Buffett, Sokol, and Virtue Ethics

Warren Buffett (photo by Mark Hirschey)

What kind of person do you want to be? What kind of businesspeople do you think worthy of imitation?

The world’s most successful investor, Warren Buffett, was recently caught up in a scandal. He himself is not accused of any wrongdoing, though some have accused him of responding to the scandal — one involving a senior employee of his, one David Sokol — in a lackadaisical manner.

For the basics of the story, see here:
Berkshire doesn’t plan big changes after scandal (by Josh Funk, for the AP)

Berkshire Hathaway CEO Warren Buffett says he doesn’t think his reputation has been hurt much by a former top executive’s questionable investment in Lubrizol shortly before Berkshire announced plans to buy the chemical company….

Sokol is accused of a form of insider trading, essentially a kind of betrayal that is unethical at best, and illegal at worst. Now, Sokol himself is, not surprisingly, keeping pretty quiet, and speaking only through his lawyer. I’m more interested, at this point, in Buffett’s response, and what it says about his character. I’m not the first person to suggest that you can learn a lot about a person by the way he or she responds to a crisis. But when the man in the spotlight happens to be one of the world’s most successful businessmen, there’s some reason to think that the lessons learned might just be more interesting than most.

For more about Buffett’s response, see here: Buffett Takes Sharper Tone in Sokol Affair (by Michael J. De La Merced, for the NYT.)

Despite the critics, I think Buffett comes out of this looking pretty good. To begin, Buffett gets points for demonstrating his loyalty to a long-serving employee:

[Buffett] was harsh in his assessment of Mr. Sokol’s trading actions, he pointedly declined to personally attack Mr. Sokol, instead highlighting the executive’s years of service and good performance.

Buffett also has a sense of context and proportion. Not that the wrong of which Sokol is accused is small. But it is wise, and ethically correct I think, for Buffett to resist the urge to pounce on an employee who has, in Buffett’s own experience (up until the present crisis), been a diligent and morally-upstanding employee:

“What I think bothers some people is that there wasn’t some big sense of outrage” in the news release, Mr. Buffett said. “I plead guilty to that. But this fellow had done a lot of good.”

Buffett’s business partner, Charles Munger, likewise gets points for showing restraint:

“I feel like you don’t want to make important decisions in anger,” Mr. Munger said, defending Berkshire’s press release. “You can always tell a man to go to hell tomorrow.”

All of this is set against a background of Buffett insisting on the importance of having a reputation for integrity in business. Buffett is no slacker when it comes to ethical standards. The NYT piece quotes Buffett from 20 years ago, on the topic of the significance of reputation in business:

“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

Finally, it’s worth pointing out that this focus on Buffett’s character, and on the example he sets, represents an importantly different approach to business ethics. The approach here is akin to what philosophers call “virtue ethics,” a stream of thought that goes back to Aristotle. The idea here is that, rather than focusing on principles (or, more cautiously, in addition to focusing on principles), what we really ought to do when thinking about ethics is to focus on character. Rather than asking, “what rules apply to this situation?” this way of thinking asks, “what would a good person do in a situation like this?” And in between crisis points, we should be asking, “when a crisis comes, what kind of person do I want to pattern my behaviour after?” I don’t know nearly enough about Mr Buffett to hold him up as a moral exemplar, but I think that the kind of character he has displayed in the Sokol affair is worthy of emulation.

8 comments so far

  1. Prashant Sree on

    Interesting read Chris. I agree with your view that one can learn a lot about a person during his crisis times. Buffet’s being an inspirational figure worthy of emulation for factors other than money. The last quote is very impressive…


  2. Miguel on

    Chris: I like your post and share your intuitions. Yet, being concerned about one’s reputation (or the reputation of one’s company) is something that can be justified from any theory, from ethical egoism to consequentialism.

    • Chris MacDonald on


      As for your second point: true, but I wasn’t claiming that Buffett himself is a virtue theorist. I was just saying that looking at character/virtue is one way of learning about ethics. I don’t know enough about Buffett to understand the source of his concern for reputation, but I do know that being concerned with maintaining a reputation for integrity is generally a positive thing.


  3. Ben on

    “Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

    I’m not sure how that quote indicates that Buffet is ‘no slacker when it comes to ethical standards’.

    All that quote says to me is “lose a little bit of the firm’s money and I’ll be understanding. Lose a lot of the firm’s money and I will be ruthless”.


  4. Gregory Sadler on

    I think that you’re correct on several points here.

    You’re right that if we look at the pattern of Buffet’s behavior — and some of that behavior perhaps might open us a window not only on his motivations but the prioritization and rankings of certain goods or evils against each other (e.g. money vs. reputation) — then we could discern yes, certain virtues, or at least certain shapes of character that at least resemble some of the virtues.

    It would be this context of moral fiber that would provide the possibility of good responses to the challenges that Miguel and Ben rightly pose. Concern for reputation need not be motivated by one’s virtuous (or at least on-the-way-to-virtue) disposition — it could derive from the sort of reductivist prudential reasoning according a greater weight to reputation by measuring it as worth more money. Or, the motivation could stem from following the dictates of varieties of egoist or other consequentialist moral theories.

    You’re right to single out two other candidates for virtue: loyalty and a sense of proportion — again, in order to know whether Buffet really possesses them, rather than just displaying them in this situation, a virtue ethicist would have to look at the larger pattern of his behavior.

    Likewise, you’re right in the caution that leads you to say that “in addition to focusing on principles” — rather than in opposition to that focus — virtue ethics also looks to character, models, a coherent way of being, desiring, acting, and flourishing (ok, you didn’t say all of that — but a virtue ethicist would!) That caution is entirely needed if a virtue ethics approach is to be an adequate one, as contemporary virtue ethicists like Alasdair Macintyre have both argued and exemplified in their practice.

    To go beyond the question of whether Buffet himself is virtuous, one can recommend his character in this case from a virtue ethics perspective — the measure, as Aristotle tells us is whether the person does the sorts of things that a virtuous person does, in the way that a person who actually does possess that virtue does them. Even if Buffet does not possess the fully developed virtue, say of loyalty, in this case, he does seem to act as a genuinely loyal person does — and so his example can be recommended.

    • Chris MacDonald on


      Thanks for that. I think you’re right to highlight the difference between a) looking at a particular individual’s behaviour on a particular day, as an example of good behaviour on a particular day, and b) looking at an individual’s pattern of behaviour, over a lifetime, as an example of living a morally-good life.


  5. Brian Finch on

    The problem with a person centred approach to ethics is that people are inconsistent, react differently depending upon circumstances and change over time.

    For example, an honest person fails university exams and must take an (unsupervised) resit. They can’t quite remember the answer to a critical question. Their solution is to sneak out to look at the textbook. For the rest of their lives they may be upstanding citizens – or until they meet a similarly critical decision point. Is that an ethical person? I’m afraid the answer is ‘it depends…’

    Buffett does come across as being a person who generally behaves ethically but we cannot know in what situations he might not (he probably doesn’t either). And it is interesting to note that his company’s audit committee investigation into the ‘Sokol Affair’ did not address questions about who knew what, when and what questions were asked. Note also that a partner of the law firm advising that committee sits on the Berkshire Hathaway board. There are no rules against that but I think it presents a conflict of interest and undermines independence.

    One conclusion from this messy affair is that rules of governance provide a framework but will never cover all situations and that good corporate governance demands ethical behaviour from those involved. You can’t get away from good old fashioned integrity.

    • Chris MacDonald on


      Fair enough. But the point of a person-centred approach needn’t be to reach a final ethical assessment of the person in question. After all, that’s seldom possible: we typically have very incomplete information about an individual’s behaviour. Rather, the point is to point to particular behaviours as worthy of endorsement. “Yes, that is the kind of person I want to be.” I’m actually not much of an adherent to that ethical framework anyway, at least not as a full-blown theory of ethics, but I do see that sometimes it’s easier to point to behaviours worthy of emulation, than it is to enunciate specific principles to guide behaviour. That, in a way, supports your final claim: even when we cannot rely on rules of governance (maybe because they’re hard to design, and always incomplete) we can still expect people to act like good people.


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