Much has been written about David Sokol advising the Berkshire Hathaway board to acquire a company, called Lubrizol, in which he had recently bought shares. There has been much debate in public about whether he made sufficiently full disclosure and whether the board asked the appropriate questions. The point that emerges is that rules and procedures can only take you so far. In the end we rely upon personal integrity and a shared understanding of ethics.
The rules and procedures are just a starting point - any investment professional would ideally not invest on their personal account anyway. Sokol's earnings at Berkshire Hathaway are not made public but his role at MidAmerican, an 89% owned subsidiary, are reported to have brought him $24m over 3 years. One would guess that his other roles would have added substantially to this. His profit on Lubrizol was just $3m. I say 'just', that is a lot of money but surely, for someone on such a scale of earnings, it should be possible to abstain from personal investing without feeling poor?
I understand that the sort of executives sought by Berkshire Hathaway are natural dealers but surely...? But ok, suppose he could not resist...then, whatever the BH disclosure rules may be, surely if you advise a purchase of shares in a company where you hold shares you over-disclose: you detail what shares you bought, when you bought them and any surrounding circumstances such as advice to or even conversations with other people concerning the target company. You disclose who told you what that may have led you to buy shares. You cannot be too clean.
I understand that Sokol's lawyers claim he was not asked the right questions. Maybe not. But that ain't the point. My set of personal values says that no questions should have been necessary. Maybe this was just one of many investments and he forgot (actually it wasn't because he claims to make only a handful of trades each year). But if you are an investment adviser then, regardless of whether rules oblige you to do so, you should keep your own detailed register of interests so that nothing can be forgotten and so that all trades are reported to those you advise.
Like I said...rules are a starting point and then corporate governance is about personal integrity and a shared understanding of ethics.