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Warren Buffett’s Big Blunder

The Exchange
Berkshire Hathaway CEO Warren Buffett pauses during a bridge game in Omaha May 5, 2013 the day after the company's annual meeting. REUTERS/Rick Wilking

Is the Oracle of Omaha losing his touch?

Maybe, maybe not, but there has been a fair amount of unrest of late at a company owned by Warren Buffett’s Berkshire Hathaway (BRK-B): House paint brand Benjamin Moore & Co. The most recent incident came in September, according to a report Monday in the New York Post, when the subsidiary's chairman, 29-year-old Buffett protégé Tracy Britt, was forced to fire CEO Bob Merritt over allegations that he had sexually harassed a number of female employees. Michael Searles, the former head of retailer Wilsons Leather, will take over as CEO of Benjamin Moore, becoming the unit's third chief executive in the past two years.

That’s just the beginning of this convoluted tale.

Turns out, Merritt is married to a close friend of the Harvard-educated Britt, New York-based investment manager Jill DiLosa, and was brought in as the CEO in a hurry when Britt took over the chairmanship in 2012 without the usual vetting process or the help of an outside executive search firm. And that’s to say nothing about Britt’s own relationship with Buffett, which is so close that the boss walked her down the aisle at her recent wedding in Omaha. She started at Berkshire Hathaway in 2009 as a financial assistant and has since emerged as a key member of Buffett’s inner circle.

“Things have gotten way too cozy at the top for Warren and his cronies, and now it’s biting them on the bottom,” an unnamed source told the New York Post on Monday.

A troubling trend

Unfortunately for Buffett, this most recent incident is just the latest in a string of questionable personnel moves by the man many consider to be the smartest, most successful investor on the planet. As of 2013, he is the fourth-richest person in the world with an estimated net worth of $58.5 billion.

The trouble at Benjamin Moore began last year when Buffett abruptly fired previous CEO, Denis Abrams, over what the billionaire said was an ineffective corporate strategy, despite the fact that the company posted its first quarterly sales increase in five years shortly before Abrams was ousted. The real reason for the firing, it was rumored at the time, was a lavish Bermuda cruise on the company’s dime that the CEO organized for his top lieutenants to celebrate the recent success.

Britt and, by extension it seems, Merritt were brought on in the wake of that firing to right the ship, but doubts lingered.

"It is completely out of character for him to replace managers on the basis of strategy and ideas about distribution channels," Jeff Matthews, author of Buffett biography, “Secrets in Plain Sight," told the Wall Street Journal at the time of Abrams' firing.

Investors concerned?

Firing a CEO who was turning around a long-troubled company and replacing him with untested insiders and their personal friends? Berkshire’s investors took notice at the time, and many have started to openly question the 83-year-old Buffett’s management of his empire. Until recently, the firm had been notable for the intense loyalty of its subsidiary managers, many of whom stayed with Berkshire until their own retirements. The recent departure of Susan Jacques, the long-time CEO of Berkshire subsidiary Borsheims, an Omaha-based jewelry store, did little to dispel worries of internal turmoil, as did revelations in January that former insider David Sokol, who resigned from Berkshire in 2011 amid accusations of insider trading, had less than positive things to say about Buffett's behavior.

Still, Berkshire Hathaway’s stock price remains near 52-week highs, so at least so far investors still trust the Oracle’s business sense. His personal decisions, however, are open for debate.