Given its size, Berkshire Hathaway has had a relatively clean record on governance-related matters. This track record speaks to the quality of its governance system and the ability of its “trust-based” model to work.
For these reasons, it came as a shock to many when Warren Buffett announced the sudden resignation of David Sokol in March 2011. Sokol, CEO of Berkshire Hathaway’s energy subsidiary, was widely considered the front-runner on a short list of potential successors to one day succeed Buffett. More bizarre were the circumstances surrounding the announcement. Just days before recommending to Buffett that Berkshire Hathaway purchase specialty chemical company Lubrizol in a $9.7 billion deal, Sokol accumulated common stock in Lubrizol worth $10 million.
The matter raised significant issues for the Berkshire board of directors:
- Did Sokol violate the company’s insider trading policy?
- Did Sokol’s actions reveal shortcomings in the company’s governance system that need to be addressed?
- What will be the long-term impact of these events on company’s reputation?
Read the attached Closer Look and let us know what you think!
http://www.gsb.stanford.edu/cgrp/research/documents/CGRP14-Sokol.pdf
