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Sunday, May 1, 2011

Warren Buffet calls David Sokol's actions inexplicable and inexcusable - the opposite is true

Warren Buffet called David Sokol's actions inexplicable and inexcusable.  Sokol's was an employee of Buffet's at Berkshire.

Sokol bought some stock in a company and then tried to get Warren to buy the company.   A few years earlier basically the same thing happened and Sokol refused to take the profit.  But this time he didn't tell Warren and he kept the profit.

Warren Buffet is an amazing man but it is HIS actions that are inexplicable and inexcusable NOT David Sokol's.  It is 100% Warren's fault that his pervasive cheapness drove Sokol to act so foolishly.

Warren is a genius in business and understands human nature fairly wall.  But he blew it this time.

He should know by now that his employees are considerably underpaid.  He should know that his employees must know that they make far less than the people that run the companies that they are in competition with that are comparable.

So when Sokol started off with Warren OF COURSE he was super honest and turned back his questionable profit.  If you have something Warren wants, he can be incredibly charismatic.  So at the beginning Sokol made a big hearted move to show his respect.

But as the years went by he saw that Warren never gave up control and never rewarded key employees to the extent that was standard.  If you have a big ego like Sokol, being given erratic handouts of praise and cash at Warren's whim must have been tough to take.  It must have worn him down over the years.

Warren should have known that this constant inequity would chip away at Sokol's good will toward his master.  First he had to play up to him and take orders.  And then second he had to put up with poor pay and weak rewards for great results.  One might even say incredible results!

Seeing those results rewarded year after year at spectacular "Michael Eisner" levels at other companies must have made him crazy.

Well it happened.   Sokol, gradually poisoned by his boss's niggardly behavior, did something stupid to get himself fired. 

It is that simple.

And that problem is not going to go away at Berkshire.  In fact, it is going to get worse.  Buffet just said that he wants to be known as someone who lived a long time.  That is an overwhelmingly clear message to everyone that he is NEVER going to give up control.   So if you love taking orders, getting poor pay relative to the people you are competing against and knowing that your chances of promotion to the top are zero, then Berkshire is a great place to work.

But there are a lot of people just like that and he can offer them the chance to live in Omaha.

The fact is that Warren and his friends have made Omaha an incredibly wonderful place to live.  About 25 men working together for the last 40 years have turned Omaha into one of the most comfortable places in the world.  For a middle class guy with a strong work and family ethic there is no city that compares to Omaha.  And that is 100% because of people like Warren, Walter Scott, Mike Yanney, Charles Durham, the people at the Union Pacific RR, Burlington RR, Mutual, Tennasco, Con Agra and on and on and on.  The people running this town have figured out that a great town attracts people with the best of American values.

And of course this spectacular farsightedness is what makes Warren and his friends geniuses.  

Good employees are the most valuable asset of any company.   Keeping outstanding employees motivated to stay is 100% the responsibility of the CEO.  The great leaders take FULL responsibility for anything dumb that a person like David Sokol might have done and should see their JOB as preventing these events.  A GREAT leader would have said it was his fault. 

BUT as wonderful as Omaha is, Warren should still be overpaying NOT underpaying.  People like Sokol are rare.

He is going to lose more employees than ever before as their awareness of their situation goes from being an unconscious nagging irritation to a conscious decision not to put up with poor pay anymore.

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