Sokol Resignation

Sorry, but Buffett and Munger have to RESIGN now !

The minute Warren heard that Sokol owned shares of Lubrizol, he should have seen the RED LIGHTS flashing !
Same for Munger and BYD: it does not matter that Charlie bought BYD shares years before, and under his children names.
In both cases, there were MASSIVE conflicts of interest, that are not permissible in America.
These conflicts of interests are frequent in many foreign markets, such as Hong Kong for example, but are not tolerated for good reason in America.
It is unacceptable for the Chairman and Vice Chairman of a US-listed firm of the size of Berkshire to have missed, overlooked, or even encouraged (in the case of Munger) these conflicts of interest.

I think this happens more than we know in the elephant world, just not so blatently. ... I did not have ... with that women.

Alice,

The more I think about David Sokol, I have to admit you were right about him not being the best person to succeed WB - not for front running his investment, but because his skills are operational - which presumably BRKB will not need in large doses since it leaves the manangement of its subsidiaries in place. I think you agree that the most important skill the new CEO should have is that of enterprise risk management. Perhaps then you are right that Ajit Jain, [or another insurance CEO] would be the best man for that skill set as you articulated in another post. I am not comfortable with Matt Rose or Greg Abel either since I also believe their strengths are operational as well. I know in the past I have heard you discuss Byron Trott as an ideal successor and I am starting to agree. I allowed myself to be assuaged over the years about succession at Berkshire, but this blow up has me again concerned. Over time, I would love to hear more of your views on this since I consider it the most important issue facing the shareholders.

On another issue, I can't believe that WB's letter and Sokol's interview on CNBC expects us to believe that Mr. Sokol's resignation and the LZ stock purchase are mutually exclusive events. I am not smart enough to know if what he did is illegal, but to believe that Sokol has been planning to resign for some time, and it just so happened to be at the same time he front ran his stock doesn't pass the giggle test. I believe that is a credibility issue that I didn't think existed before. As you wrote in Snowball, Mr. Buffett dislikes confrontation, so do you believe someone went to Sokol and told him it was time to go? How do you think that played out? I look forward to your views. Thanks

ANSWER: I assume that MTO played a role in making the judgment call and -- based on my knowledge of Buffett -- in dealing with David as well. This may have been what was going on behind the scenes while Buffett was in India. Perhaps we will hear more of the details -- I hope so.

First, its pretty bad when Buffett is being "dissed" by the king of sleaze Jim Cramer.

Second, Buffett is more a victim in this affair than anyone. His reputation has been tarnished by the act of a trusted employee. I am sure than anyone that touts a potential stock to Buffett has a vested interested in that stock.

Third, this is a reason for the REALLY creepy people on wall street, to say, "see I not so bad, even Buffett does bad things."

Fourth, I do think that Buffett has antagonized enough people with his politics, and with "rock star" image, that he is starting to get away from what made Buffett, Buffett. I mean Alice, for him to hold a grudge against you for revealing the mental problems of his mother is nutty. I am sure he knew an indepth bio would bring these up.

You nailed it, Alice. I'm an Omaha guy with a few connections to the Buffett family. In my view, Sokol's actions were unethical. Furthermore, his actions showed disrespect for Warren, BRK and its shareholders. I personally concluded, about a year ago, that there was no way Sokol was going to be "the guy." First, though a talented manager, he lacks the even-handed temperament need to run BRK. Second, I am convinced that Warren actually ate Sokol's lunch in acquiring MidAmerican Energy. Whether intentional or not, I can easily imagine Warren's hand on Sokol's shoulder as they shook hands on that deal. In those discussions, I'm sure Warren provided at least a whiff of the possibility that Dave might be "the guy," perfectly playing to Dave's healthy ego. We, here we are today: Sokol gets the door and Warren keeps MidAmerican.

Second, during the recent attempt to recall the mayor of Omaha, Sokol personally wrote a $50,000 check to the recall committee. That ain't Warren's way.

it is obvious that we will all jump to conclusions, do a swift trial and announce Sokol and Buffett guilty. When somebody is a paragon of virtues, it is special fun to pull them down. Gotcha you moment? Alice, but before you hang them, I think Sokol deserves an answer to one simple question. What would you have him rather do when he has already liked something. Do you not want to buy him anything ever or never recommend anything to Berkshire's chairman. Do you think Charlie Munger should not have recommended BYD to Berkshire after owning 3%? Obviously he too benefited when BYD got so much publicity? I agree this one was bought closer to the deal.. but clearly Sokol had no idea on 5th January that deal was imminent or if Buffett was even interested. I am a berkshire shareholder and that in the end I feel I have benefited from this Lubrizol deal. I want Sokols, Matthew Roses of the world to get deals for me. Obviously deals the management team of Buffett brings can have existing involvement in them. As long as Buffett is the final decision maker, I do not want them to run scared and not get deals in the fear that one day you or other journalists are going to criticize them.
Put yourself in the Berkshire's shareholder position and then analyze the chain of events carefully, and then tell us what would you have sokol do differently that still results in a fair outcome for all the parties involved. Do you really think Sokol thought that these trades will never be made public? Obviously he knows that. Has he tried to hide anything in this matter? Obviously not. He was grilled for 30 minutes on CNBC very next day and he gave answers to each of the question. How does that compare to some of the recent insider trading cases. Everybody hides behind a press release.

ANSWER: NO. I WOULD not have Sokol fail to recommend to deal to Buffett. He has a duty to recommend it. He's making millions a year to oversee Berkshire's shareholders interests. However, when those interests conflict with his own, he must put his own aside. He should have a) not bought the LZ when he was contemplating taking the idea to Buffett to avoid creating a potential conflict that could be messy to resolve later; b) clearly disclosed to Buffett that he owned the Lubrizol stock, how much he owned and the full circumstances under which it was acquired; c) if necessary, sold it the minute that Buffett showed serious interest in LZ. Being required at times to put the company's interests ahead of your own is a given in the business world, I think most people understand it and it's why they are so shocked. The most troubling, in fact, disgusting thing Sokol said yesterday on CNBC was that he would have put his family's interest first, bought the stock and not given the deal to Berkshire.

ALSO regarding Charlie Munger, I thought it was low-class of David to try to drag Charlie and BYD into his problems. The two situations are not parallel. Charlie bought BYD for his family before recommending it to Berkshire. He did not make the purchase in secret to capitalize on the potential that Berkshire would invest in BYD. He also fully disclosed the whole thing ahead of time. Sokol covered up his purchase by not making anything but a passing mention to Buffett. Even the bankers at Citi say they were shocked to learn he was investing privately. In his meeting with Citi he apparently represented himself as deal-hunting for Berkshire and gave no hint he was seeking personal investments. This conflicts *directly* with what David told CNBC happened at that meeting.

Arrogance, extreme egotism and narcissism are powerful self-damaging forces. No surprise that Mr. Sokol doesn't think he has done anything wrong.

Also contrary to what was said, Mr. Sokol has left a young NetJets management team that is not equal to the gargantuan tasks looming in the future many resulting from a very complicated business being driven ever smaller.

Little misconception remains, even by the most unsophisticated over the course NetJets has been directed to follow for some time now despite the best of PR efforts to the contrary.

Hi, Alice

Do you think Sokol was in the top 4 CEO candidates to begin with.

ANSWER Yes, I am certain that he was.

This was not the time for a didactic lesson for the investment world.

Strictly damage control.

Buffett's letter damned the guy with faint praise, once you get beyond the rehash of kudos for past contributions. Saying something is 'not unlawful' is a very very long way from saying that Buffett condoned the Sokol's actions.

The press release went a long way toward getting this behind Berkshire.

1. It laid out a timeline of events.
2. Per Buffett, "I have held back nothing in this statement. Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release."
3. Sokol resigned.
4. Sokol is gone -- now a private citizen left to deal with the SEC.

Being forthcoming in the statement, Buffett prevented the timeline from leaking out in dribs and drabs ... and the inevitable conflicting details.

Buffett stated that Sokol couldn't have known that there would be a deal, since Buffett - who makes the decision - hadn't considered the deal.

And criminal charges require intent.

If Buffett thought it was 'unlawful' -- then why did he wait, why did he not fire Sokol immediately, etc.

If he thought he needed to fire Sokol, again, why did he wait, etc.

If Sokol bought the stock based on Sokol's OPINION regarding what Buffett would do -- then the argument that this is 'information' is thin.

If he bought based on his research on LZ using public information, presumably what was used in his pitch to Buffett, then it wasn't by definition non public.

Getting beyond legal technicalities, Sokols actions were idiotic and indefensible.

However, we live in a world of legal technicalities, and now is a time for BRK and Buffett to tread as carefully as possible.

The time for bloviating about corporate ethics is not when one of your senior guys just blew himself up and you are trying to limit collateral damage.

I agree with everything you have said. I'd like you to throw more light, if possible, on "the classic trap that a lot of the rich and powerful fall into". Extremely interesting subject.

Your clear and factual explanation is as well written as it is damning. I can always count on you to keep my Buffett infatuation in check.

It will be hard for me to watch the tape of Warren promising "to be ruthless to anyone who damages a shred of Berkshire's reputation" at the annual meeting this year after reading Warren's CYA explanation of Sokol's actions today.

Your Editor's note contained in the Bloomberg piece is interesting. Thanks for sharing, as I think you have assessed this one correctly. If the "law" doesn't see it, shame on the law!

Alice,
I could not agree more. I'm anxious to see how this will all wash out.
Enough said.