Abrupt Resignation of Potential Warren Buffett Successor Raises Questions

VIDEO: Berkshire Hathaway executive David Sokol wants to start his own investment firm.
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David Sokol was a member of one of the most elite groups in the world -- the Berkshire 4. And now his abrupt resignation from Berkshire Hathaway has not only taken him out of the running as a possible successor to Warren Buffett but has shaken up a succession plan at one of the most venerable companies in the world.

Many analysts are asking if the circumstances surrounding Sokol's surprising resignation will have repercussions for Berkshire Hathaway's solid gold reputation.

In a letter released to shareholders Wednesday, Buffett, announced that Sokol had submitted his resignation March 28. It wasn't the first time that Sokol had submitted a resignation letter to his boss, but it was the first time that Buffett had accepted one. Long seen as a rising star, Sokol had spent 11 years at Berkshire, where he was CEO of NetJets, one of the conglomerate's holding companies.

The questions surrounding Sokol's resignation focused on a $10 million investment Sokol made in a chemical company, Lubrizol, in January, which Berkshire Hathaway would acquire for $9 billion two months later, largely at Sokol's suggestion.

Sokol's investment value rose $3 million after the purchase.

In his letter, Buffett made it clear that Sokol's resignation had not come from his own urging, nor did it have to do with Sokol's private investment in Lubrizol. Instead, he said that Sokol had wanted to devote more time to investing "his family's resources."

In interviews both Wednesday evening and Thursday morning, Sokol made it clear that he had told Berkshire's general counsel of his personal investment in Lubrizol. For his part, Buffett said that while he had not asked Sokol about any possible investments he may have made, he did find out about them through Sokol's legal filings. Buffett went on to say that both he and Sokol did not believe that the share purchases were "in any way unlawful."

Did David Sokol Violate Berkshire's Conflict of Interest Code?

Still, that doesn't bring to rest questions on Wall Street about whether Sokol violated the company's conflict of interest code. Although Sokol had made Berkshire Hathaway aware of his stock purchases before the deal, some are asking whether he had intended to pitch the deal to Buffett at the time or before he made his own investment in Lubrizol. Sokol said he had not.

As for the larger picture, what does this mean for Berkshire's solid gold reputation with investors? How big of a monkey wrench does Sokol's resignation throw into a succession plan? In a note to investors Thursday morning, Doug Kass, a prominent money manager, had this to say.

"While the David Sokol situation at Berkshire Hathaway is not quite "a tempest in a teapot," the large after-hours drop to $83 a share more than discounts the economic consequence to the company, which is likely to be minor. Let me make it clear that the facts and timing relating to Sokol's purchase of Lubrizol stock are disturbing, as the calendar of facts surrounding the situation may be inconsistent with the law. Moreover, it certainly is inconsistent with the ethics and investment principles for which Warren Buffett has stood over the decades."

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