Warren E. Buffett, CEO of Berkshire Hathaway, Announces the Resignation of David L. Sokol

This press release will be unusual. First, I will write it almost as if it were a letter. Second, it will contain two sets of facts, both about Dave Sokol, Chairman of several Berkshire subsidiaries.

Late in the day on March 28, I received a letter of resignation from Dave, delivered by his assistant. His reasons were as follows:

“As I have mentioned to you in the past, it is my goal to utilize the time remaining in my career to invest my family’s resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendents and funding for my philanthropic interests. I have no more detailed plan than this because my obligations from Berkshire Hathaway have been my first and only business priority.”

I had not asked for his resignation, and it came as a surprise to me. Twice before, most recently two or so years ago, Dave had talked to me of resigning. In each case he had given me the same reasons that he laid out in his Monday letter. Both times, I and other Board members persuaded him to stay. Berkshire is far more valuable today because we were successful in those efforts.

Dave’s contributions have been extraordinary. At MidAmerican, he and Greg Abel have delivered the best performance of any managers in the public utility field. At NetJets, Dave resurrected an operation that was destined for bankruptcy, absent Berkshire’s deep pockets. He has been of enormous help in the operation of Johns Manville, where he installed new management some years ago and oversaw major change.

Finally, Dave brought the idea for purchasing Lubrizol to me on either January 14 or 15. Initially, I was unimpressed, but after his report of a January 25 talk with its CEO, James Hambrick, I quickly warmed to the idea. Though the offer to purchase was entirely my decision, supported by Berkshire’s Board on March 13, it would not have occurred without Dave’s early efforts.

That brings us to our second set of facts. In our first talk about Lubrizol, Dave mentioned that he owned stock in the company. It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings.

Shortly before I left for Asia on March 19, I learned that Dave first purchased 2,300 shares of Lubrizol on December 14, which he then sold on December 21. Subsequently, on January 5, 6 and 7, he bought 96,060 shares pursuant to a 100,000-share order he had placed with a $104 per share limit price.

Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea. In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest. Furthermore, he knew he would have no voice in Berkshire’s decision once he suggested the idea; it would be up to me and Charlie Munger, subject to ratification by the Berkshire Board of which Dave is not a member.

As late as January 24, I sent Dave a short note indicating my skepticism about making an offer for Lubrizol and my preference for another substantial acquisition for which MidAmerican had made a bid. Only after Dave reported on the January 25 dinner conversation with James Hambrick did I get interested in the acquisition of Lubrizol.

Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. He has told me that they were not a factor in his decision to resign.

Dave’s letter was a total surprise to me, despite the two earlier resignation talks. I had spoken with him the previous day about various operating matters and received no hint of his intention to resign. This time, however, I did not attempt to talk him out of his decision and accepted his resignation.

Effective with Dave’s resignation, Greg Abel, presently President and CEO of MidAmerican Holding Company, will become its Chairman; Todd Raba, President and CEO of Johns Manville, will become its Chairman; and Jordan Hansell, President of NetJets, will become its Chairman and CEO.

I have held back nothing in this statement. Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release.

Berkshire Hathaway and its subsidiaries engage in diverse business activities including property and casualty insurance and reinsurance, utilities and energy, finance, manufacturing, retailing and services. Common stock of the company is listed on the New York Stock Exchange, trading symbols BRK.A and BRK.B.

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David Sokol: Warren Buffett's Mr. Fix-It

The day after Lehman collapsed in September 2008, David Sokol noticed that the stock of Constellation Energy, a Baltimore utility, was plummeting. He called his boss, Warren Buffett, and said, "I see an opportunity here." Buffett, who had noticed the same thing, replied after a brief discussion: "Let's go after it."

Constellation held vast amounts of energy futures contracts that had gone sour, and the company appeared to be on the verge of bankruptcy. Sokol, as chairman of the Berkshire subsidiary MidAmerican Energy Holdings, knew the utility industry and saw a chance to buy solid assets at a bargain price. The deal, however, had to be done within 48 hours or the company would have to file for bankruptcy.

Sokol phoned the office of Constellation CEO Mayo Shattuck III, who was in an emergency board meeting. When his assistant answered, Sokol told her he'd like to speak to him. The secretary replied that if she interrupted the meeting, she might lose her job. Sokol replied, "If you don't interrupt the meeting, you might lose your job."

Sokol boarded a Falcon 50EX and sped to Baltimore. He met with Shattuck and struck a deal that evening to buy the company for $4.7 billion, staving off bankruptcy.

Within weeks, before the acquisition was completed, Constellation's board received a competing bid from Électricité de France for about a 30% premium. The board liked the offer, and so did Sokol -- who walked away with a $1.2 billion breakup fee for Berkshire.

When investors think of Berkshire Hathaway, they of course think of Warren Buffett and his record as a hands-off, if highly attentive, CEO. He gives free rein to the heads of his large collection of companies, ranging from Geico to Dairy Queen to Benjamin Moore to the Buffalo News to NetJets. Yet even in Buffett's empire, sometimes a CEO blows it, and his business needs to be fixed or a deal needs to get done -- fast. When that happens, Buffett's go-to guy is David Sokol.

Of all Berkshire's lieutenants, Sokol, 53, is mentioned most often as Buffett's heir, although Sokol shrugs off such speculation. Buffett likes Sokol just where he is, getting deals done, boosting profits, and turning around ailing businesses. In the foreword to Sokol's book, Pleased but Not Satisfied, Buffett writes, "He brings the business equivalent of Ted Williams' .406 batting average to the field of business management."

Buffett first met Sokol in 1999 when Berkshire was buying MidAmerican, the Iowa utility. With longtime Buffett friend Walter Scott, Sokol had bought a small, $28-million-a-year geothermal business in 1991 and built it into that utility powerhouse. MidAmerican, headquartered in Des Moines, now represents an $11.4 billion slice of Berkshire's revenue (about 10%), and Sokol is its chairman. In 2007, Buffett asked Sokol to get Johns Manville, an underperforming roofing and insulation company, on track, and he did; he is now its chairman. In 2008, Charlie Munger, Buffett's vice chairman, asked Sokol to fly to China to conduct due diligence on BYD, a battery and electric car maker. Sokol liked what he saw, and Berkshire invested $230 million for 10% of the company. That stake is now worth around $1.5 billion. In April, when Buffett had concerns about a provision in the Senate financial regulation bill that would have required Berkshire and other companies to post billions of collateral on their existing derivatives, it was Sokol he sent to argue his case. Buffett's side of the argument won.

Last summer Buffett handed Sokol perhaps the biggest assignment of his career: turning around NetJets. The fractional-ownership jet company last year lost $711 million before taxes -- not the kind of performance that warms Buffett's heart. Today the company is profitable, and Fortune got a rare, exclusive view of how Sokol did it.

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