|Waiting to get into the 2011 Berkshire Hathaway Annual Shareholders’ Meeting. It was a bit windy, cold, and rainy. Good times.|
*Strangely, I’ve been thinking about this a lot as I near age 35. The blog post is already in the works.
I had the opportunity to attend Berkshire Hathaway’s Annual Shareholders’ Meeting again, which I wrote about a bit already. What made this year’s meeting intriguing was the recent resignation of David Sokol. Sokol was viewed as a potential replacement for Warren Buffett. However, he recently resigned under a cloud of suspicion. It appeared to many that he committed insider trading before his resignation, and people wanted answers about Sokol and the future leadership of Berkshire.
Berkshire Hathaway is a Fortune 500 company that has its home offices in Omaha. It’s one of the ten most valuable corporations in the world. While the shareholders are concerned about who will lead the company because of how it affects their shares, people in Omaha are concerned who will lead because they want the company to stay in Omaha. As someone who loves Omaha, it’s why I’m intrigued. Most people assumed Sokol was going to replace Buffett because of being born and raised in Omaha, and being a valued leader within Berkshire.
When the news first came out that David Sokol resigned from Berkshire, I was surprised. Then, I was concerned. I read the initial reports surrounding Sokol’s resignation, and it didn’t appear good. Despite the positive spin in the initial press release announcing Sokol’s resignation, it sounded like Sokol did not use good judgment in recent months. It sounded like insider trading. All the positive spin just seemed to attempt to hide the fact that it appeared shady what Sokol did.
Another thought I had, and this shows my thinking, is I hope it wouldn’t reflect badly on Omaha. How could it? It can’t. I just think it’s an Omaha company (with Berkshire) and an Omaha guy (in Sokol) making the controversial deal. It’s not good attention, especially since it happened right before the shareholders’ meeting. Everyone wanted to talk about it, and they wondered how it might affect the future of the company. As an Omaha guy, I wondered about that as well.
When Warren started off the meeting, one of the first things he did was address the situation with Sokol. He called Sokol’s actions inexcusable and inexplicable. He said Sokol violated Berkshire’s code of ethics and committed insider trading. This struck quite a different tone than the initial press release.*
*A press release where he also said any more questions about the matter and he’d refer people to the press release. That didn’t happen since a few of the questions at the meeting dealt with Sokol. Needless to say, the press release was a bad public relations and business move on his part. Warren owned up to his mistake with it.
Warren also called Sokol’s actions puzzling since Sokol received 24 million dollars in compensation from Berkshire last year. If he’s receiving that from only Berkshire, not considering his other business dealings, why would he commit insider trading and potentially ruin his good name to net 3 million dollars? Also puzzling was the fact that years ago, Warren offered Sokol a compensation package of 50 million dollars. Sokol offered to give some of that money to a junior partner so they’d have the same compensation package. Sokol had shown no history of doing something like he did with the Lubrizol deal, which made it hard to understand.
Charlie Munger quipped that, “Hubris drove Sokol to poor decisions.”
Warren discussed how Berkshire’s lawyers had been questioning Sokol for roughly a week about his actions with Lubrizol when Sokol sent an assistant to hand deliver a resignation letter to Warren. It was left to the audience to draw their own conclusions as to why Sokol announced his resignation in the timing and manner he did.
There was no doubt where Warren and Charlie stood after they shared, which was in stark contrast to the initial press release. They did not condone Sokol’s actions with the Lubrizol deal at all. Shareholders were angry because Warren likes to make a big deal about upholding the reputation of his company. He, and his company, took a hit to their reputations with Sokol, especially after that first press release. When the first question posed to Warren dealt with his apparent lack of outrage, in the press release, the crowd applauded the question.
I think Warren regained most of the credibility that was lost, with that initial press release, but the affair raised questions about the future of Berkshire Hathaway. Who will be the new leader if it’s not Sokol? Will Berkshire remain in Omaha after Warren and Charlie are gone? What will Berkshire’s culture be?
Warren made an interesting comment about the uncertainty. “The Bible says the meek shall inherit the Earth, but will they stay meek?” I don’t know if Warren would consider himself meek, but his character and integrity are reasons he is a “capitalist rock star”. He’s one of the richest men in the world, and yet he has not been undone by scandal or controversy. He’s stayed true to his ethics. He’s remained loyal to the culture he has established. He’s an Omaha guy. All these things are synonymous with Berkshire.
Still, will that change after he’s gone?
I think that’s one thing that comes out of this shareholders’ meeting, for me anyway, is the time of Warren leading is nearing its end. That’s an understatement since he is 80. I’m guess I’m surprised how easily Sokol hoodwinked Warren, and Berkshire, with his Lubrizol dealings. I wonder if that happens if Warren is younger.
It’s amazing how Warren and Charlie are still going strong within Berkshire. When I’m in my 80’s, I hope I have that same vitality they display. However, age will ultimately win. It always does.
Some of the questions people were asking dealt with the future of Berkshire Hathaway. In light of the Sokol controversy, Warren tried to assuage people with the knowledge that a succession plan is in place. That a guy has been identified as the potential successor.
Of course, Sokol was once viewed as a potential successor.
Shareholders appreciate, love and respect all that Warren Buffett has done for them through his leadership at Berkshire Hathaway. However, they are also planning for the future. Many of those shareholders are millionaires because of Warren Buffett.* They want to retain the value of their shares once Warren is gone, and the Sokol controversy has brought that to light. If they, and Berkshire, continue to talk about the good times of the past, they will be undone.
*Warren and Charlie noted how much Sokol had done for Berkshire in the past. He’s a big reason Berkshire continues to grow. And, for the all hubbub with the Lubrizol deal, you don’t see Berkshire or Lubrizol backing away from it. I didn’t hear any shareholders’ bring that up either. The shareholders’ indignation with Sokol is understandable, but they should also remember Sokol made them money. Warren and Charlie pointed that out.
I also wonder if Omaha should prepare for life without Berkshire Hathaway. Or, will Omaha just turn a blind eye and hope for the best? Will Omaha be proactive in trying to retain Berkshire Hathaway after Warren is no longer leading it? Is it in Omaha’s interests? I think Omaha would do everything it could to keep Berkshire Hathaway here. You saw Omaha do that with the College World Series. I think it would be foolish of Omaha not to try, but those of us that live here shouldn’t assume it.
I think of sports franchises that have pledged loyalty to a community, only to uproot and leave at a moment’s notice. In the NFL you saw it with the Baltimore Colts and the Cleveland Browns. In the NBA you saw it with the Seattle Supersonics. Nobody ever thinks it will happen to their team, to their organization, because of what they have done. What they have done in the past. Nobody ever thinks it will happen to them, until it does.
Berkshire Hathaway continues to grow, but one cannot assume that will always be the case. There are too many examples of organizations and products that once dominated and seemed indestructible that now are gathering dust. New technologies emerge. New cultural trends develop. Film cameras? Typewriters? I saw a report earlier this week about a decline in television sets. What about MySpace? What about newspapers? What about Blockbuster?
We can age gracefully, but we should also plan and prepare that we will not always be around. Organizations and leaders need to do the same, no matter how hard it may be. When you don’t, you just make matters worse for the future. Perhaps with life expectancy extending and how medical science and technology delays the effects of aging fools us into thinking we can keep going. But, all it does is delay the inevitable.
Age always wins.*
*I had this post written this past Saturday evening, and was tweaking it. I still didn’t like it and shelved it. It felt like it was missing an element with it. I then read Joe Posnanski’s recent post about Derek Jeter and age, and a light bulb went off. I expanded some points about age within this post, and it all tied together.**