Sokol Threatens to Shut Down NetJets
Folks, I realize many of you are tired of the back-and-forth on NetJets, but this is a big, huge deal. David Sokol sent an email out last night to employees threatening to shut down the company if people don't stop criticizing him (in effect). Here's how I read the meta-message of the thing and its import. The email follows.
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> First, the situation gets more astonishing by the day. Am trying to imagine Dale Carnegie's reaction to this. Or how Warren Buffett would have handled it from the start. The mind boggles at how this continues to escalate. What's next, enriched uranium?
> Apparently there was a union "safety" meeting yesterday that David was invited to attend (and didn't). This solves the mystery of why the email.
> The union wants David out of there. He furloughed nearly 500 pilots and over the long term the jobs of many more are at stake. As far as I can tell, the last thing these people want is to hurt NetJets, because it would cost them their jobs. They believe David Sokol is destroying the company, they hate him personally, they want him gone, and they have varying points of view about how much collateral damage that will take.
> It has been written elsewhere that David's comments are justified. I agree with the general principal that a CEO has the right to say anything he or she wants and take the consequences. I don't agree this particular email is justified, i.e. that it makes sense. For example, if former employees are recruiting customers away from NetJets, so what, if they aren't violating noncompete agreements.
> The fact is that a host of detailed, specific accusations have been made about how NetJets is being run. None of them, as far as I can tell, have been answered or at least, answered adequately. I have been researching, and without going into details, the accusations appear supportable in at least some instances. I would rather not specify which, because Berkshire Hathaway's second quarter 10-Q appeared to contain an item or two that might not have been filed with the SEC but for the existence of this website. The power of the Internet to influence businesses to do the right thing is wonderful, but it's premature in this case. Now, the people making the accusations have been attacked. Anytime someone tries to arbitrarily shut down criticism and debate, wise people know to view it with suspicion.
> I think David Sokol is in a very difficult position. He's got a host of angry ex-employees on his hands. On the other hand, everyone I've spoken to (all of whom, by the way, are legally entitled to speak to me and are not in violation of NDAs) says David went out of his way to humiliate and inconvenience people on the way out the door. His email must be read in that context.
> It's been mentioned a number of times in the past on this website by various people that plans are being considered to shut down or sell the company. This letter now admits it's a possibility and proposes the former management's criticism as a possible cause. This, at least, makes sense. Somebody's gotta take the blame, and everybody's looking for a scapegoat.
My journalistic antennae are twitching so hard it's jerking my fingers away from the keyboard, so I'll stop now and why don't you read the email.
When I arrived at NetJets last year, I promised that I would engage in open and honest conversation with each of you. The leadership team and I have worked very hard since that time to fulfill this promise and fully believe we have done so. It is in that spirit that I write to you today to make you aware of some recent and serious developments that threaten our business.
Over the past year, our leadership team has worked hard to establish and execute a business plan that will allow us to provide value to our Owners, as secure employment as possible for our employees, and a fair return for Berkshire Hathaway. Although we made many difficult decisions and implemented several changes to how we conduct business, we have held firm in our conviction that we must never compromise our industry-leading safety and service standards or our integrity.
As I suggested in my last quarterly update, our efforts as a team have been largely successful and our business is now improving. Indeed, after many years of unprofitability – to date, Berkshire Hathaway actually has lost money on its initial $725 million investment in NetJets, which it made more than 12 years ago – we are now reaching a place where we are confident that we can seek out growth opportunities and consistently achieve the goals of our business plan on a go-forward basis. Our safety and service cultures have been enhanced, and we have built a strong foundation for continuous improvement. I could not be more proud of the entire team’s efforts.
Unfortunately, there are several former executives and current employees who are working diligently to harm you, your families, and our business through rumor mongering, deceit, and other forms of unethical behavior. While our Pilots, Flight Attendants, Maintenance Technicians, and other team members have been working hard to execute our business plan and serve our Owners, these individuals have been attempting to undermine your efforts by negatively influencing our current and future Owner base both directly and through the media. The following examples illustrate this point:
· Former executives and employees have contacted our current Owners directly, encouraging them to leave the NetJets program.
· Current and former employees have posted countless damaging and defamatory messages on public websites, discussion groups, and message boards. In addition, an anonymous individual posted excerpts from two NJASAP newsletters that include disparaging remarks about our safety and service culture. We have reason to believe that these messages are now being used by our competition to discourage current Owners from maintaining, and prospective Owners from establishing, relationships with our business.
· NetJets’ former Vice Chairman has directly attacked our business practices in both print media and on television. I do not respect his actions. In my view, there can be no purpose for them other than to attempt to destroy NetJets and to threaten our collective future.
· A former executive and current Pilot made disparaging remarks about the NetJets leadership team in a recent issue of Fortune magazine. It would easily follow that his comments will be used by our competitors’ sales forces to bolster their case against NetJets. In this context, we are baffled by the letter we received from NJASAP defending these statements and claiming they were made by this individual in his capacity as a Union representative.
In our view, the actions described above are part of a campaign designed to decrease the number of Owners in the NetJets program, poison our relationships with our business partners, and incite our team members into providing a reduced level of service. The conflict-ridden environment they are trying to create is similar to that which exists at many commercial air carriers. But we are not an airline, and the service you provide for our Owners is not a commodity. The day we begin to resemble an airline or our service to our Owners begins to falter is the day we begin to fail. For this reason, I have chosen to write directly to you. A second letter will be sent to the NJASAP Executive Board regarding this important matter.
We are fortunate and proud to be a Berkshire Hathaway company. But with this comes a responsibility that each of us must bear. We are at a crossroads, and behavior like that described above will only take us in the wrong direction. Do not allow yourself to be influenced by the actions or words of those who seek to harm us. Our Owners pay for and expect a very high level of consistent service. To provide that service, we must pull together and act as a team each and every day with one thought in mind: “How do we encourage new ownership within NetJets?”
I have had the great pleasure to meet a very large number of you during my time here. At each meeting I take the opportunity to ask you how things are going and to determine where we can improve. I have been extremely pleased with all of the positive responses I have received and have been working hard to implement many of your suggestions. I look forward to a bright future for NetJets, and for this reason it is my hope that we can rise above the kind of behavior I describe in this letter and put it behind us. It is up to each of us. We have set the stage for future growth and expansion, and we are positioned to grow. If we are unable to do so because of continued conflict and negative campaigns, we will unfortunately be forced to redirect our plans. You have my commitment that I will do my best for NetJets’ future, and I hope that I will have the same commitment from each of you. As always, please do not hesitate to contact me with any thoughts, questions, or concerns.
David L. Sokol
Chairman and Chief Executive Officer