The Buffett judgment question by Colin Barr @FortuneMagazine April 29, 2011, 9:10 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Few can match Warren Buffett as stock picker. But is he a sound judge of character? It’s surely not a question the billionaire Berkshire Hathaway brk.a CEO relishes nowadays – not a month after David Sokol (right), his longtime right hand man and presumed successor, was unmasked as a selfish, rule-bending creep. Mission creep But however unfair it may seem, the judgment question is one the 80-year-old Buffett won’t be able to avoid this weekend. He and Berkshire Vice Chairman Charlie Munger are scheduled to entertain tens of thousands of shareholders in Omaha at the company’s annual meeting – where the subject of Buffett’s succession plan is always ready fodder for hallway conversation. Those chats may take on a bit more urgency in the wake of the report Berkshire’s audit committee released Wednesday. It details the trading transgressions, evasiveness and general peevishness of Sokol – just two months after he was praised lavishly by Buffett in his annual shareholder letter. “I can’t overstate the breadth and importance of Dave Sokol’s achievements,” Buffett said in the letter, referring to Sokol’s turnaround of Berkshire’s NetJets unit. Sokol’s days as a corporate highflier ended abruptly last month, when he quit in an insider trading scandal. While Berkshire fans are hoping the 18-page audit report will put that fiasco in the rearview mirror, it is nonetheless likely to consume quite a bit of Buffett’s five-hour question-and-answer session with shareholders Saturday. Not forgotten will be the way Buffett initially booted the Sokol news. Rather than focusing on Sokol’s questionable trades, Buffett’s March 30 press release inexplicably led with a quote from a witless Sokol resignation letter that proclaimed he was quitting to spend more time with his family’s money. Buffett, incredibly, then went on to applaud Sokol’s achievements — and to announce he was done talking about the matter. Whatever happened to the guy who promised two decades ago at Salomon Brothers to be ruthless with those who endangered the firm’s good name? “The way they dealt with the news in March was disappointing,” says David Rolfe, chief investment officer at Berkshire shareholder Wedgewood Partners in St. Louis. The Sokol episode “put a big dent in Berkshire’s reputation, which you know is Buffett’s heart and soul.” Of course, most attendees are tried and true Buffett fans, and so they believe the audit report mostly redeemed Buffett, if he had ever fallen. Accordingly, they are focused more on what acquisitions cash-rich Berkshire might land next. Buffett said in his annual report that he is hunting for big game along the lines of Burlington Northern, the railroad Berkshire bought last year that has more than met profit expectations. “Sokol is going to be the elephant in the room,” says Rolfe, “but we are more interested in the elephant gun.” But it’s not so easy to gloss over the questions about Buffett’s capacity to manage an expanding empire. As the years pile up, that proposition obviously isn’t getting any easier. And the succession question still nags, even if Berkshire’s bench is acknowledged to be deep in talented people such as reinsurance chief Ajit Jain, Burlington Northern’s Matt Rose and MidAmerican Energy’s Greg Abel. The report released Wednesday by Berkshire’s audit committee blames Sokol, not Buffett, for violating Berkshire policy. But a review of Sokol’s actions certainly doesn’t read like a ringing endorsement of Buffett’s decision to entrust him with so much responsibility. Start with Sokol’s lunatic choice to bet his career on a conflict-laden stock bet that earned him just a quarter of what he was made in a typical year at Berkshire. That is not what you might describe as the mark of a seasoned leader. But wait, there’s more. Sokol alienated staffers at NetJets and other Berkshire businesses he oversaw. He tried at least twice to quit, in what sounds like the posturing of a prima donna, before claiming improbably on his way out the door that he had no interest in the CEO job anyway. He told CNBC that if he had to do it all over, he would buy the Lubrizol LZ stock again — and just not tell Buffett about the company. This is the guy you want as the steward of your precious corporate trust? If anything, Buffett should consider himself lucky that Sokol was exposed before he could do too much damage, and breathe a sigh of relief that Berkshire’s reins are now likelier to eventually end up in safe hands. We shall soon find out whether the Oracle, for all his business acumen, has the clarity to see it that way himself. Also on Fortune.com: Berkshire finally scolds Sokol Berkshire needs a better board The decline and fall of business ethics Follow me on Twitter @ColinCBarr.