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By Jason Stipp | 03-30-2011 05:40 PM

Sokol Departure Underscores Succession Question at Berkshire

The succession issue is an even bigger overhang now, says Morningstar's Paul Larson.

Jason Stipp: I'm Jason Stipp for Morningstar.

Berkshire Hathaway released quite a bit of big news on Wednesday evening, announcing the resignation of David Sokol. He is the chairman of [Berkshire subsidiary] MidAmerican [Energy] and also considered a top lieutenant to Warren Buffett.

Here with me to discuss the details of this announcement and what it may mean for Berkshire Hathaway is Morningstar's Paul Larson. He is an equity strategist and editor of the Morningstar StockInvestor newsletter. Thanks for joining me, Paul.

Paul Larson: Thanks for having me.

Stipp: So, you are a Berkshire shareholder, so you are obviously watching this situation very closely. Can you give us a quick sense of who Sokol is and what the terms of the resignation were--what was behind it?

Larson: Sokol was indeed the chairman of MidAmerican Energy and also headed some other operations within Berkshire, most notably NetJets, and what happened is Sokol gave his resignation today very unexpectedly and then there also came to light some interesting news regarding some personal stock purchases that he made that were related to the Lubrizol acquisition that Berkshire recently announced.

Stipp: So Sokol pretty much took the lead on the Lubrizol acquisition, in pitching the acquisition to Buffett. What were the details of the share purchases, because obviously this is a very sticky situation normally when you see this sort of trading happening ahead of an acquisition?

Larson: Well, Sokol actually bought the shares ahead of pitching the idea to Buffett, and then after he had pitched the idea to Buffett, but before he knew what Buffett and anyone else at Berkshire was going to do with the idea. Buffett in his letter--it's very interesting the press release from Berkshire was actually a letter written by Warren Buffett, which is a very unusual thing--he lays out the timeline of what exactly happened when, and I would encourage people to actually read that letter to get the details.

Stipp: So, is this something that, by your read of it, looks like it could be potentially illegal? Or is it just something that looks bad?

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