eaglesham

Availability: Buffet's Policies Went Unheeded

Warren Buffet is one of the most successful businessmen of the recent millennium. His business strategy and innovative leadership distinguishes him from his competitors and other such leaders in the industry.

Moreover, Buffet’s policies have become just as revered as the man himself; the insider trading policies and procedures, as noted in a recent memo sent from Buffet to his key directors and officers, reiterated the legal and ethical significance of these policies.

Reminders of the severity of penalties for such behavior were also included: three times the profits earned or losses avoided from his or her investment, a criminal fine of up to $5 million, and a possible jail sentence of up to 20 years (Insider Trading Policies and Procedures Memo, WSJ, 2011). 

David Sokol, Mr. Buffet’s top lieutenant and likely heir to the Berkshire Hathaway throne, left the company shortly after Hathaway acquired a chemical manufacturing firm in which Sokol had recently purchased shares. Furthermore, Sokol advised Buffet and Birkshire Hathaway to buy the company after purchasing those shares, a direct violation of company insider trading policies and procedures.

Was Sokol’s investment a simple mistake or was it intentional? Should Warren Buffet have pressed Sokol for a more sound explanation of his intentions regarding the possible insider trading situation? More importantly, what motivated Sokol to acquire shares of a company his employer was just about to purchase based on his recommendation?

In my opinion, David Sokol made an unethical decision; while he willfully resigned from Birkshire Hathaway, Sokol obviously had an underlying agenda separate from the best interest of the company. Whether this assertion is validated by his need for power as stated in David McLelland’s acquired-needs theory, or the need to achieve self-actualization as stated in Abraham Maslow’s Hierarchy of Needs is debatable.

Buffet noted that Sokol had tried leaving Birkshire Hathaway in several instances before, but Buffet talked him into staying with the company in hopes of further mentoring his future successor. There were obviously reasons for Sokol’s consistent pattern of desire to resign: maybe his work was not stimulating or satisfying anymore; maybe he no longer fit the organizational structure, or maybe Mr. Sokol simply did not think his need for power and self-actualization need could be fulfilled as long as he was employed at Birkshire Hathaway.

This story brings about an interesting topic; certain experiences are meant to challenge and hone an individual’s professional development that creates the schema in which they learn and live. Each step of life can only offer so much until the individual moves on to the next phase and restarts the process. For David Sokol, regardless of the underlying insider trading accusations, he could simply be ready for that next phase. However, the devil’s advocate inside of me wonders if the most powerful man in the corporate world had more of a say in Sokol’s resignation than reported.

The hallmark of this post is to understand the importance of an individual’s needs.  Without the opportunity to fulfill those higher-level needs, employees – like David Sokol – might be more prone to engage in such unethical, and possibly illegal, behavior that proves detrimental to the success of the company.


- Jon Worthey