The purpose of the huge report Berkshire Hathaway just released about David Sokol is to insulate Warren Buffett from any suggestion that he did something wrong.
(Not that there has been any hint that Buffett did anything wrong. Background: David Sokol, a Berkshire Hathaway senior exec, recommended to Buffett that Berkshire buy Lubrizol while owning the stock, an obvious conflict of interest.)
However Buffett knew that David Sokol owned Lubrizol stock when he made the decision to call Roger Altman of Evercore, Lubrizol’s investment banking advisor, to discuss Berkshire’s buying the company.
So some people were wondering about the extent of Buffett’s knowledge: what did he know and when. Why didn’t he ask Sokol for more information about his Lubrizol shares?
And that is the purpose of the report: to explain exactly what Buffett knew and when.
What Berkshire explains is strategic. Instead of focusing its attention on the details that people are curious about – what Buffett knew, when – which might appear as though Buffett is defending himself against critics, Berkshire focuses on what Buffett did not know.
The conversation in which Buffett found out that Sokol owned Lubrizol occured on January 14 or 15, and during the exact same conversation, Sokol proposed Berkshire’s buying Lubrizol.
Sokol had already met with Citi bankers and narrowed down the list of potential Berkshire investments from 18 to 1. He had also already met with the CEO of Lubrizol.
Buffett says that Sokol mentioned that he owned Lubrizol as a “passing remark” during that meeting, which again raises the question, why would Buffett not ask for more details?
We’ll try to answer that one: Because Sokol was meeting with Buffett about investing in the company, Buffett might have assumed that Sokol would elaborate if he had bought Lubrizol recently. He might have assumed that Sokol would disclose any potential conflicts of interest. That instead, Sokol framed it in a “passing remark” to Buffett, Berkshire says, was “misleadingly incomplete.”
What’s interesting is that the report says in one passing sentence that Buffett knew that Sokol owned Lubrizol stock.