Sokol has denied insider dealing and says his resignation from Buffett's Berkshire Hathaway has nothing to do with the claims
Dominic Rushe in New York
Warren Buffett isn't just the world's most successful investor – he's Yoda with better syntax. A fount of aphoristic business wisdom, Buffett's reputation for fair dealing has earned him the nickname the Sage of Omaha. "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently," so spake the Sage.
Now Buffett is beset by a crisis that appears, in part, to be of his own making. David Sokol, the octogenarian's heir apparent, has quit amid details of a share deal that handed Sokol a quick $3m after his boss bought the firm.
Buffett and Sokol moved quickly to claim the share sale had nothing to do with the resignation. But Buffett's own statement was so full of details about the transaction it was hard not to conclude someone was protesting too much. Sokol's own statement too seemed a little lame. In line for the top job at Berkshire Hathaway, potentially taking over from a legend, Sokol said he wanted to spend more time with his money. In his resignation letter Sokol wrote: "It is my goal to utilise the time remaining in my career to invest my family's resources in such a way as to create enduring equity value."
The incident is a black eye for Buffett. The securities and exchange commission is reportedly already investigating. And while Buffett and Sokol are confident no laws were broken, the transaction seems to hover in a greyer area than Buffett likes to inhabit.
Buffett's statement contained several paragraphs detailing Sokol's purchase of shares in chemical firm Lubrizol ahead of Berkshire Hathaway's $9bn bid for the firm on 14 March. Buffett said Sokol encouraged him to buy the firm and told him he had shares in the company in a "passing remark".
Buffett learned the extent of Sokol's holding after the deal when regulatory papers were being prepared.
Speaking to financial news channel CNBC Sokol said: "Knowing today what I know, what I would do differently is I just would never have mentioned it to Warren, and just made my own investment and left it alone. I think that's a disservice to Berkshire, but if that's what people want to do in the future, that's fine."
According to Berkshire's ethical code, a chief executive of a Berkshire subsidiary "shall disclose any material transaction or relationship that reasonably could be expected to give rise to such a conflict to the chairman of the company's audit committee. No action may be taken with respect to such transaction or party unless and until such action has been approved by the audit committee." It is unclear whether Sokol's Lubrizol purchases would have fallen under this policy.
Berkshire has never named a successor but last month the company said it had a short-list of four candidates. Sokol, chairman of Berkshire's MidAmerican Energy Holdings and chief executive of NetJets, was seen as the front-runner. The three remaining are Matthew Rose, 51, head of Berkshire's Burlington Northern Santa Fe railroad, Ajit Jain, 55, who runs Berkshire's reinsurance operations and Tony Nicely, 67, of Berkshire's Geico insurance unit.
Buffett is a small man, but whoever takes over will have some big shoes to fill. His website has another warning for his potential heirs: "I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper – to be read by their spouses, children and friends – with the reporting done by an informed and critical reporter."
Download the 2010 Berkshire Hathaway Annual Report
Download the 1977 - 2010 Warren Buffett Letter's to Berkshire Hathaway Shareholders
Warren Buffett @ Amazon
|From Butler to Buffett: The Story Behind the Buffalo News by Murray B. Light |
Buy new: $30.98 / Used from: $3.99
Usually ships in 24 hours
|Applied Value Investing: The Practical Application of Benjamin Graham and Warren Buffett's Valuation Principles to Acquisitions, Catastrophe Pricing and Business Execution by Jr. Joseph Calandro|
Buy new: $37.77 / Used from: $29.49
Usually ships in 24 hours