In his firm’s annual report released this weekend, Berkshire Hathaway CEO Warren Buffett included a side note on one of the companies his conglomerate bought in 2011 for $9 billion, a company called Lubrizol.
Lubrizol is an Ohio-based global specialty chemical company. On September 26, 2019, a large Lubrizol plant in France had a fire.
“The result was significant property damage and a major disruption in Lubrizol’s business,” Buffett says in his letter. “Even so, both the company’s property loss and business-interruption loss will be mitigated by substantial insurance recoveries that Lubrizol will receive.”
Buffett then quotes the late radio newscaster and commentator Paul Harvey’s famous line, “Here’s the rest of the story” before explaining how he knows about the insurance. Buffett writes:
“One of the largest insurers of Lubrizol was a company owned by . . . uh, Berkshire. In Matthew 6:3, the Bible instructs us to “Let not the left hand know what the right hand doeth.” Your chairman has clearly behaved as ordered.”
Thus, Buffett revealed, one of Berkshire’s companies that suffered a fire is insured in part by another Berkshire company.
Buffett said his note on Lubrizol “underscores the wide scope of Berkshire’s operations.”
Uh, but wait. Here’s the rest of the story.
Lubrizol was not the only victim of that fire.
The fire erupted in the early morning of Sept. 26 at the Lubrizol factory in Rouen, France, a tourist center and the capital of the region of Normandy. More than 5,000 of tons of chemicals used in engine oil and industrial lubricants burned in the flames.
Lubrizol’s own team of first responders responded immediately and were soon assisted by more than 100 firefighters.
Fortunately, there were no fatalities or injuries. But the effects were felt for months afterwards because the fire sent plumes into the sky, polluting the air and coating the city in soot. Rouen residents complained of headaches and vomiting and were reluctant to go outdoors at first. Farmers were upset because their milk and crops were contaminated, while shop owners complained that tourists would stay away now that the city’s image had been damaged.
Activists and officials raised health and safety concerns and criticized the government and corporations for what they saw as inadequate safety regulation and an environmental disaster.
The government launched an inquiry and the CEO of the Ohio-based company, Eric Schnur, appeared in person before the French Parliament. “We want to be good neighbors, we want to help,” he told the lawmakers and the public.
Schnur claimed that the fire started outside of his company’s property, suggesting it began at a nearby facility owned by Normandie Logistique, whose owners deny the suggestion.
In addressing the health concerns, Schnur said his company knows well the chemicals it has in the plant and that none of those that burned pose a health threat. “We are confident that what was burned in our facility, as well as our materials that burned at Normandie Logistique, pose no health threat other than the short-term irritation one would normally experience in the presence of smoke,” he testified, emphasizing that environmental testing validated this view.
He said the company has been fully compliant with all regulations. Just two weeks before the fire, he confirmed, one of its other insurers, FM Global, completed a formal risk analysis that also supports the claim that there should be no health impacts from the chemicals that burned.
Lubrizol established funds to support farmers, businesses and the community. It committed to further environmental testing and cleanup and said it would support promotional efforts for the local tourist industry. It also paid all of its 600 employees during the recovery.
Lubrizol employs 8,700 people at 60 sites across the globe.
On Dec. 13 the company announced it had received approval to reopen the Rouen plant.
But wait. Here’s the rest of the story.
Lubrizol has also played a role in one of Buffett’s and Berkshire’s few embarrassing chapters.
In 2011, a likely successor to Buffett, David Sokol, resigned for buying shares in a company right before urging Buffett to acquire the company. Some analysts said the event raised questions about internal controls at Berkshire. Buffett said Sokol resigned to create his own business and increase his philanthropy.
The shares Sokol bought were in Lubrizol.
Was this article valuable?
Here are more articles you may enjoy.