Posts Tagged ‘David Sokol’

First Stupid, now Evil

April 28, 2011

We were happy to see the board of Berkshire Hathaway reverse itself in the matter of David Sokol’s disclosure about his acquisition of shares in Lubrizol because it neatly illustrates one of our core crisis management precepts.  This is that in the fog of swirling facts, conjectures and opinions surrounding a crisis, it is often helpful for a company to ask itself — is our explanation going to be that we were stupid (mistakes were made) or evil (someone can be blamed)?  This can then lead to an unemotional discussion of whether procedures need to be changed (no more mistakes) or whether someone can be fired (noisely or quietly) or a business unit closed or sold.  What is compelling about the B-H decision is that its original explanation was a botched attempt at explanation #1 — everything was legally OK, but we probably would behave differently in the future.  This flew completely in the face of our baseline of expectations about Warren Buffett as a man of impeccable rectitude with an aversion to obfuscation.  The audit committee report outlines in excruciating detail a timeline and pattern of events that enables the firm to convincingly switch to explanation #2.  We offer no opinion on whether this version of events is correct, but this looks like a good save, and probably a bit of luck.  Most companies in crisis trying to make this switch simply make matters worse by destroying their credibility.  Note to Renault: it is usually easier to go from stupid to evil than evil to stupid.

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