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April 8, 2011 | rtauberman

No Longer the Oracle?

Warren Buffet is famously known for saying, “lose money for the firm and I will be understanding; lose a shred of reputation for the firm and I will be ruthless.” The quote and the speaker are often seen as benchmarks for those of us in the reputation management business. However, the Oracle of Omaha is now embroiled in perhaps the biggest reputational crisis of his career after the surprise resignation of heir apparent David Sokol. The story has pivoted into a fulsome discussion of Buffett’s image and how much he knew or wanted to know about Sokol’s purchase of Lubrizol shares and subsequent recommendation of the company to his boss prior to Berkshire Hathaway’s purchase.

Buffett’s press release/letter on the subject, starts by expressing shock at Sokol’s departure and praises his extraordinary contribution to Berkshire Hathaway. He ‘secondly’ discusses the Lubrizol situation and concludes that nothing unlawful occurred. Unfortunately, regulators, who have already started investigating, may not see it that way and the incident has unleashed a relative savaging of Buffett by a normally fawning analysts and media. Yesterday’s column by David Weidner in the Wall Street Journal goes so far to as to chronicle a decade-long decline in Buffett’s mastery of his reputation.

The Sokol fiasco and media frenzy of the last ten days is guaranteeing that the Berkshire Hathaway annual meeting later this month will not be the usual lovefest in Omaha. The folksy Q&A format will no doubt be a lot more tension filled. Buffett has said that he will simply refer any questions on the Sokol and Lubrizol matters to the press release/letter issued on March 30. But that just won’t cut it. Buffett has already damaged his reputation by not addressing the very real concerns on the issue and any stonewalling at the annual meeting will only do further damage. He needs to meet this crisis head on and draw on his strength as a plain-speaking Nebraskan to tell shareholders what he knew when he knew it and show some ruthlessness regarding his and Berkshire Hathaway’s reputation. Buffett has already wasted precious time but the goodwill he has engendered over the years gives him a chance to rebound. He needs to be his usual candid self and provide the answers his audience wants. A better mea culpa, if his lawyers let him, also wouldn’t hurt.

As he prepares for the annual meeting, Buffett can refer to the recent DealBook post by the New York Times’ Andrew Ross Sorkin, one of the media regulars at the gathering, for a great list of questions to prepare for.

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