We believe the Sokol debacle has set the stage for a somewhat more contentious question-and-answer session at this year's annual meeting.
The main focus of Berkshire Hathaway's
Although the topics can run the gamut, we've laid out some of the key issues we expect to be broached during the meeting, as well as some specific questions we'd like to have answered over the course of the weekend.
Future Acquisitions and Investments
Historically, acquisitions have been a major part of Berkshire's business and value creation, a trend we expect to continue. Given that the company has a significant amount of cash on its balance sheet, which is currently generating near-zero return, we believe it is imperative that Berkshire put capital to work in profitable investment opportunities. Furthermore, as the firm grows ever larger, future acquisitions will need to be large enough to move the needle in terms of cash position and profitability.
Excess Cash on the Balance Sheet
With the majority of the lucrative investments that were made during the financial crisis--Swiss Re
The Sokol Affair
In the press release announcing David Sokol's resignation, Warren Buffett revealed that Sokol had purchased shares of Lubrizol prior to pitching it as an acquisition target for Berkshire. Buffett stated that Sokol's shareholdings totaled approximately $10 million, a not insignificant amount.
At the time Buffett noted that he did not believe Sokol or Berkshire did anything illegal, though this statement has since been questioned. Berkshire's board of directors has since come out and stated that Sokol violated the company's trading policies (and its code of conduct) by purchasing shares of Lubrizol "while serving as a representative of Berkshire Hathaway in connection with a possible business combination," and that his "misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor" that he owed to the firm, but we don't believe that this issue is going away anytime soon.
Buffett may be able to deflect a handful of questions about the Sokol affair at the annual meeting, but neither he nor the board will be able to ignore the clamor that has arisen about succession planning at Berkshire, nor the concerns that have emerged about the limitations of the decentralized nature of the company's business model.
Buffett has stated that he wants his three roles (chairman, CEO, and investment manager) to be split upon his retirement from the firm. He has previously announced that his son, Howard, would likely become nonexecutive chairman, and we gained a little more clarity into the plan for the investment side of the business when Todd Combs was introduced.