Plenty for Warren Buffett to digest

Another year, another record price paid to have lunch with Warren Buffett.

The 12th annual charity auction for US charity Glide Foundation closed last night, with two bidders battling for the top prize during the last week.

The final amount bid was $2,345,678, but the winning bidder – who is remaining anonymous – generously agreed to increase their pledge to $2,626,411, thereby beating last year’s record price by $100.

The winning bidder will get to invite seven friends to lunch at the New York steak chain Smith & Wollensky.

Previous bidders – including US hedge fund David Einhorn and Hong Kong money manager Zhao Danyang – have used the lunch to get some valuable money-management advice and subtly spruik their wares, but surely this year’s conversation will be dominated by the topic of Buffett’s corporate governance problems.

Buffett suffered a blow when David Sokol, the man viewed by many as his heir apparent, resigned from Berkshire Hathaway after admitting that he bought stock in a company called Lubrizol while promoting the company as a takeover target to Buffett and other Berkshire executives.

Buffett’s response to Sokol’s resignation was seen as weak as he failed to condemn Sokol’s behaviour, although Buffett eventually went on the attack, saying Sokol had violated Berkshire’s ethical standards and trading rules (claims Sokol would deny).

But the entire episode left a bad taste in the mouths of investors and commentators – mainly because it was such a rare misstep from Buffett.

Buffett has built Berkshire around a very hands-off management style, where the managers of the many divisions of the conglomerate are left to run their business. This strategy has rightly been praised as a way of giving managers the confidence and autonomy they need.

But the Sokol incident has led some to ask whether Buffett has created a culture where too much trust has been placed in executives. And if an executive does act unethically, are the processes and systems in place to detect and deal with this?

Food for thought – at the charity lunch and beyond.