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David Sokol Interview


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http://www.cnbc.com/id/42355608

 

8:04 AM:  Sokol says it would be an entirely different situation if his company, Mid-American, was looking at a company and he was involved in the decision.

 

8:03 AM:  "I didn't know anything others don't know."

 

8:01 AM:  "I bought stock in a company that I thought was a good company" and even though he mentioned it to Buffett he never thought Buffett would be interested.  He saw it as an unusual company for Buffett to like.

 

8:01 AM:  Asked if he did anything immoral, if not illegal, Sokol says he didn't.

 

8:00 AM:  "I didn't have any inside information."  Sokol says he hasn't heard from the SEC.

 

7:59 AM: Sokol says he gave Berkshire details of his purchases in mid-March at the request of Berkshire CFO Mark Hamburg.

 

7:59 AM: "If there was any inappropriate behavior it should be disclosed" but he doesn't think he did anything wrong.

 

7:58 AM:  Sokol notes that Charlie Munger had a 3 percent stake in BYD before Munger suggested to Sokol that he look at the Chinese electric car-maker.

 

7:57 AM:  "I don't believe I did anything wrong."  Sokol knew the investment would become public at some point is Berkshire bought Lubrizol.

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To compare what he did to Munger is just wrong. Sokol obviously knew that Lubrizol was up for sale, and that in the event of a takeover, he would stand to profit very handsomely.

 

 

Lubrizol was not "for sale" anymore than every public company is "for sale" on any given day.  It was on a list of chemical companies, not a list of chemical companies being 'shopped' by Citi.  LZ was, in fact, considering a very large acquisition.  It was arguably undervalued and fairly un-leveraged, which would make it a target - but the company was not being shopped and the management was not considering a sale.

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I completely agree with Ballinvarosig. If someone from Citi that spoke to Sokol about LZ did what Sokol did, it would definitely be considered insider trading. They would be trading on information that others did not have, ie. that a possible acquisition would be pitched to Berkshire.

How is it any different if Sokol does it?

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7:54 AM:  Sokol says it wouldn't make any sense for him to invest in companies he likes, for his family's benefit, and not share his enthusiasm for the company with Buffett.

 

I give this point to Sokol.

 

 

But apart for that, I feel that Sokol was not happy with his role at Berkshire and that he would have like to be involved in investment more directly, maybe even in stock purchase himself. Maybe it's a good thing he is gone if he was not confortable with his position in the company.

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To compare what he did to Munger is just wrong. Sokol obviously knew that Lubrizol was up for sale, and that in the event of a takeover, he would stand to profit very handsomely.

 

 

Lubrizol was not "for sale" anymore than every public company is "for sale" on any given day.  It was on a list of chemical companies, not a list of chemical companies being 'shopped' by Citi.  LZ was, in fact, considering a very large acquisition.  It was arguably undervalued and fairly un-leveraged, which would make it a target - but the company was not being shopped and the management was not considering a sale.

Why would Citigroup come up with a list of possible acquisitions for Sokol, unless they knew that they could be acquired, therefore earning Citigroup a cut on the deal? I think Sokol knew Lubrizol was open to a deal, and he used this information to profit from the takeover.
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Guest Bronco

How much did he make on this?  $2m?

 

If he was given a $2m bye-bye package anywhere else, it wouldn't be news.  Some CEO's who are basically fired for sucking ass get $10 - $20 million.

 

I'm already past this issue.  In a week, my guess is that the market will be too.

 

It is questionable and I may get attacked for my comments, but this guy has probably taken $100 million in salary (just guessing) from Berkshire over the years and this is rounding for me.

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How much did he make on this?  $2m?

 

If he was given a $2m bye-bye package anywhere else, it wouldn't be news.  Some CEO's who are basically fired for sucking ass get $10 - $20 million.

 

I'm already past this issue.  In a week, my guess is that the market will be too.

 

It is questionable and I may get attacked for my comments, but this guy has probably taken $100 million in salary (just guessing) from Berkshire over the years and this is rounding for me.

I don't think you're getting the gravity of this.

 

For a senior Berkshire Hathaway manager (let alone a possible successor to Buffett) to try something like this is completely against the core principles that Buffett has instilled in the company. I suspect that this incident will have shaken Buffett more than he has let on, and will probably force him into putting more controls around what employees can, and can't do, just like Parsad said.

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How much did he make on this?  $2m?

 

If he was given a $2m bye-bye package anywhere else, it wouldn't be news.  Some CEO's who are basically fired for sucking ass get $10 - $20 million.

 

I don't think it has anything to do with how much he made on the deal, it has to do with how he made it

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Bronco, I dont disagree with you on this.

 

Buffett needs to get with the program and develop and implement a succession plan.  Berkshire is in dangerous territory if something happens to him in the short term.  Just imagine what will happen to some of these operating companies with Buffett out of the picture.  You are seeing a glimpse of it right now.  Reminds me of the situation with Marshall Tito in Yugoslavia.  

 

You cant dangle the carrot in front of people such as Sokol and then not give them the chance to make their own mistakes.  Buffett should have let the press roast Sokol and let Sokol take the bath but he should not have asked for his resignation, or taken it, or done anything else.  Many CEOs have had their trial by fire including some where Buffett has held the stock throughout.  

 

 

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Andrew Ross Sorkin chimes in. Now we're all holding our breath to hear Alice Schroeder's take.  ;D

 

At the time Mr. Sokol personally bought shares of Lubrizol, he had already began trying to set in motion the gears of an acquisition by instructing Citigroup to put a meeting together with Lubrizoil’s chief executive. Of course, Mr. Sokol had no way to know whether Lubrizoil would engage in talks or whether Warren Buffett and Berkshire’s board would be interested in acquiring the company.

 

But in the court of public opinion that doesn’t matter. His intent was to recommend the deal to Mr. Buffett. And even though he had no control of Mr. Buffett’s ultimate decision, he was one of only a select few who were in a position to influence such a transaction.

 

Perhaps most striking, Mr. Sokol said this morning that if he could do it again. He would have bought shares of Lubrizol, but he would not have

suggested Mr. Buffett buy the company.

 

http://dealbook.nytimes.com/2011/03/31/the-perception-of-the-sokol-situation/

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Guest Bronco

I would be happy to take over as CEO.  I'll even take Buffett's paltry salary.

 

I actually really like this company, although I would be happy to dispose of some crap, like Pampered Chef and Dairy Queen.  

 

Who has time for that junk.  We are now looking at Burlington and utilities and Geico and now LZ.  I've said this in the past, BRK will start to look more and more like a GE minus the ridiculous shadow banking.  

 

Lets look at where the puck is going (this is an expression, we all know the puck is really behind that geek Luongo).  BRK will not suffer any fines.  They'll find another decent manager.  And they will generate tons of cash.  

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Back in 04/05 Buffett bought Posco for his personal investment account (how much it was never revealed). This was (about a year) ahead of Berkshire's purchase. How is this different? (and I'm sure full disclosure of WeB's personal account would reveal a lot of other similar events).

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Bronco, I dont disagree with you on this.

 

Buffett needs to get with the program and develop and implement a succession plan.  Berkshire is in dangerous territory if something happens to him in the short term.  Just imagine what will happen to some of these operating companies with Buffett out of the picture.  You are seeing a glimpse of it right now.  Reminds me of the situation with Marshall Tito in Yugoslavia.  

 

You cant dangle the carrot in front of people such as Sokol and then not give them the chance to make their own mistakes.  Buffett should have let the press roast Sokol and let Sokol take the bath but he should not have asked for his resignation, or taken it, or done anything else.  Many CEOs have had their trial by fire including some where Buffett has held the stock throughout.  

 

 

Buffett is in a tough position. I or anyone on the board would take the job. But not many qualified would. Buffett has a HUGE equity position in Berkshire and is working primarily for himself and his legacy / charities. I think Sokols beef is he does all the work and gets relatively little of the upside in terms of equity. All he gets is salary, alot of salary. But a man picking stocks wants the upside. I could see him working hard for MidAmerican but Berkshire is tough given his stock ownership.

 

This is perhaps 1 big hole in the model.

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Guest VAL9000

There are two different things going on here.  One is whether or not this is insider trading, and two is why the Sokol split from BRK.

 

I don't think the insider trading thing is all that interesting.  The SEC will ultimately decide whether or not to pursue an investigation and unless Sokol has a history of buying shares, making recommendations, and then selling after those recommendations are shot down, this seems to me like it's not a big deal.

 

The really interesting bit is what's going on with Sokol and Buffett.  My take is that Buffett didn't like that Sokol took such a big position in Lubrizol before recommending it and Sokol doesn't like that Buffett and Munger can perform similar transactions while he is restricted from doing so.  Buffett can't change his ethical policy on this without screwing the BRK model, and Sokol basically forced the issue by making the trade.  It's not like Sokol wouldn't know how Buffett would react to this move.  We all know, and we're not insiders, so I think it's pretty clear that this was a preplanned move by Sokol to get on with building his empire - inside or outside of BRK.

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The more I read about this (including Sokol's comments this morning) the more I think this is much ado about nothing.  Yes, it looks bad, but this isn't insider trading and I'm not sure it's really even front-running a Berkshire trade. 

 

Sokol on CNBC:

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.  You can't — or at least I don't think you can executives to not invest their own family's capital in a company that Berkshire had no interest, or even knowledge of, and somehow police that.  The only thing you can do is just say if you invest your own money, don't ever mention it to anyone at Berkshire.  That doesn't make sense to me either, but that's certainly what it sounds like.

 

Is any Berkshire executive going to be prohibited from buying stocks that Berkshire may be interested in?  Should an executive who has found what looks to be a good investment be dissuaded from sharing the idea with Buffett (or any other Berkshire executive)?  I think the answers are no and no.  So, while this looks bad, and perhaps Buffett is upset because it looks bad, it's pretty plausible to me that Sokol really did nothing wrong at all.

 

The resignation may simply be a result of his personal desire to do his own thing and not be "stuck" in a secondary role at BRK, or simply be carrying Buffett's torch once he's gone.  Which gets me thinking about succession in terms of how many talented and enterprising executives will have the temperment to play second fiddle for a long while and then be content to carry the torch rather than build something of their own?  Perhaps Ajit is the perfect candidate because of his close personal relationship with Buffett and what appears to be a perfect temperment for the job. 

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INMO this is different then what Buffett and Munger did, very different.

 

His task was to find a chemical company. He hired Citi to draw up a list for  this task. Then bought the company first, then presented it to Berkshire.

 

Its just different than buying company or treasuries or whatever in your personal account as a passive investment.

 

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I would be happy to take over as CEO.  I'll even take Buffett's paltry salary.

 

I actually really like this company, although I would be happy to dispose of some crap, like Pampered Chef and Dairy Queen.  

 

Who has time for that junk.  We are now looking at Burlington and utilities and Geico and now LZ.  I've said this in the past, BRK will start to look more and more like a GE minus the ridiculous shadow banking.  

 

Lets look at where the puck is going (this is an expression, we all know the puck is really behind that geek Luongo).  BRK will not suffer any fines.  They'll find another decent manager.  And they will generate tons of cash.  

 

Get rid of a cash cow like DQ!?  Watsamattawitcha?  Becomming a vegetarian?   8)

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myth i agree with you on the comment regarding people want upside. this is one of my biggest concern. Why would anyone want to take over berkshire job? It's either someone internal who already own large stake in BRK or someone from outside who hasn't proven themselves. Anyone else the incentives are not there.

 

If I am successfull and well known and wealthy why would I want to work at BRK (in the shadow of WEB).

If I am successfull  and well known and not wealthy (I won't be able to get rich at BRK unless there is some way for me to get the upside in equity, which translates to large sumof option or stock grants).

If I am successfull and not well known and not wealthy, this could happen. But people might use BRK as a stepping stone to something else.

If I am successfull and not well known and wealthy, hmm would some like this want to work at BRK?

If i am not successfull (well are we going there)

 

for me what it comes down to is its either people who have potential and haven't proven themselves in a big way (this is not great). Or someone internal who already own large shares. Or else BRK will need to start paying the big buck like every other corporation.

 

Also I don't see how anyone won't use BRK as a stepping stone to something else.

 

 

 

hy

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I think if you look at Sokol's salary over the years versus Mid-American's profit he has done quite well. 

 

Yes but thats irrelevant. Would he have done better doing his own thing? More importantly now he has the capital and additional knowledge to do his own thing. Perhaps he didnt before, but now I am sure he could raise ungodly sums of money in key industries.

 

Ask Biglari, you just cant bet equity.

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....Now we're all holding our breath to hear Alice Schroeder's take....

 

Schroeder was feeling lonely for a long time, Sokol may go hostile and join Schroeder!!!!

 

Alice was right about Sokol.  She's hot right now and can be more selective.   ;)

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