David Sokol was once widely seen as Warren Buffett’s successor at Berkshire Hathaway. This article traces his rise, the Lubrizol stock controversy, and his departure before Greg Abel’s leadership transition.
As Greg Abel assumes the role of chief executive at Berkshire Hathaway, attention has returned to another executive who was once widely viewed as Warren Buffett’s heir apparent: David Sokol.
In taking over as chief executive of Berkshire Hathaway this month, Greg Abel faced questions about whether he is ready to step out of Warren Buffett’s shadow. But the transition reminded some investors of another executive—Abel’s former boss—who for years was considered most likely to take the reins at one of the world’s best-known companies.
A Trusted Lieutenant
Berkshire Hathaway
Warren Buffett
David Sokol
Greg Abel
David Sokol “gained Buffett’s confidence as a star executive who grew crucial businesses at Berkshire and turned others around, while also demonstrating his investing chops.” The Omaha, Neb., native “could be a demanding manager, according to some who interacted with him, but he was popular with Berkshire’s board and Buffett, who publicly singled him out for his accomplishments.”
“He gets more done in a day than probably I get done in a week, and I’m not kidding,” Buffett once told Fortune magazine.
By early 2011, Sokol “had established his stature at Berkshire and was widely seen as Buffett’s successor.” Yet “in a matter of weeks in 2011, Sokol’s prospects disintegrated after a controversy related to his personal stock trades.” His departure “became acrimonious, with his lawyer later criticizing how he was treated by Berkshire.”
Sokol, now 69, “hasn’t had much contact with Berkshire Hathaway and its executives since leaving, according to someone close to the matter.”
“Greg Abel is an extraordinary executive who in my opinion is far more talented than I am and is at the correct age for such a challenge,” Sokol said in an email. “I wish him nothing but great success.”
Some investors remain puzzled. “By all appearances, Sokol was a man of integrity and talent who was poised to replace Buffett,” said Darren Pollock of Cheviot Value Management. “One uncharacteristic and fateful act got in the way.”
Early Career and Reputation
The youngest of five children “born to a grocery-store manager and a homemaker,” Sokol “lived at home while attending the University of Nebraska,” according to a biography on the website of the Horatio Alger Association, a nonprofit he has supported. He “married during his junior year, living with his wife in a trailer.” After graduating, he “worked as a structural engineer and was eventually hired to run Ogden Projects, a waste-energy business.”
In 1991, Sokol was named chief executive of CalEnergy. He “turned the company into a sprawling utility, partly through aggressive acquisitions.” In 1998, it purchased MidAmerican Energy, taking on its name. He “earned a reputation for being hard-driving and sometimes difficult, with some nicknaming him ‘The Great Young God,’ a nod to both his intelligence and his ego.”
Once, while working on a hostile acquisition, Sokol “became incensed when members of his team wished to take a day off for Yom Kippur,” according to two people who worked on the deal. He “told them he worked on Christmas, and that he couldn’t understand why others wouldn’t work on their religious holiday.” Amid the dispute, “a senior banker asked to be taken off the account.”
Jonathan Bram of Global Infrastructure Partners, who worked as Sokol’s longtime banker at Credit Suisse, said Sokol expects others “to work as hard as he does.” “He’s a good person, I never felt that he was unreasonably demanding,” Bram said.
In 1999, Sokol’s youngest child “died from Hodgkin lymphoma, a few weeks after graduating from high school.” “It was extraordinary to watch his inner strength,” Sokol said of his son in the Horatio Alger biography.
Berkshire’s Bet on MidAmerican
In late 1999, Berkshire Hathaway “purchased almost 80% of MidAmerican Energy, before eventually buying the rest of the company.” Abel was MidAmerican’s president, but “Buffett’s public accolades were directed at Sokol, the company’s chief executive.”
“If I only had two draft picks out of American business, Walter Scott and David Sokol are the ones I would choose for this industry,” Buffett said at the time of the deal.
Buffett decided to pay Sokol $50 million and Abel $25 million “if the business met certain goals.” Sokol “pushed back, saying he and Abel should each receive $37.5 million, an act of generosity that impressed Buffett.”
Sokol continued to oversee MidAmerican’s growth and turned around its NetJets business, which offers shared ownership of jets. “His ability to improve the fates of Berkshire businesses—from roofing and insulation to real-estate brokering to fractional-jet ownership—earned consistent praise from Buffett,” said Pollock.
In 2008, Sokol led a $230 million investment in BYD, then a Chinese battery maker, after hearing about the company from investor Li Lu and Charlie Munger. Sokol traveled to China to investigate the company, and MidAmerican later purchased a 9.9% stake. The investment proved highly successful, and BYD later surpassed Tesla as the world’s top seller of electric vehicles. Berkshire has since sold its stake.
Sokol is described as an avowed fan of “Atlas Shrugged,” the 1957 novel by Ayn Rand. In his self-published management book, “Pleased But Not Satisfied,” he wrote about “the importance of integrity—and the need to put pressure on employees,” noting that he kept a notebook ranking employees “in the order in which I would terminate each member if I was forced to do so one at a time.”
The Lubrizol Controversy
In March 2011, Berkshire bought chemicals company Lubrizol in a $9 billion deal. Soon after, it emerged that Sokol “had purchased about $10 million of shares of Lubrizol two months earlier, and that the deal had come at his suggestion.” The value of his stake “rose $3 million on the acquisition.”
Sokol resigned shortly after the purchase became public. Buffett said at the time that the stock purchases “weren’t a factor in Sokol’s decision,” saying Sokol expressed a desire to spend more time investing his “family’s resources.”
Later that year, a report by Berkshire Hathaway’s audit committee said Sokol’s trading violated the “highest standards of business ethics.”
At Berkshire’s annual meeting, Buffett said, “Dave did not disguise the trading, which, you know, that’s somewhat inexplicable.” He added that Sokol had made about $24 million that year, implying “that he didn’t need the extra money.”
The Securities and Exchange Commission later said it wouldn’t take action against Sokol.
After Berkshire
Since leaving Berkshire, Sokol “has kept a low profile.” In 2017, he paid $19.9 million for a seven-bedroom home in Fort Lauderdale, Fla. He also owns homes elsewhere, according to a friend.
Soon after leaving Berkshire, Sokol started an investment firm, Teton Capital, “to invest his wealth, which amounts to several hundred million dollars, according to people close to the matter.” He “remains active as an investor,” according to a friend.
For some investors, the episode remains a defining “rise and fall”—a trajectory that once pointed toward the top job at Berkshire Hathaway before a controversy altered its course.
