Warren Buffett admits 'I made a big mistake' over David Sokol's purchase of Lubrizol shares

Warren Buffett admits 'I made a big mistake' over David Sokol's purchase of Lubrizol shares

Warren Buffett has said he made a "big mistake" in not quizzing the man once regarded as his potential heir about the controversial share deal that has cast a pall over his annual meeting.

Talking to a crowd of 40,000 gathered for the meeting in Omaha, Buffett was grilled about the resignation of David Sokol, a former director of Buffett's investment firm Berkshire Hathaway. Sokol resigned earlier this month after it was disclosed he had bought a $10m stake in chemicals firm Lubrizol shortly before recommending that Berkshire buy the company. The purchase netted him a $3m profit.

"I obviously made a big mistake by not saying, 'Well, when did you buy it?'" said Buffett, adding that he found Sokol's actions "inexplicable" and "inexcusable".

He said he had paid Sokol $24m last year; Sokol is believed to be worth more than $100m.

Buffett pointed out that Sokol had once volunteered to give up $12.5m of bonus compensation to Greg Abel, his colleague in Berkshire-owned energy firm MidAmerican, because he thought the money should be shared. But he said he would "never understand" what lay behind Sokol's Lubrizol dealings. Buffett's business partner, Charlie Munger, said: "I think hubris contributed to it".

A shareholder asked Buffett: "Why did you handle this matter in the inadequate way you did?" Berkshire's original statement on Sokol's resignation claimed his decision to leave the company had nothing to do with the Lubrizol affair and that Sokol had done nothing illegal.

Last week, Berkshire issued an internal report that slammed Sokol. It concluded he had violated company policy and could be sued for damages. Sokol has denied any wrongdoing.

The Lubrizol deal is now being investigated by the US financial authorities and is the subject of legal action by Berkshire shareholders.

Buffett said he did not have the full facts before the initial press release was released. "From what I knew then it did not seem unlawful," he said.

Munger said: "The press release was not the cleverest press release in the history of the world." He added that Berkshire director Tom Murphy often said that, if you are angry, "you can always tell a man to go to hell tomorrow".

The Lubrizol row has cast a pall over Berkshire's annual meeting. Before the meeting began, shareholders said they had already been worried about who would take over from the 80-year-old Buffett, a legend in the investment world, but were now increasingly concerned. Ann Rutley, a shareholder from Florida, said: "It would have been a lot worse if this guy had taken over the company, but it's worrying that he could have come so close."

Before the meeting began, Buffett played a clip of his testimony before Congress in 1991 when politicians were investigating a bond trading scandal at Salomon Brothers; Buffett was called in to sort out Salomon after the scandal broke.

Buffett said: "After they first obey all rules, I then want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be read by their spouses, children, and friends, with the reporting done by an informed and critical reporter. If they follow this test, they need not fear my other message to them: lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless."

There was a whoop from the crowd.

source: guardian.co.uk

U.S. Payrolls Probably Rose in April for Seventh Month

U.S. Payrolls Probably Rose in April for Seventh Month

Employment probably increased for a seventh straight month in April, while manufacturing stayed at the forefront of the expansion, economists said before reports this week.

Payrolls rose by 190,000 workers last month after a 216,000 advance in March, according to the median forecast of 56 economists surveyed by Bloomberg News ahead of Labor Department data on May 6. Other figures may show that both factories and service industries expanded in April.

The employment growth points to a labor market that Federal Reserve policy makers said last week is “improving gradually.” Increased hiring by companies such as McDonald’s Corp. (MCD) and wage gains may help sustain spending as Americans contend with higher food and fuel costs.

“We’ve entered this self-reinforcing phase where job gains are going to continue to build upon themselves at an accelerating pace,” said Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Manufacturing has led this recovery and it looks like it’s going to continue to do so, but the pace of growth going forward is going to moderate somewhat.”

A report from the Institute for Supply Management tomorrow may show that the purchasers’ factory index fell to 59.5 last month from 61.2 in March, according to the survey median. Readings above 50 signal factory expansion, and the measure in February rose to 61.4, the highest level since May 2004.

The Labor Department’s report on employment may also show that the jobless rate held at 8.8 percent in April, according to the survey median. Unemployment has not increased since November.

Private Employment
Private payrolls, which exclude government positions, are forecast to rise 200,000 in April, according to the survey median. The projected gain would cap the biggest three-month increase since 2006. Manufacturing employment is forecast to rise by 20,000, extending the longest string of monthly gains since 1997 to 1998.

“The broader economy is in a moderate recovery, and we have recently seen some welcome, if gradual, improvement in the labor market,” Fed Chairman Ben S. Bernanke said in an April 29 speech in Arlington, Virginia. “But our economy is far from where we would like it to be, and many people and neighborhoods are in danger of being left behind.”

Some companies are turning more optimistic about hiring. Oak Brook, Illinois-based McDonald’s, the world’s largest restaurant chain by revenue, sought as many as 50,000 workers in the U.S. during its National Hiring Day event on April 19.

Ongoing Hiring
“We do and have continued to hire through some of the economic downturns, Donald Thompson, chief operating officer at McDonald’s, said on an April 21 conference call.

The manufacturing industries that account for 11 percent of the economy are likely to keep driving the expansion as businesses replenish inventories and China and other emerging markets boost imports of American-made goods.

Factory orders rose 1.9 percent in March after a 0.1 percent decline the previous month, economists forecast that the Commerce Department will report on May 3.

Shares of manufacturers have outperformed the broader market this year. The Standard & Poor’s Machinery Index has increased 13 percent, compared with an 8.4 percent gain in the S&P 500 Index. (SPX)

Spending on U.S. construction may increase for the first time since November, rising 0.4 percent in March, economists said ahead of tomorrow’s report from the Commerce Department. Expenditures on structures, both commercial and residential, fell 1.4 percent in February.

Service Industry
Another report from the Institute for Supply Management, due May 4, will show service industries expanded in April, according to economists. The group’s index of non-manufacturing companies was probably little changed at 57.4 after 57.3 in March, the survey showed. Readings above 50 signal growth.

Americans may find it difficult to boost their spending as they pay more for groceries and gas. Regular fuel was $3.91 a gallon on April 28, the highest since July 2008, according to AAA, the nation’s biggest motoring organization. Food costs rose 0.8 percent last month, the most since July 2008, consumer-price index data from the Labor Department showed on April 15.

Bloomberg Survey
==============================================================
Release Period Prior Median
Indicator Date Value Forecast
==============================================================
Construct Spending MOM% 5/2 March -1.4% 0.4%
ISM Manu Index 5/2 April 61.2 59.5
Factory Orders MOM% 5/3 March -0.1% 1.9%
ISM NonManu Index 5/4 March 57.3 57.4
Productivity QOQ% 5/5 1Q P 2.6% 1.0%
Labor Costs QOQ% 5/5 1Q P -0.6% 0.8%
Nonfarm Payrolls ,000’s 5/6 April 216 190
Private Payrolls ,000’s 5/6 April 230 200
Manu Payrolls ,000’s 5/6 April 17 20
Unemploy Rate % 5/6 April 8.8% 8.8%
Hourly Earnings MOM% 5/6 April 0.0% 0.2%
==============================================================

source: bloomberg.com