If you've never seen 40,000 people fall silent, your chance will come Saturday at 9:30 a.m. when Warren Buffett opens his question-and-answer session with Berkshire Hathaway's shareholders.
The crowds and the setting in Omaha will look the same as usual.
But when the questions start, the meeting will be dominated by a single subject as never before in the company's 46-year history: whatever Warren Buffett, CEO and chairman, has to say about former Berkshire executive David Sokol and his controversial trades of Lubrizol Inc. stock.
Especially in the spotlight: Buffett's own role in the matter.
It's part of an effort by Buffett and the company to put out more information on the Sokol controversy, including details about Buffett's role, at a time when critics are saying that he should have handled the matter differently, that his style of hands-off management lacks proper controls and even that the 80-year-old CEO may be past his prime.
Berkshire's board of directors made its view official Wednesday in a report that excoriated Sokol, saying he broke Berkshire rules by trading stock in Lubrizol, an Ohio chemical company, that he later touted to Buffett as an acquisition target.
He could have been fired, had he not resigned, and still faces a federal securities investigation and the possibility of a lawsuit by Berkshire seeking to recover damages, his trading profits or both.
Sokol denies wrongdoing and complained, through his attorney, that the committee didn't ask him a single question. Berkshire's attorney shot back that he was interviewed by company executives at least three times about Lubrizol but was “not made available” to the committee.
Saturday, shareholders at the Qwest Center Omaha will hear Buffett's first live comments on the subject and his first elaboration on a March 30 press release that many shareholders found unsatisfying. Also for the first time, the public will get an official word-for-word account of part of a Berkshire meeting, namely a transcript of the questions and answers about Sokol, posted as soon as possible on Berkshire's website.
“Let's listen to Warren Buffett this Saturday and let him show us how much life he has,” said Beverly Kracher, ethics professor at Creighton University and executive director of the Greater Omaha Business Ethics Alliance. “I bet he has quite a bit.”
Buffett biographer and Bloomberg columnist Alice Schroeder said the Sokol matter indicates that Buffett needs to strengthen Berkshire's governing controls rather than rely on his judgment alone. But, she added, “I think he is the person who needs to lead the company to make these changes.”
But on Thursday, Francine McKenna wrote for Forbes' website that Berkshire's board of directors is “full of cobwebs,” with half of them over age 80. “It should be depressing and disheartening for investors to see that Warren Buffett — sage, oracle, guru — is willing to show his age and admit to being Sokol's dupe just to stay out of trouble.”
Such criticism of Buffett is not new. Two Wall Street Journal columnists argued that Buffett had “lost it” — in 2006.
The outline of the Sokol controversy is widely known:
Sokol, the chairman of three Berkshire subsidiaries and a possible candidate to succeed Buffett, was scouting for possible acquisitions for the firm and focused on Lubrizol. He bought $10 million worth of Lubrizol shares for himself, then talked with Buffett about buying the company and, when Buffett and Lubrizol reached a $9 billion sale agreement, saw his shares gain $3 million.
Two weeks later, Sokol resigned, saying that the Lubrizol matter wasn't a factor but that he wanted to start his own investment company. Buffett didn't talk him out of it, but said he didn't think Sokol had done anything “unlawful.”
Andy Kilpatrick, a shareholder who has written a biography of Buffett, said the 18-page report from the Berkshire audit committee gives a good base of information, but even Buffett-loving shareholders want to know more.
“This has been festering, and now they've broken the boil,” Kilpatrick said. “I don't think the thing is over, but I think the board has made a mighty attempt to drill deep and get it out, and everybody can ask whatever they want all day Saturday.”
Berkshire seems determined “to get all the information out and let the chips fall where they may,” he said.
Among questions Buffett may face:
» Should Berkshire strengthen its insider trading rules and other policies?
» Can you tell us more about your CEO succession plan, including the name or names of possible successors?
» If you don't name the candidates for CEO, do the people on the list know who they are, and do they want the job?
» What have you learned from this, and what has the board learned?
» Why didn't you question Sokol more closely when he mentioned he owned Lubrizol stock?
» Did you ask the audit committee to investigate the matter, or did the board assign that task to the committee?
» You've said your family will let you know when it's time to step down as CEO. What do they think these days?
» Does Sokol's conduct reflect on your judgment in selecting top executives for Berkshire?
» Does the Sokol matter enhance or damage Berkshire's reputation as an ethically run company?
George Morgan, a former Omaha stockbroker who now teaches finance at the University of Nebraska at Omaha, said the audit committee of a board of directors is the proper group to investigate an executive's stock-trading conduct.
“They've taken the position that this is the corporation and they need to do everything possible to protect the interests of the shareholders,” Morgan said.
As for what happened between Buffett and Sokol when they talked about Lubrizol, Morgan said it may turn into a “he said, he said” contest. “Mr. Buffett is going on his remembrance of the situation, and Mr. Sokol is probably doing the same thing.”
Kracher, the ethics professor, said the report shows that Berkshire makes an appropriate effort to enforce ethical conduct by its employees. Such policies can't prevent all bad conduct, she said, but they can help. Only about three in 10 Omaha organizations have thorough ethics programs, about the national average.
“Berkshire Hathaway has an outstanding ethics reputation,” she said. “It is interested in ethical business practices, and one of the ways it will maintain its reputation is by doing what it does best — learning from its experiences, learning best practices and implementing them.”
Schroeder, the columnist, said the No. 1 topic for many shareholders is Berkshire's plan for succeeding Buffett as CEO. Buffett has said the board of directors keeps a list of available candidates and knows who his choice would be at any time, but the names on the list are secret.
“He really should say something,” she said. “If he doesn't, then I think the audience will be dissatisfied.”
Kilpatrick, the author, said shareholders will be watching Buffett to see if he's capable of doing his job. “Is he really on top of his game? I think he is. I'm certain that the full story will come out, to the satisfaction of most people, and Berkshire and Buffett will go on.”
Contact the writer: