Alice Schroeder on the Buffett Discount in Berkshire's Stock Price
SUSIE GHARIB: Warren Buffett will face criticism and tough questions this weekend at Berkshire Hathaway`s (BRK.A)(BRK.B) shareholder meeting. This man, David Sokol, is at the center of it all. He was once considered Buffett`s heir apparent. But a report out yesterday by Berkshire`s audit committee said Sokol misled the firm about personal stock purchases of Lubrizol (LZ) stock while encouraging Buffett to buy that company. The report also said Sokol broke Berkshire`s insider trading and ethics policies. Sokol resigned in March. Joining us now for a preview of what to expect at this weekend`s meeting, Buffett`s official biographer. She`s Alice Shroeder, author of "Snowball: Warren Buffett and the Business of Life." Alice, great to see you.
ALICE SHROEDER, AUTHOR, "SNOWBALL": Hi, Susie.
GHARIB: This Saturday will be Warren's first time speaking publicly about this whole David Sokol affair. What do you think he's going to say to shareholders?
SHROEDER: I think he's going to try to reassure him. They're coming to Omaha armed with a lot of questions and it's a friendly audience. So I think he will take advantage of that.
GHARIB: It's been confusing the past couple of weeks because for years, Warren Buffett has been praising David Sokol. Now he's blaming him, distancing himself from him. Is there some information about David Sokol that we're not being told?
SHROEDER: That's the big question. People would like to understand, what was Buffett's judgment and what went wrong? Because he trusted David Sokol and clearly that was a mistake. He was the wrong guy.
GHARIB: Right. Is this whole situation, if you look at the big picture, is this whole situation about insider trading? Or is this about the way Buffett runs his company? Is it about Buffett as a manager?
SHROEDER: The big picture is Buffett as a manager, his practice of delegating so much and relying so much on people that he's personally chosen to the point where you get a situation like this, that blows up in his face.
GHARIB: Where was the board of directors in all of this?
SHROEDER: It sounds like they were a little bit late to the party. It sounds like they found out about Sokol`s resignation on the eve of it happening and now, the audit committee is coming in. This report that they put out is actually only preliminary, so I don't even think they're fully caught up, yet.
GHARIB: You were a Morgan Stanley (NBXH) (MS) analyst for many years covering Berkshire stock before you started writing books. Tell us about your views on the Berkshire stock. Will this whole situation hurt the stock?
SHROEDER: Berkshire's been cheap for a while and it is probably going to get cheaper unless something dramatic happens because what used to be called the Buffett premium is turning into a Buffett discount as Warren gets older and people are fearful of the future. Unless Buffett comes out and lays out some plans for how he's going to keep the company growing and who his successor might be, I envision that the stock could continue to be under pressure.
GHARIB: What if Buffett did end all the mystery about succession and he did name his successor? Would this actually work for or against the stock?
SHROEDER: I think it would help the stock. The uncertainty is part of the drag. It`s really bothering people a lot because they have no way of assessing the future and they don`t have confidence, any more, that the choice will be good, after Sokol.
GHARIB: It will be very interesting to see what happens this weekend. Thank you so much, Alice, for giving us a preview.
SHROEDER: Thanks Susie.
GHARIB: We`ve been speaking with Alice Shroeder, author of Warren Buffett`s biography, "Snowball." And speaking of Buffett, I`m heading to Omaha this weekend for the Berkshire Hathaway (NYSE: BRK.A) meeting. I will interview Warren Buffett, get his take on the David Sokol situation, as well as his outlook for Berkshire and the economy. My report airs right here on Monday night and I`ll be tweeting throughout the shareholders` meeting. You can catch my personal feed, @sgharib_nbr.