Why David Sokol Traded
- Live From Omaha: Berkshire Hathaway Shareholders’ Meeting:
Sitting this morning at Berkshire Hathaway’s annual meeting, I heard my great friend Warren Buffett report that it remains inexplicable to him why top Berkshire officer, David Sokol, violated corporate policy by buying shares in a company he was about to propose that Berkshire acquire.
Here is my theory, pieced together based on all the available evidence: Sokol desperately wanted to resign from Berkshire and eschewed succeeding Buffett as CEO, but the board would not let him resign. So Sokol, by calculation or subconscious action, did something egregious enough that his resignation would be accepted, but not criminal enough to land him in jail.
Elements of the theory: Sokol has sought to resign from Berkshire on several occasions the past two years. Each time, the board urged him to stay, making it impossible to refuse. There may be compelling reasons, as one of several rumored as potential successors to Buffett, to wish to resign. The strongest? Following Warren Buffett will not only be difficult, it may inevtiablly result in comparative failure.
Further circumstantial evidence: when Dave reviewed for accuracy a press release announcing the objectionable trading that finally induced the board to accept his resignation, he told Warren to delete a sentence Warren had written that the resignation stemmed in part from a sense that Dave was no longer in the running to succeed him. On the contrary, in this theory, he absolutely did not want to be in that running and was having a very hard time getting the board to understand that.
Without some theory such as this, it is difficult to explain why an executive who had enormous wealth and amazing stature, along with considerabe generosity to business partners that Buffett described this morning , would do something so dumb, obvious, and obviously wrong–but not obviously illegal.
As a student of Warren Buffett’s business and investment philosophy, a long-time shareholder of Berkshire Hathaway, and proud compliler of the book, The Essays of Warren Buffett: Lessons for Corporate America, I see potential explanations in this strange event, along with lessons from the lament.