Berkshire's Sokol Resigns

[Free To Canoe]

Doesn't look good for Warren and the gang.

David Sokol Resigns From Berkshire Hathaway - NYTimes.com

 

[Dimsumkid]

Nothing like having first hand information on a company buyout, he made over 13 mil on the transaction. Maybe he didn't want to take over and make only 100k when Warren stepped down?

 

[73ss454]

I saw him on TV this morning. He said he had no idea he could have been doing something wrong. Yeah right!

 

[powerplay]

I saw this in the morning paper. Warren called it 'shabby' but not illegal. It will be interesting if more information surfaces.

 

[Nords]

First reports seem to indicate that Sokol is an [-]idiot[/-] alumnus of the Martha Stewart School of Special Entitlements.

Alice Schroeder in Business Week:
Buffett Misses Chance to Show Moral Courage: Alice Schroeder - Businessweek
Ravi's "Rational Walk" posts:
Sokol’s Resignation Raises Questions Regarding Lubrizol Transaction | The Rational Walk (chronology)
Sokol: My Mistake Was Suggesting Lubrizol to Buffett | The Rational Walk (Analysis & CNBC interview)

I dunno, I'm no expert at facial expressions & body language, but just the first 10 minutes of his CNBC talk makes me think he's lying his assets off. At the very least he has no idea what sort of public impression he's making on the CNBC anchors, let alone the viewers. Of course I hope I'm wrong and that this is just a triumph of obliviousness over judgment.

It's interesting that Sokol resigned (Via an assistant?!? What kind of protocol is that?!?) instead of Buffett telling the world that he asked for Sokol's resignation. I wonder if the board told Buffett that he really needed to get rid of Sokol, and that Sokol's resignation was more for the board's benefit than out of Sokol's feelings of regret or consideration for Buffett.

Thinking back, I guess this is typical Buffett. Santulli announced his NetJets retirement instead of Buffett announcing that it was time for a change. Buffett defended Blankfein's behavior at Goldman Sachs despite the "God's work" incident and other "ethics" lapses. Buffett didn't say a word about the indicted GeneralRe execs or AIG's Greenberg and let the SEC filings talk for him. He probably won't say bad things about Berkshire execs even in private or in testimony, let alone in public.

I think Buffett wants this well out of the press by the 30 April annual meeting, but the meeting's journalists managing the meeting's Q&A won't let this slide.

Sokol has taken a lot of heat over the last couple years for the confrontational way he's "turned around" NetJets, and speculation was building that Berkshire was his to screw up. (This is what Buffett does: put his best people in the worst jobs and then praise the heck out of them until they figure they have to fix the problems or risk disappointing him.) Much of this heat has come from "anonymous" NetJets employees on Schroeder's blog, and Schroeder has essentially told the kvetchers to identify themselves or stop posting. NetJets has actually subpoena'd Schroeder to reveal her sources. I'd hate to think that Sokol had been involved in that vindictive behavior. Schroeder's blog went dark from Nov-Feb with the excuse that she was caring for her father, but now I wonder if she was following advice to stop posting to it until the legal issues were resolved.

Schroeder looks darn near omniscient in this post from May 2010:
Sympathy for Sokol | Alice Schroeder: The Official Website

This is a poignant example of the perils of investing in individual stocks. To those investors who say "Oh, I know the company's management and I trust them to do the right thing": well, no you don't, and apparently even the boss can be surprised by management. Looks like Berkshire dodged a bullet by getting rid of Sokol now instead of after he'd taken over for Buffett.

Regardless of Berkshire's ethics "lapses", I think they're still ahead of the personal-behavior performance record of the rest of the S&P500. Their stock price is still as much as 30% below the company's intrinsic value and certainly not selling at historical a premium to book value. The next couple months should be a Berkshire buying opportunity.

 

[samclem]

Looks like Berkshire dodged a bullet by getting rid of Sokol now instead of after he'd taken over for Buffett.

Most eyes will be on Berkshire now, but I wonder if some folks won't seek to buy whatever Sokol ends up managing next. They may see him as someone who has been close to the Oracle, knows how the Berkshire magic is made, and apparently was good enough to earn Warren's trust (even if he proved not to be honest enough).
I wouldn't do it--heck, I'm not willing to buy Berkshire itself even at attractive valuations and with Buffett still in charge.

 

[Gumby]

Even if he ultimately is determined to have done nothing illegal, you would expect someone in his position to know how bad it would look to front-run your employer. I wonder what he was thinking?

 

[haha]

Even if he ultimately is determined to have done nothing illegal, you would expect someone in his position to know how bad it would look to front-run your employer. I wonder what he was thinking?

Internal conflicts can cause people to make seemingly bizarre self-destoying moves. Maybe he just was not ready to step up onto such a stage?

Ha

 

[soupcxan]

Regardless of whether this is illegal or not, why does BRK not have a clear conflict of interest policy that says what investments its managers can make and what are forbidden? I can't believe that a sophisticated company such as this one has never had this issue come up before.

 

[Nords]

Regardless of whether this is illegal or not, why does BRK not have a clear conflict of interest policy that says what investments its managers can make and what are forbidden? I can't believe that a sophisticated company such as this one has never had this issue come up before.

Maybe because (1) the SEC already has a pretty clear policy on front-running, and (2) the individual companies of Berkshire had their own policies in place (and presumably still do) before Berkshire bought them.

Sokol wasn't running MidAmerican anymore and wasn't really running NetJets day-to-day anymore. Seems like he was more of a [-]heir-apparent[/-] floating troubleshooter the last few months, which I guess would make him one of the 19.8 employees of Berkshire Galactic HQ. I wonder if they even have any HR police at HQ.

I'd like to hear more about his trading records in other Berkshire companies and why he tried to resign so many times. Doesn't sound much like heir-apparent behavior.

 

[clifp]

This is very sad. It amplifies one of Buffett's flaw he is lousy at managing conflicts. I just shake my head and wonder what Sokol was thinking.

 

[haha]

He should go to jail, just like Martha did. No matter how he spins it, this is cheating and what the US public really does not need any more of now is more proof that the investing public is just a bunch of patsies for our overlords. Charge him try him, and jail the schmuck.

Ha

 

[brewer12345]

Illegal or not, this is highly unethical and thoroughly reprehensible. I llok forward to the ensuing SEC investigation and (with any luck) a trip to a "pound me in the assets" federal penitentiary for Mr. Sokol.

More generally, these issues come up all the time at asset management shops which is why they (almost) all have policies and procedures in place to deal with it and shield the corporation from liability. Berkshire should have had this stuff in place decades ago.

 

[cardude]

I'm again reminded that I may own too much Berkshire as a % of my portfolio. I was last reminded at the end of 2008.

This quote from Nords nails it for me:

This is a poignant example of the perils of investing in individual stocks. To those investors who say "Oh, I know the company's management and I trust them to do the right thing": well, no you don't, and apparently even the boss can be surprised by management. Looks like Berkshire dodged a bullet by getting rid of Sokol now instead of after he'd taken over for Buffett.

I found something out when I was running my little podunk business: I could lay down what I thought were great plans, communicate them, and get everyone on board, but the wildcard that usually derailed my plans were the stupid, illogical things my good, loyal employees would do from time to time. You think you know what people are thinking, but you really don't.

I thought it was just my people, but it looks like it happens everywhere. Sigh.

 

[NW-Bound]

As a BRK shareholder, I am very disappointed. Sokol is a jackass, a stupid greedy idiot.

 

[Running_Man]

Well, the Berkshire board is now declaring Sokol's actions illegal. Apparently there is relevant Delaware law that happened to be ignored. I still don't understand why Warren was so quick to declare the actions perfectly legal if he never even checked into what was actually done

Berkshire says Sokol deceived, broke law | Reuters

It would be nice if the law finally caught up with Sokol after years of unethical behavior:

Warren Buffett's Blind Spot: David Sokol's Dishonest Business History - DailyFinance

 

[clifp]

Lose a shred of reputation for the firm, and I will be ruthless

I just finished reading the Audit committee report and ruthless is pretty good description. I think Sokol will be lucky if he avoids jail time and I am sure the Berkshire/Buffett will cooperate in trying to put him there.

Some people criticize Buffett for not asking Sokol more about his Lubrizol stock positions. I don't it was Sokol obligation to tell Warren of the huge conflict. I do think Warren was much to quick to proclaim his innocence prior to an investigation. However, the good news is that most companies get in more trouble for the cover up than the initial misdeed and the audit committee report avoids this problem.

 

[Texas Proud]

I just finished reading the Audit committee report and ruthless is pretty good description. I think Sokol will be lucky if he avoids jail time and I am sure the Berkshire/Buffett will cooperate in trying to put him there.

Some people criticize Buffett for not asking Sokol more about his Lubrizol stock positions. I don't it was Sokol obligation to tell Warren of the huge conflict. I do think Warren was much to quick to proclaim his innocence prior to an investigation. However, the good news is that most companies get in more trouble for the cover up than the initial misdeed and the audit committee report avoids this problem.

An interesting read.... and the initial shot for the legal battle that is about to start... the company has put in writing that they will not defend him in court for any criminal activity he might be charged with...

They also said that they will probably go after his profits... now, I am not a lawyer, but I do not see how they will be able to get them unless there is language in the code that makes it a legal contract between him and the company that he breached...

But it does show how unethical he is....

 

[haha]

He should go to jail, just like Martha did. No matter how he spins it, this is cheating and what the US public really does not need any more of now is more proof that the investing public is just a bunch of patsies for our overlords. Charge him try him, and jail the schmuck.

Ha

They listerned.

 

[clifp]

An interesting read.... and the initial shot for the legal battle that is about to start... the company has put in writing that they will not defend him in court for any criminal activity he might be charged with...

They also said that they will probably go after his profits... now, I am not a lawyer, but I do not see how they will be able to get them unless there is language in the code that makes it a legal contract between him and the company that he breached...

But it does how how unethical he is....

The argument is that it could have been Berkshire that bought the 100,000 before the merger was announced and made the $3 million. Most companies, including Berkshire at times, buy some shares before announcing an acquisition to reduce the cost. The profit that Sokol made should have been Berkshire's. No idea what the law is, but I think in front of a Omaha jury Berkshire have a pretty strong case.