Sokol rebuts Berkshire argument

[shalab]

http://blogs.wsj.com/deals/2011/04/27/david-sokol-responds-to-criticism/

 

[dcollon]

Pretty weak rebuttal in my opinion. 

[Parsad]

That was weak!  Maybe Sokol should fire his counsel because he's getting poor representation and bad advice.  Cheers!

[Guest ValueCarl]

Oh my, this is really getting interesting. I think I get it though. Mr. Sokol believed he brought more value to Berkshire owners than Berkshire owners were giving him in return for some unspecified time period during his tenure while he was providing "indefatigable efforts." As a result of waking up and feeling unappreciated, Mr. Sokol neglected to think about and implement all of the safety margins, the most important one being talking to his partner, and most certainly, "mentor," Mr. Buffett about "straying" into "dark pools."  

 

I don't know how rich Mr. Sokol is or if it even matters, but I know one thing that wouldn't make me sleep too well at night. It would be the wrath of Munger Tolles where Charles T. Munger's legacy resides, and Ron Olson coming straight at me! And, that's right before the SEC makes its actions known.

 

David, this is a much greater, significantly smarter force than GOLIATH that you're up against!  :D You don't have any more hair to lose, but you just aged!

 

 

<Mr. Sokol had been associated with the Berkshire Hathaway companies for 11 years. During this time, his indefatigable efforts helped create enormous value for the Berkshire shareholders. He deserved better.>

 

   

 

 

[bargainman]

More than anything this whole thing is very very sad.  Sokol was considered a hero, one of the brightest stars of many stars, but still.  He was the CEO heir apparent.  It's kind of sad that BRK and Buffett is going after him now, and it's even sadder that Sokol dropped the ball on something so stupid.  I'm not sure if it was an honest mistake or not, probably not, but the letter lays out a number of assumptions.  Like it says, this is a potential gray area, and BRK wants to play in the middle of the court, but it's turning ugly for something in the gray area.

 

Sokol definitely did put in 'indefatigable efforts' in the past and he did create tremendous shareholder value.  He was Buffett's go to guy to fix things over and over again, everyone here and everywhere else was singing his praises until a few weeks ago.  Everyone here is going to side with Buffett for sure and that's fine.  But after reading Snowball it's 100% clear that Buffett is no saint either.  The fact that he's taking no responsibility for not having asked Sokol more about his share ownership kind of bugs me.  He made a big assumption that the ownership was just benign, I'm not sure it's fair to place that entirely on Sokol, although Sokol should shoulder the majority of the blame.  It's clear Buffett wants to make an example of Sokol.  It's very sad to see a star get demolished like this...

 

(now I'm sure I'll get flamed for this by all the Buffett groupies... but remember I am a Buffett groupie too.. so be gentle :-) )

[Guest ValueCarl]

bargainman, as someone who has been on the receiving and giving ends of flame throwing here and abroad, I do have a serious question for you as respects your knowledge and experience in the man who is David Sokol today.

 

With respect to investing and all the necessary business acumen to succeed wildly as an investor(compounding magic), what percentage of the WHOLE David Sokol is Warren E. Buffett, and what percentage is not?

 

I am not verse in his personal history at all. Also, if you really know this guy's history well, please add a percentage in the equation for how much influence Mr. Walter Scott has played in David Sokol's life. tia     

[claphands22]

bargainman,

 

You are not the only one who feels this way, I have a similar perspective.

 

I hope the brk shareholder meeting isn't dominated by Sokol, it would be a waste of precious time.

[Myth465]

It's very sad to see a star get demolished like this...

 

bargainman I hear you but I find your post slightly naive. Buffett spent the last 40 years building a pristine reputation as the last and only honest man on Wall Street. I mean we are talking about 40 years here, and his legacy. He then picks a guy, and the guy fu*ks everything up over $3 million dollars. I mean a junior analyst at Joesinvestment bank knows not to trade like that and this guy was supposed to run the 3rd or 4th largest company in the US. What would happen if he were CEO would he always front-run Berkshire.

 

He also does it in a way that is sure to come out, sure to be investigated by the SEC, and sure to cause issues for everyone. Then he doesnt admit his error and walk away, he basically throws Munger and others under the bus. Sure if he cheated on his wife, or padded his expenses they could work something out, but he is being investigated by the SEC for something a college grad would have enough sense not to do at any investment bank in the US. He is also adamant that insider trading is perfectly fine, and doesnt believe he had a fiduciary responsibility.

 

Buffett can go down, and destroy his pristine reputation or he can call a spade a spade. What would you do?

[goldfinger]

Sanjeev was even more right when he expressed his doubts about BRK's succession months ago on this board!

[claphands22]

Hey Myth,

 

I can't speak for Bargainman, but here are my thoughts.

 

I don't think this is a situation where a spade is a spade. If it's true Sokol told Buffett about his holdings before Buffett decided to make the acquisition then Buffett should have asked Sokol to sell his LZ to keep there from being any possible conflicts of interest.

 

Now, should Buffett be thrown under the bus for not resolving this situation before the acquisition? No way and we don't know exactly how Sokol communicated his position to Buffett. Should Sokol be thrown under the bus for bringing Buffett a deal that he already had a position in?  Neither of them deserve the attention people are giving them.

 

My guess is, in the span of time, it will be disappointing speed bump for Berkshire Hathaway, but it will be an ever lasting stain on Sokol. It's pretty sad for Sokol considering how hard he worked for Berkshire Hathaway and how immaterial the LZ deal was to his overall net worth.

 

---

Some people might like this clip from Wall Street 2.

[claphands22]

The Berkshire Hathaway audit committee has released their report (chaired by Tom Murphy.) http://www.berkshirehathaway.com/news/APR2711.pdf

 

Fleshes out the time line well and includes a revision to their corporate policy.

 

 

[Packer16]

This event just makes me more impressed by the team has put together at Fairfax.  It is a difficult task to put together a great team but it appears that Mr. Buffet has made a few mistakes and has received alot of praise.  However as these issues surface, it looks like he has not put together a team that will last beyond his life or at least there will be a rocky transition upon the arrival of the bus.

 

Packer

[biaggio]

Packer, mistakes will be made. I am sure FFH will make their share (I hope not as I own a good % of my holdings)

 

The question will be - will BRK be a company any idiot can run? Because as Peter Lynch once said, eventually you may have an idiot running it.

 

It s not what happens that counts but how you respond. Things happen. I am sure WEB + CM will respond appropriately.

[Tim Eriksen]

Everyone here is going to side with Buffett for sure and that's fine.  But after reading Snowball it's 100% clear that Buffett is no saint either.  The fact that he's taking no responsibility for not having asked Sokol more about his share ownership kind of bugs me.  He made a big assumption that the ownership was just benign, I'm not sure it's fair to place that entirely on Sokol, although Sokol should shoulder the majority of the blame.  It's clear Buffett wants to make an example of Sokol.  It's very sad to see a star get demolished like this...

 

 

bargainman.  You said what I have been thinking about the whole situation as well.  Buffett should admit that he should have asked for more information or requested that all the information be given to the compliance officer. 

[hyten1]

bargainman,

 

i don't agree with you at all. As anyone who have managed people know. Its impossible to micro manage or know all details of everything folks are doing that is under you. Especially someone who you consider a star and who knows all the in and out of what should and shouldn't be done.

 

You say buffett should of prob further, maybe. I don't know all he details and circumstances. I can definitely see how buffett didn't. It happens all the time to many of us on a daily bases.

 

What i didn't like more is the letter Buffett put out after sokol so call left. I wish buffett should of been harder. But then again I don't know all the details

 

hy

[Myth465]

 

Some people might like this clip from Wall Street 2.

 

Great video. Its funny how accurate it really is, when you think about it.

[Crip1]

I do agree that Buffett cannot paint himself FULLY as the victim here. It is rare, quite rare in fact in an instances such as this where one person deserves all the blame. A simple "Tell me more" line from Buffett when Sokol indicated he did own LU may have done the trick. Look, in most every situation, the astute businessman/businesswoman whose ego is in check* will internalize the situation and ask what they could have done better. If Buffett does this, more than likely he would state that he could have probed more into the ownership issue. From the BRK release, it does not look like much probing was done on Buffett's part as, if he did, the release would have stated such.

 

Bottom line, I do believe that Sokol was wrong...he went way to close to the line when one of the main tenants, if not THE main tenant of working for Buffett is to never venture close to the line. Because Sokol did this, he got axed. That's the law of the BRK world and Sokol did it. One can be mad for getting a speeding ticket for being "only 5 MPH/KPH over the limit", but one has to understand that that can happen. The issue for Sokol is that this is one really expensive speeding ticket, monitarily and from a reputational perspective (Reputations are earned over a lifetime and lost in a heartbeat).

 

* BTW, I work with folks who do not admit mistakes, ever. The level of frustration is monumental. It was always refreshing to see a guy worth Billions admit mistakes (US Air comes to mind right away) and expound the virtues of others. Internally, Buffett needs to admit this.

 

-Crip

 

 

[Guest ValueCarl]

Bargainman, I found some clues of answers to questions you wouldn't or couldn't answer. This is not a flame but your earlier talk was barely a flicker of a flame that never got lit! Now, maybe it could be said that it was Mr. Buffett who overtime ignited the personal GREED in Sokol which wasn't part of his prototype when he arrived. That's a whole other debate though. It's possible that one could find out far more about David Sokol's character by inquiring with Mr. Walter Scott than Mr. Warren Buffett. Remember, Mr. Scott is a builder, and maybe Mr. Sokol remains one as well, if this issue doesn't end up destroying his passion as he forges ahead. "GREED KILLS!" In the case of Mr. Buffett, we're talking about a man who measures the VELOCITY of MONEY by the SECOND! How's that for a Buffett Groupie?  >:(  imo  

 

<(now I'm sure I'll get flamed for this by all the Buffett groupies... but remember I am a Buffett groupie too.. so be gentle :-) )>  

10:53 a.m. |Buffett on Sokol’s previously undisclosed generosity

Buffett has related what he says is an anecdote he’s never spoken about publicly.

 

When Berkshire bought MidAmerican Energy Holdings in late 1999, bringing Sokol on board, Berkshire director Walter Scott told Buffett that the company should put together a special compensation practice for the new rising star. Buffett devised a payout that would have paid Sokol more than $25 million.

 

In a private meeting to discuss the plan, Sokol told Buffett that he was happy with the proposal, but suggested one change: Give half to his lieutenant, Greg Abel.

 

Here’s what Buffett’s takeaway is: “So I witnessed, and Walter witnessed Dave voluntarily — Greg had nothing to do with it, he wasn’t there – transferred $12.5 million with no credit to his junior partner. I thought that was rather extraordinary.

 

And yet who would have known that $3 million, ten or so years later, would have led to the kind of troubles that it has led to. That really is the fact that I find inexplicable.”