Nati Harnik/Associated PressDavid L. Sokol

Perception is more important than reality.

After watching David L. Sokol on Thursday morning on CNBC as he tried to explain some potentially questionable trades he made in Lubrizol before Berkshire Hathaway bought the company, I was struck by what appeared to be a remarkable lack of appreciation for the way the public would perceive his actions.

Mr. Sokol clearly appeared to believe he had not done anything wrong or broken any rules when he bought shares of Lubrizol on Dec. 14, just a day after he instructed Citigroup to set up a meeting on behalf of Berkshire Hathaway to potentially orchestrate an acquisition of the company.

I have met Mr. Sokol before, found him to be an honest man and take his word that he thought he had acted completely appropriately.

But the facts paint an unattractive picture that creates a public perception problem — even if the reality of the situation is more innocent (I don’t know if it is or isn’t).

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At the time Mr. Sokol personally bought shares of Lubrizol, he had already begun trying to set in motion the gears of an acquisition by instructing Citigroup to put together a meeting with Lubrizol’s chief executive. Mr. Sokol, of course, had no way to know whether Lubrizol would engage in talks or whether Warren E. Buffett and Berkshire Hathaway’s board would be interested in acquiring the company.

But in the court of public opinion that doesn’t matter. His intent was to recommend the deal to Mr. Buffett. And even though he had no control over Mr. Buffett’s ultimate decision, he was one of a select few who were in a position to influence such a transaction.

Perhaps most striking, Mr. Sokol said on Thursday morning that if he could do it again, he would have bought shares of Lubrizol but not subsequently suggested that Mr. Buffett buy the company.

Putting aside the legality of the trade — and several lawyers I have spoken with believe the S.E.C. will scrutinize this matter seriously — the transactions demonstrate poor judgment.

Mr. Buffett once said: “Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children and friends.”

That is a good rule to live by.

11:27 a.m. | Updated
After publishing my column, I received an e-mail asserting that Mr. Sokol “broke the spirit of the law,” and wondering how I could accept his defense. Let me clarify my point.

Do I believe that Mr. Sokol thought he hadn’t done anything wrong? Absolutely. Do I also believe that Mr. Sokol is naïve if he doesn’t understand how his trading could be problematic? Absolutely.

These two points are not mutually exclusive. If anything, the interview demonstrated that he did seem to understand the spirit of the rules.

Perhaps the most troubling part is that Mr. Sokol was out for himself, rather than for Berkshire. If he could have done it again, Mr. Sokol said he would have still bought shares in Lubrizol, but not recommended it as an acquisition target to Mr. Buffett — for which he said Berkshire would have been the loser.

Article source: http://feeds.nytimes.com/click.phdo?i=0e224ca6942d00fecbe3fe15e39cdc19