This weekend, Warren Buffett’s half-century track record as an investing guru and paragon of ethical business behavior will be put to the test. At the annual pilgrimage of shareholders of Buffett’s Berkshire Hathaway, roughly 40,000 people will hear Buffett’s take on the conduct of one of his former top lieutenants, David Sokol. He resigned in late March around the time it became known that he bought shares of Lubrizol Corp., a company Sokol later encouraged Buffett to buy. When Berkshire reached a deal last month to buy Lubrizol for $9 billion, Mr. Sokol’s personal stock rose in value by roughly $3 million.
A report of Berkshire’s audit committee this week largely blamed Sokol himself for the scandal. Warren Buffet Still, the report left unanswered questions about whether Buffett should have pushed his lieutenant harder to reveal his stockholdings and discussions with deal bankers, and whether Buffett should have disclosed sooner any of his criticisms of Sokol. Initially, Buffett was supportive of Sokol and only said he didn’t believe Sokol’s actions were unlawful.
Buffett told Fox Business Network on Thursday that he is prepared to answer all questions at the annual meeting related to Sokol. He also said, however, that it’s mainly the press who’s obsessing over Sokol, and Berkshire investors are more interested in the status of the business. ?
Friday, Berkshire shareholders took in the sights in Omaha, many with their Berkshire shareholder credentials hung around their necks. They hung out at the zoo, took in a few drinks and took photos in front of Buffett’s home (some in a tour bus). And they were abuzz about Sokol, too. At the Doubletree Hotel, shareholders at a gathering of Buffett followers, the Yellow Brk’er Group, said they wanted to hear Buffett’s take on the Sokol affair, but said they didn’t want questions on the issue to monopolize the day-long annual meeting.
“I just hope he addresses the topic of David Sokol at the beginning of the meeting and be done with it,” said Peter Koesler, a retiree who lives in Naples, Fla., and a Berkshire shareholder for five years. “Shareholders of Berkshire have not lost anything in this matter — the only one that has lost something (in this controversy) is Warren because his trust in his managers has been a little bit jeopardized.”
OTHER THEMES TO WATCH:
2) The health of Berskhire: ?
Buffett is likely to present a slide at the beginning of Saturday’s meeting featuring an early snapshot of Berkshire’s first-quarter earnings, at the very least to be able to talk about news other than Sokol. One big focus will be railroad operator Burlington Northern Santa Fe, which Berkshire acquired last year. Another question mark: how much the recent earthquakes in Japan and New Zealand affected Berkshire’s insurance and reinsurance operations, the core of the company’s $136 billion in annual revenue.
3) Succession Planning:
Someone always asks Buffett about who will replace him, and Buffett nearly always punts the question. In his annual letter in February, Buffett said there were “multiple outstanding candidates” available for part of his current job, as Berkshire CEO. Sokol was considered a possible successor to this job, so his resignation may have removed one name from the candidate list. And this year will be the Buffett-maniacs first possible look at Todd Combs, the once-obscure investment manager tapped last year to help manage Berkshire’s massive investment portfolio. Shareholders said they’d like to know much about Combs, about whom very little is known so far.
Buffett in his annual shareholder letter in February signaled that Berkshire must buy more companies to keep growing at a decent slip. In the last two years, Berkshire has grown more slowly than the S&P500 has in its bull run. “The job gets tougher as the numbers get larger,” Buffett wrote to the Berkshire faithful. “We will need both good performance from our current businesses and more major acquisitions.”
Last year’s purchase of Burlington Northern Santa Fe was Berkshire’s biggest ever acquisition, and Buffett said in February that his “elephant gun has been reloaded.” Shortly after releasing those words, Buffett pulled the trigger on the $9 billion purchase of Lubrizol. Look for shareholders to press what would fit in Buffett’s range of $5 billion to $20 billion deals.
5) The economy.
Investors always await anxiously for Buffett’s words on the economy of the U.S., and every country across the globe. This year, with concerns about global growth, a stuck housing market and European sovereign debt, his every word will be even more closely marked.
Bonus #6) Sokol
It’s an inescapable topic. On Friday, an airport gate worker quipped to a Berkshire-going flier, “Did they get everything straightened out with the guy who was supposed to be the anointed one.”