mr buffett

DealBook: Buffett Invests $5 Billion in Bank of America

August 25, 2011 by NewsMaker Leave a Comment

Chuck Burton/Associated Press and Pablo Martinez Monsivais/Associated PressBrian T. Moynihan, left, Bank of America’s chief, and Warren E. Buffett of Berkshire Hathaway

1:04 p.m. | Updated Warren E. Buffett comes to the rescue, again.

On Thursday, Berkshire Hathaway, run by Mr. Buffett, announced plans to invest $5 billion in Bank of America, a vote of confidence for the beleaguered financial firm.

While investors initially cheered the news bidding up bank stocks in trading this morning, the sector settled down in the afternoon as the market digested the deal.

Shares of Bank of America, which spiked more than 25 percent on Thursday, is currently at $7.55, up roughly 8 percent. Citigroup and Morgan Stanley, both up which jumped nearly 10 percent in the morning, gave back much of their early gains, too. JPMorgan Chase was off slightly in the afternoon.

The pullback reflects the continued trepidation about the industry, which is clouded by economic concerns, regulatory uncertainty, and legal liabilities.

Still, the Berkshire investment has helped allay concerns about Bank of America. Shares of the financial firm have been battered of late over fears the company lacks sufficient capital. The stock has fallen by nearly 30 percent since the beginning of August.

“I remain confident that we have the capital and liquidity we need to run our business,” Bank of America chief executive Brian Moynihan said in a statement. “At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”

The Berkshire investment comes at a pivotal time for Bank of America. Its troubled mortgage division has racked up billions of dollars in legal bills, and the financial firm faces a nationwide investigation into its foreclosure practices. Last quarter, Bank of America reported an $8.8 billion loss, owing in large part to a settlement with mortgage investors.

Mr. Moynihan has taken steps to cut costs and improve its capital cushion. He put the European credit card operation up for sale and sold off the Canadian card division, making it clear non-core assets would be on the block.

Last week, the bank announced plans to cut 3,500 jobs. In a memo to employees, Mr. Moynihan said that “we owe it to our customers and our shareholders to remain competitive, efficient and manage our expenses carefully.”

But the embattled chief stopped short of raising capital, reiterating that the financial firm was on solid footing. The assertions did little to soothe investors.

Then on early Wednesday, Mr. Buffett called Mr. Moynihan to discuss a potential deal. At first, Bank of America’s chief balked at the proposal, saying the bank didn’t need a capital injection. But Mr. Buffett emphasized it would be a long-term investment, not a short-term fix. Over the course of the day and multiple calls, they hammered out the investment, finalizing the details late on Wednesday.

Under the terms of the deal, Berkshire will buy $5 billion of prefer red stock that pay a 6 percent annual dividend, and receives warrants for 700 million shares that he can exercise over the next 10 years. Bank of America has the option to buy back the preferred shares at any time for a 5 percent premium.

It is the sort of move industry insiders had been expecting. In May, Morgan Stanley chief executive James Gorman told reporters at his firm’s annual meeting that a big name investor was bound to jump into financials, prompting the “the malaise to lift.”

“We think this news is clearly a positive for the entire group as Buffett’s investment injects confidence into the system and Bank of America in particular following its consistent erosion in recent trading,” Nomura analyst Glenn Schorr said in a research note, adding that it should help dampen volatility in the stock.

Mr. Buffett has played the role of savior before.

In the depths of the financial crisis, Berkshire Hathaway gave Goldman Sachs a $5 billion lifeline, which came with a hefty 10 percent dividend. The investment bank paid back the money earlier this year after getting the greenlight from regulators.

When shares of General Electric got hit, Mr. Buffett stepped in with a $3 billion investment. The deal also came with a 10 percent annual payout.

With Bank of America, Mr. Buffett is once again jumping in at a point of weakness. Since the beginning of the year, the bank’s shares have dropped to less than $7, from $15. Last year, it was trading at more than $19.

“Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it,” Mr. Buffett said in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them. Bank of America is focused on their customers and on serving them well. That’s what customers want, and that’s the company’s strategy.”

Mr. Buffett is a fan of financial companies that he thinks have a strong franchise and brand. Berkshire owns Wells Fargo, gradually upping his stake over the past year. In the latest quarter, he bought nearly 10 million shares of the lender.

He has also counted Bank of America among his past holdings. In the midst of the subprime crisis in 2007, Berkshire bought 8.7 million shares, quickly increasing the stake to 9.1 million shares.

But Mr. Buffett was critical of management at the time. He told Financial Crisis Inquiry Commission that Bank of America paid a “crazy price” to acquire Merrill Lynch in the midst of the disaster. Mr. Buffett sold off his remaining shares in Bank of America at the end of 2010.

Article source: http://dealbook.nytimes.com/2011/08/25/buffett-to-invest-5-billion-in-bank-of-america/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: mortgage division, mr buffett, warren buffett

Economix Blog: Bruce Bartlett: The Rich Can Afford to Pay More Taxes

August 25, 2011 by NewsMaker Leave a Comment

Bruce Bartlett held senior policy roles in the administrations of Ronald Reagan and George H.W. Bush and served on the staffs of Representatives Jack Kemp and Ron Paul.

Warren Buffett’s commentary in The New York Times on Aug. 15 has opened a new front in the continuing debate on whether taxes should be raised to reduce projected budget deficits.

Today’s Economist

Perspectives from expert contributors.

Mr. Buffett asserted that the well-to-do could easily shoulder a higher burden. Specifically, he proposed an increase in the current 35 percent top rate for those making more than $1 million and a further increase on those making more than $10 million. He also proposed taxing dividends and capital gains as ordinary income (currently, they are taxed at a maximum rate of 15 percent).

Conservative groups such as the Tax Foundation pooh-pooh the idea of raising tax rates on the rich, asserting that there isn’t enough money available to bother with.

On Friday, however, the respected Tax Policy Center published estimates showing that the potential revenue would have a significant impact on projected deficits. It looked at several options, including a 50 percent top rate on incomes over $1 million and changes to the taxation of dividends and capital gains.

Tax Policy Center, Aug. 19, 2011

As one can see, the revenue potential depends critically on what baseline is assumed. That is because the top tax rate is already scheduled to rise to 39.6 percent on incomes over $380,000 in 2013. Moreover, dividends on corporate stock would go back to being taxed as ordinary income. And capital gains would go back to being taxed at a maximum rate of 20 percent.

The larger question is how much the well-to-do should pay. According to the Internal Revenue Service, in 2008, those in the top 1 percent of the income distribution, with incomes over $380,000, had an effective tax rate of 23.3 percent. In 1986, a year when the real gross domestic product grew a healthy 3.5 percent, their effective tax rate was 33.1 percent. It has been much lower every year since.

If this group were still paying 33.1 percent, federal revenue would have been more than $166 billion higher in 2008 alone. That would be enough to reduce the budget deficit by about 10 percent this year. If the top 1 percent of taxpayers had continued to pay the same effective tax rate they paid in 1986 every year from 1987 to 2008, the federal debt today would be $1.7 trillion lower.

Internal Revenue Service

Of course, these are not hard numbers. If the effective tax rate had stayed at 33.1 percent on the top 1 percent of taxpayers all these years, their behavior would undoubtedly have changed.

And it probably would have been impractical to maintain a higher rate on just the top 1 percent of taxpayers without having had higher rates on many of those below that percentile. But it does show the order of magnitude of how much revenue has been sacrificed from tax cuts on those with very high incomes.

Some will argue that those tax cuts bought higher economic growth, but that is very doubtful. Growth was stronger in the 1990s when the relative revenue loss was small and was dismal during the George W. Bush administration, when two-thirds of the aggregate revenue loss occurred.

It is not class warfare to suggest that the richest 1 percent of people in society pay one-third of their income to the federal government, as they did under Ronald Reagan. Keep in mind that dividends were taxable as ordinary income every year of his administration, and in the Tax Reform Act of 1986 he supported taxing capital gains as ordinary income as well.

Higher effective tax rates on the rich could even be achieved without raising the top tax rate bracket to 50 percent, as it was under President Reagan. There are many tax preferences that largely benefit the well-to-do that could be scaled back to avoid raising marginal rates.

The important thing is for people to accept that we can no longer afford such low effective tax rates on those with the greatest capacity to pay at a time when total revenues as a percentage of G.D.P. are at their lowest level in 60 years and we are facing a debt crisis. The issue is not whether the rich should pay more, but how best to accomplish it.

Article source: http://feeds.nytimes.com/click.phdo?i=8451926bd44abb7bbe76d7808d032cd4

Filed Under: Economy News Tagged With: effective tax rate, george h w bush, mr buffett

DealBook: Amid Scandal, Guessing Game Builds Over Buffett’s Next Deal

April 28, 2011 by NewsMaker Leave a Comment

Prashanth Vishwanthan/Bloomberg News The Sokol affair may have shaken Warren E. Buffett, but it is unlikely to deter his deal-making.

Among the questions nagging at investors making the pilgrimage to Omaha this weekend to attend the annual meeting of Berkshire Hathaway will be this: Will the outcry over David L. Sokol affect Warren E. Buffett’s deal machine?

Only two months ago, Berkshire appeared to be riding high. The conglomerate posted a 61 percent gain in annual profit for last year. Perhaps most notably, Mr. Buffett wrote in his annual letter to shareholders that he was again on the hunt.

“We’re prepared,” he wrote. “Our elephant gun has been reloaded, and my trigger finger is itchy.”

In March, Mr. Buffett appeared to at least partly sate that itch when he agreed to buy the chemicals manufacturer Lubrizol for $9 billion in cash.

Yet that deal has now trapped Berkshire in controversy. Mr. Sokol, the chairman of MidAmerican Energy Holdings, a unit of Berkshire Hathaway, resigned after disclosures that he had bought shares in Lubrizol shortly before recommending the company to Mr. Buffett as a takeover target. Initially hesitant, Mr. Buffett eventually agreed to the deal, the third-largest purchase in his career.

On Wednesday, the audit committee of Berkshire’s board condemned Mr. Sokol’s actions as violations of the company’s insider stock-trading policy and hinted that the company might sue Mr. Sokol, a onetime star manager. The Securities and Exchange Commission is looking into Mr. Sokol’s trades, people briefed on the matter have said previously.

It is unclear whether the Sokol affair will have lasting implications for Berkshire. Some Buffett-watchers say that the biggest damage may be to the investor’s reputation.

“Buffett was on an unrealistically high pedestal to begin with,” Alice Schroeder, the author of an authorized biography of Mr. Buffett, said. “A lot of Berkshire’s business advantage came from that mystique.”

But it is unlikely to deter Berkshire from its takeover safari.

“I don’t think if there are any deals on the horizon that this is going to cause Buffett to pause in the least,” said Michael Yoshikami, the chairman and chief executive of YCMNET Advisors, a Berkshire shareholder.

The fundamentals for why Berkshire must pursue even more acquisitions have not changed. The company generated $17.9 billion in cash from its operations last year, and currently has more than $38 billion to spend.

And its underlying businesses, apart from its commercial insurance operations, have rebounded well from the recession, said Meyer Shields, an analyst at Stifel Nicolaus.

“I expect no changes and that we may see Berkshire do a $10 billion deal in the next 12 months,” he said.

And despite the reputational damage done to the Buffett brand, the executive still exerts a magnetic charm and has a strongly performing business that many companies still want to join, Ms. Schroeder said.

Just what exactly Berkshire will buy next remains a parlor game among analysts and investors.

Mr. Buffett has hewed to a fairly rigid set of criteria for potential deal targets, including consistently high earnings, little debt and strong management teams in place.

Mr. Buffett has long regarded his big investments as crucial to continuing Berkshire’s strong financial performance. He singled out his $26 billion purchase of Burlington Northern as a big contributor to Berkshire’s bottom line. The deal appeared likely to raise Berkshire’s earning power by nearly 40 percent before taxes, and the cash needed to strike the deal was quickly replenished.

“The economics of this transaction have turned out very well,” he wrote in this year’s investor letter.

While Mr. Buffett most recent shareholder letter sang the praises of the United States — he described the country as ripe with an abundance of opportunity — many observers say that his next trophy may well be abroad.

Mr. Yoshikami noted that many of Berkshire’s recent big deals, including those for Lubrizol, Burlington Northern and the industrial conglomerate Marmon Holdings, had been largely for developed companies with high cash flow.

A logical next step may be in finding a high-growth but stable foreign company, as Berkshire did in 2008 when it acquired a 10 percent stake in the Chinese auto parts maker BYD, Mr. Yoshikami said.

That opportunity may lie in a growing economy like India, which Mr. Buffett visited last month.

“I’ve been dropping my phone number around as I cover the city,” he told reporters then. “I hope someone rings me Monday morning with good news.”

The New York Times

Article source: http://feeds.nytimes.com/click.phdo?i=ef6a752257046007391c3019afae2372

Filed Under: Business News Tagged With: midamerican energy holdings, mr buffett, pedestal

DealBook: New Details Emerge on Sokol and Lubrizol Deal

April 13, 2011 by NewsMaker Leave a Comment

Daniel Acker/Bloomberg News David L. Sokol resigned from Berkshire Hathaway on March 30.

9:18 p.m. | Updated

David L. Sokol, a former top deputy to Warren E. Buffett, knew more about Lubrizol’s interest in a potential deal with Berkshire Hathaway than previously disclosed — a revelation that comes as the government examines Mr. Sokol’s personal stake in the chemical manufacturer.

A regulatory filing on Monday shows that Mr. Sokol was aware in mid-December that Lubrizol’s chief executive planned to talk to his board about a possible acquisition by Berkshire. A few weeks later, Mr. Sokol bought nearly 100,000 Lubizol shares.

The fresh details once again cast a spotlight on Mr. Sokol’s decision to take a $10 million stake in Lubrizol while orchestrating a potential takeover of it.

The Securities and Exchange Commission is considering whether to open a formal investigation into Mr. Sokol, according to people close to the agency. His legal liability, in part, hinges on whether he acted on material, confidential information for his own personal gain.

Mr. Sokol, who abruptly resigned his managerial post at Berkshire last month, saw the value of his Lubrizol stake rise by $3 million after Berkshire announced its $9 billion bid for the industrial company.

“I think someone could look at this set of facts and say there’s a potential problem here,” said Richard L. Scheff, a former federal prosecutor who is now a criminal defense lawyer at Montgomery, McCracken, Walker Rhoads. “This raises a concern for me.”

Even so, the insider trading rules are murky. And the government may find it difficult to prove Mr. Sokol’s trades were anything more than “innocent purchases,” said Daniel J. Hurson, a former lawyer in the S.E.C.’s enforcement office who is now in private practice.

Mr. Sokol has said that he did nothing wrong, and Mr. Buffett has agreed.

“Neither Dave nor I feel his Lubrizol purchases were in any way unlawful,” Mr. Buffett said in a letter last month about the resignation, noting that Mr. Sokol made the trades before pitching the Lubrizol deal to Berkshire.

The preliminary proxy filed by Lubrizol on Monday provides greater detail about Mr. Sokol’s dealings.

Mr. Sokol first expressed interest in a Lubrizol acquisition in December, after Citigroup bankers recommended the industrial manufacturer as a possible takeover target.

On Dec. 17, a Citigroup banker called Lubrizol’s chief executive, James L. Hambrick, to let him know about Berkshire’s possible interest in the company, the new regulatory filing said. Mr. Hambrick told the banker that he would share Berkshire’s possible interest with the Lubrizol directors.

That same day, Citigroup told Mr. Sokol, then chairman of MidAmerican Energy and NetJets, about the board’s planned discussions — a previously unknown part of the timeline.

“That sounds pretty material to me,” Mr. Hurson said. “If I was still at the S.E.C., I’d be interested in the case.”

Mr. Sokol started accumulating Lubrizol stock shortly thereafter. From Jan. 5 through Jan. 7, Mr. Sokol bought more than 96,000 shares of the company.

The Lubrizol board held a “special meeting” on Jan. 6 to discuss Berkshire Hathaway’s possible interest in the company, and the board agreed right away to hire lawyers to advise on a potential acquisition.

“On or about January 10, 2011, Mr. Hambrick requested that Citi contact Mr. Sokol to inform him that he should expect a call from Mr. Hambrick and thereafter Citi so informed Mr. Sokol,” according to the latest Lubrizol filing.

Roughly four days later, Mr. Sokol and Mr. Hambrick talked on the phone about the “corporate cultures and philosophies” at their respective companies. They agreed to meet in person later in the month.

Mr. Sokol suggested a Lubrizol deal to Mr. Buffett on Jan. 14 or 15, according to Mr. Buffett’s letter. At the time, Mr. Sokol made a “passing remark” about his stake in Lubrizol to Mr. Buffett, who did not ask about “the date of his purchase or the extent of his holdings.”

Some analysts and corporate governance experts have criticized Mr. Buffett for not demanding further details.

“This is damaging to Berkshire’s reputation,” said Greggory Warren, a senior stock analyst at research firm Morningstar. “It brings up questions about Berkshire’s internal controls.”

Mr. Buffett indicated in his letter that “Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea” or “what Lubrizol’s reaction would be if I developed an interest.”

Although Mr. Buffett was originally skeptical of the deal, he later became convinced. Berkshire ultimately agreed on March 14 to acquire Lubrizol for $9 billion.

On March 30, Mr. Buffett announced the departure of Mr. Sokol in a letter that detailed the trades.

That’s when Lubrizol “first learned” of Mr. Sokol’s personal stake, the company said in the filing on Monday.

Article source: http://feeds.nytimes.com/click.phdo?i=d41e17c9caaabe0156e3296449892324

Filed Under: Business News Tagged With: mr buffett, personal stake, private practice

DealBook: Buffett’s Ruthlessness Is Oddly Absent

April 5, 2011 by NewsMaker Leave a Comment

Mustafa Quraishi/Associated PressWarren E. Buffett said he would refer questions about David L. Sokol back to a written statement.

Warren E. Buffett has a favorite saying: “Lose money for my firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

But as speculation of insider trading swirls around Mr. Buffett’s onetime heir apparent, David L. Sokol, it has to be asked: Why hasn’t Mr. Buffett been ruthless?

Mr. Buffett is likely to face a barrage of questions this month at Berkshire Hathaway’s annual meeting in Omaha, often described as “Woodstock for Capitalists.” This year, it could be called “The Great Inquisition.” Every year, Mr. Buffett and his partner, Charlie Munger, take questions from shareholders and a panel of journalists — including me — in front of 35,000 people for five hours.

When Mr. Buffett announced Mr. Sokol’s resignation last week in a detailed announcement, he stated, “If questioned about this matter in the future, I will simply refer the questioner back to this release.”

DealBook Column

View all posts

But given the scrutiny that Mr. Sokol’s behavior is now under, it will be hard for Mr. Buffett to dodge the inquiries.

Here are some of the questions that deserve answers from Mr. Buffett.

¶In the statement announcing Mr. Sokol’s resignation, you acknowledged that he had made “a passing remark” that he owned shares in Lubrizol in January, two months before Berkshire announced a deal to buy the chemical maker. What, exactly, did he tell you? Do you feel he misled you? If not, why, given your penchant for straight talk, did you not come out later and say, “I should have asked more questions.”

If it was only a passing remark, why did you tell Mr. Munger about Mr. Sokol’s investment? Did you tell the rest of Berkshire’s board about Mr. Sokol’s Lubrizol holdings before it voted on the deal? What prompted you to ask Berkshire’s chief financial officer for Mr. Sokol’s trading records just days after announcing the acquisition of Lubrizol?

¶During Mr. Sokol’s interview on CNBC last week, he said, “I guess knowing today what I know, what I would do differently is that I wouldn’t have mentioned it to Warren and just made the investment and left it alone. I think that’s a disservice to Berkshire. But if that’s what people want to do in the future, that’s fine.”

Do you believe Mr. Sokol — to whom Citigroup floated the Lubrizol deal in his capacity as officer of Berkshire — had a fiduciary duty to run the idea past you? Or was he free to make a personal investment, without discussing a potential acquisition with you? What is Berkshire’s policy on such trading?

Mr. Sokol also compared his investment with one that Mr. Munger, vice chairman of Berkshire and one of your best friends, previously made — that is, buying a 3 percent stake in BYD, the Chinese electric carmaker, before Berkshire took a big share in the company. Was it an apt comparison?

¶You have said that Mr. Sokol did not do anything “unlawful.” But Mr. Sokol bought shares of Lubrizol a day after he told Citigroup to indicate Berkshire’s interest in buying the company.

Why don’t you consider that “material” information, a crucial component of insider trading? Do you not believe that a Lubrizol shareholder would have considered such information important to their investment decision? Clearly Lubrizol felt that Mr. Sokol’s inquiry was material enough to hold a board meeting on Jan. 6, one day before Mr. Sokol bought almost $10 million of shares.

If Mr. Sokol was aware of Lubrizol’s board meeting, would you consider that material information? And if a news outlet had reported Mr. Sokol’s inquiry or Lubrizol’s decision to meet, do you not think that the price of Lubrizol’s shares would have risen?

Here is another way to think about it: If a Citigroup banker had bought shares of Lubrizol at the same time as Mr. Sokol, would you have considered that insider trading? Isn’t that the definition of insider trading? What did Mr. Sokol do that was different?

¶Berkshire has always been a very decentralized institution with only 21 of its 257,000 employees working at headquarters and each subsidiary left to its own devices. “Most of these managers are happiest when they are left alone to run their businesses, and that is customarily just how we leave them,” you recently wrote in the annual letter.

This structure might seem like a bastion of efficiency. But given Mr. Sokol’s possible transgressions, do you now think Berkshire needs more compliance programs and people to manage them?

¶In your statement, you said Mr. Sokol “told me that” the trades in Lubrizol “were not a factor in his decision to resign.” Many Buffett watchers, including myself, noticed that you did not unequivocally say that his resignation was unrelated to the trades — just that Mr. Sokol said it was.

If you believed Mr. Sokol, why didn’t you just say it was unrelated? And if you didn’t believe Mr. Sokol’s explanation, why did you relay his story?

¶You have long followed the mantra of Dale Carnegie: “Praise by name, criticize by category.”

But in recent years, you have been criticized, for example, as being too soft on companies like Moody’s, in which you had invested. You often publicly lambaste certain industries or practices, but rarely specific companies or people.

Given your stature in the business world, do you think you have a broader responsibility to call out wrongdoing?

¶Finally, how has this scandal changed your evaluation of potential successors?

Do you have a question to ask Mr. Buffett or Mr. Munger at Berkshire’s annual meeting later this month? Please send it to me at arsorkin@nytimes.com. (Also, let me know if I can use your name and if you are a shareholder.)

Article source: http://feeds.nytimes.com/click.phdo?i=c207625ae798fff5e1a26ba76845938d

Filed Under: Business News Tagged With: mr buffett, questioner, resignation

DealBook: Buffett’s Handling of Deputy Baffles Some Experts

April 1, 2011 by NewsMaker Leave a Comment

Mustafa Quraishi/Associated PressWarren E. Buffett’s carefully cultivated image risks being tarnished.

Warren E. Buffett is an old-school capitalist with a rock star’s aura, a global celebrity who is revered like a small-town hero.

Yet that carefully cultivated image — the envy of nearly every top executive — risks being tarnished by a disclosure that he knew one of his right-hand executives had bought shares in a company before Mr. Buffett’s company announced a deal for it.

Mr. Buffett is certainly not the typical chief executive, and the questions surrounding him concern an apparent failure to act that had corporate governance experts and analysts scratching their heads on Thursday. The scrutiny stems from a meeting in January, when the deputy, David L. Sokol, approached Mr. Buffett about possibly buying a lubricant manufacturer. During the discussion, Mr. Sokol, once seen as a potential successor to Mr. Buffett, made a brief admission to his boss: he owned stock in the takeover target.

At that point, most corporate chieftains would have asked questions, directed the executive to seek legal advice or even put the idea of a deal on ice, experts said. But Mr. Buffett did none of those things — even though his company, Berkshire Hathaway, like most large companies, has policies that restrict employees from using or sharing confidential information for “stock trading purposes.”

“It just seems odd to me that it didn’t throw up some red flags,” said Greggory Warren, a senior stock analyst at Morningstar. “As much as they don’t like to have their hands in what managers are doing, there are occasions like this where they have to.”

Mr. Buffett assumed that Mr. Sokol had held the stock for years, not days, which would make the timing of the deal less suspicious. “It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings,” Mr. Buffett said in a statement on Wednesday announcing Mr. Sokol’s resignation. Mr. Buffett did not respond to requests for comment on Thursday.

In the wake of the disclosure, Berkshire Hathaway shareholders, analysts and corporate governance experts called for tighter controls at Berkshire. They questioned Mr. Buffett’s trusting manner, saying he should have pushed Mr. Sokol to disclose the extent of his stake in Lubrizol, the lubricant maker. Morningstar analysts said in a report on Thursday that Mr. Sokol’s Lubrizol trades “tarnish Berkshire’s reputation.”

Mr. Sokol acquired a roughly $10 million personal stake in Lubrizol in January, just days before he pitched a takeover of the company to Mr. Buffett. Berkshire agreed in March to buy Lubrizol for $9 billion, earning Mr. Sokol an estimated $3 million profit.

Thomas Russo, a partner at investment firm Gardner Russo Gardner, which owns Berkshire shares valued at some $300 million, said the episode would probably prove to be a wake-up call for the Omaha-based company.

“They will likely have to introduce slightly more controls to eliminate the headline risk we have seen,” he said. “That is a good thing, especially as the operations of Berkshire fall into more hands.”

But Berkshire has made no indication that it plans to overhaul its conflict of interest policy or tweak its internal controls.

Even so, the questions about Mr. Sokol’s stock ownership already has the company on the defensive.

“Neither Dave nor I feel his Lubrizol purchases were in any way unlawful,” Mr. Buffett said in the statement.

Charles T. Munger, Berkshire’s vice chairman and Mr. Buffett’s longtime business partner, also expressed support for Mr. Sokol.

“Few people understand how good he is, how really good he is,” Mr. Munger said in an interview. “He’s like a guy on a baseball team that could play six of the nine positions.”

Still, in a company with a culture that has long emphasized ethics, the news about Mr. Sokol’s trades may cause waves within Berkshire. In a July 2010 letter, Mr. Buffett instructed his managers to “zealously guard Berkshire’s reputation.”

“We can afford to lose money — even a lot of money,” Mr. Buffett said. “But we can’t afford to lose reputation — even a shred of reputation.”

Berkshire’s conflict of interest policy requires all directors, chief executives and chief financial officers to “disclose any material transaction or relationship that reasonably could be expected to give rise to such a conflict to the chairman of the company’s audit committee.”

The company also circulates a list of stocks that executives are not allowed to buy.

“I don’t think I did anything inappropriate,” Mr. Sokol told CNBC on Thursday. “I bought stock in a company that I thought was a good company.”

The departure of Mr. Sokol also calls into question the future of the company’s management team, shuffling the cast of Berkshire executives who could succeed Mr. Buffett as chief.

Although Berkshire has built up a fairly deep bench in recent years, Mr. Sokol was seen as the frontrunner.

Jay Gelb, an analyst with Barclays Capital, called Mr. Sokol’s resignation an “unfavorable development” for the company’s stock, which was down more than 2 percent on Thursday. “Mr. Buffett may be the only one who can manage the company with as much success as in the past,” Mr. Gelb said in a report.

Some rising stars at Berkshire might also hesitate to assume the burden of filling Mr. Buffett’s shoes. Other protégées, analysts say, might be lured away by bigger paydays at hedge funds and the like.

Of course, Berkshire pays well, too. Mr. Sokol earned roughly $24 million as chairman of MidAmerican Energy, a Berkshire subsidiary.

Mr. Buffett, 80, has said he has no immediate plans to retire. Yet the contest to replace him has been among the most watched succession races in corporate history. In a February regulatory filing, Berkshire said its board had identified four current Berkshire subsidiary managers who were capable of being chief executive. With Mr. Sokol’s departure, it is now down to three.

Mr. Buffett wants to split his role into a few positions: a chief executive spot and two or more top managers who will run Berkshire’s $158 billion investment portfolio. The leading candidate for one of the investment jobs is the company’s current chief investment officer, Todd Combs, a former hedge fund manager.

As for the chief executive spot, the new favorite is Ajit Jain, who runs Berkshire’s reinsurance operations. Mr. Jain joined Berkshire in the 1980s, after stints at I.B.M. and McKinsey Company. Mr. Buffett has been quick on past occasions to heap praise on Mr. Jain.

Also in the mix are Tad Montross of General Re, Matthew Rose at Burlington Northern Santa Fe, Tony Nicely of Geico and Greg Abel, chief executive of MidAmerican.

The managers are hardly under the thumb of Mr. Buffett, who keeps in touch with his deputies but is famous for writing them a letter every two years.

“At Berkshire, managers can focus on running their businesses; they are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment,” Mr. Buffett has said. The managers can “call me when they wish.”

That hands-off approach, however, may face pressure to change in the wake of Mr. Sokol’s resignation.

Mr. Sokol, before mentioning a potential bid for Lubrizol to Mr. Buffett, had bought 2,300 shares of the company, which he then sold a week later. Mr. Sokol accumulated another 96,060 Lubrizol shares, then worth nearly $10 million, on Jan. 5, 6 and 7.

When Mr. Sokol brought the idea to takeover Lubrizol to Mr. Buffett on or around Jan. 14, he mentioned his stake in the company. But it was not until an unspecified day in mid-March, shortly after the deal was announced on March 14, that Mr. Buffett learned the extent of Mr. Sokol’s investment in Lubrizol. The news came not from Mr. Sokol, but Marc Hamburg, senior vice president and chief financial officer at Berkshire.

Some corporate governance experts said Mr. Buffett should have pushed for more details.

‘You would expect the people at Berkshire to discuss this explicitly,” said David F. Larcker, an accounting professor and director of the Corporate Governance Research Program at Stanford’s graduate business school. Still, he added that Berkshire should not abandon its “culture of trust” in favor of “endless rules.”

“When you’re doing a lot of transactions, every once in a while something is going to be unusual.”

Article source: http://feeds.nytimes.com/click.phdo?i=51ccae722565a8f7d141081660248c65

Filed Under: Business News Tagged With: corporate governance, mr buffett, none of those things