Berkshire Hathaway’s Succession Woes

It was disappointing to read about Berkshire Hathaway’s recent problems. I’m a huge Warren Buffett fan and had followed David Sokol’s evolving career at Berkshire too. Business expert, Verne Harnish, had touted Sokol’s management skills in several e-mail over the past 18 months. Sokol’s downfall at Berkshire has been well documented in the press this week. Multiple stories in the Wall Street Journal, New York Times, and Fortune magazine explain the details.

I’ll let the regulators decide if his dealings with Berkshire acquisition candidate, Lubrizol, the company at the center of Berkshire’s current woes, were legal or not. I will say that the personal gains he made from leveraging his position at Berkshire were not right. It is sad that he chose to enrich himself and his family on that scale. Prior to the scandal, in a  blog post, Harnish had pointed out the memo (scroll to the end of the PDF link and read the last two pages) at the end of Warren Buffett’s letter to shareholders. Each year, Buffett reminds his managers, or “The All-Stars” as he refers to them, about their ethical and legal responsibilities to the company. He writes in the 26 July 2010 memo, “The priority is that all of us continue to zealously guard Berkshire’s reputation.” It is ironic that he also chides his troops to think about their own succession processes and to send him a note with their plans.

I shared this memo with Horst Engineering’s managers last week, before the Sokol story exploded. I used it to remind them that our 65-year old family business also has a great reputation to uphold. Integrity is at the core of what we do. We make critical components for aerospace, medical, and other high technologies. Our customers depend on us. Our employees depend on us. Sure, we have quality problems from time to time, but we have a process to deal with them and they are usually mistakes that can be prevented in the future. We learn from them. The Sokol affair is something on a different scale. It doesn’t related to product quality, but it relates to managerial integrity, trust, and shareholder value.

Berkshire Hathaway has serious succession problems. Buffett is a genius, but the company has taken a different approach than General Electric, United Technologies, and other large company’s. It is a double-edged sword, meaning that Berkshire’s decentralized approach is part of their success. However, too much depends on Buffett. My father and uncle were willing to cede responsibility to a younger group of managers, including me. They did this 10 years ago when they were still young, but they had the foresight. They remained actively involved. Buffett is 80 now and won’t live forever. He doesn’t have to retire, but he should share responsibility and do a better job at mentoring the next generation of Berkshire leaders. This situation paints a picture of a CEO who is out of touch.

Many family business leaders get this. They know how important it is to build the skills of the next generation. It isn’t easy, but it has to be done. Next week, I am speaking at the Family Business Magazine: Transitions 2011 conference. My panel’s topic is The Power of The Family Legacy and Brand. We will explore answers to these questions: “In your family, what is the legacy? The reputation? Who manages it? How do you measure it? Can you use the family legacy/brand as a competitive advantage to manage internal family issues, attract and retain high-powered employees, develop strong and unbreakable relationships with vendors and build your business with customers?”

I’ll write more about next week’s conference and share information from my presentation, but I thought that managing a company’s reputation is exactly what Sokol and Buffett should be doing at Berkshire Hathaway. It isn’t easy at a large business with 250,000 employees and it isn’t easy at a mid-sized family business. No doubt, Buffett and his team, including his Board of Directors, should do a better job.

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@thecubscouts #pinewoodderby never gets old. Pack 157 Bolton, Connecticut #cubscouts So that little injury caused by my @renocxnats crash on Saturday afternoon wasn’t so little after all. It’s a broken leg (fibula). Prognosis is good, but it hurts like heck. My blog post report with blow by blow details is linked in my profile. #cxnats #teamhorstsports @horsteng #crossspikes #crossisboss - - -

This #lifedeathcyclocross stuff is true!!!! I crashed out of the Singlespeed Championship @renocxnats (on the dreaded off-camber) but not before having more fun. @artroti43 raced on the frosty course ❄️ at day break. 🚴🏽 We met a lot more @horsteng #crossspikes customers. I hung with little bunny hopper 🐰 Miles, the Junior 11-12 year old Silver Medalist.🥈I cheered for Nic, who represented @the_ccap in the Junior 15-16 age group. @sportstert and Iva came down from Tahoe to cheer LOUDLY for me. 🎺 I got my badly sprained ankle taped and iced. I had a beer. 🍺 I’m even looking forward to my red eye flight home ✈️ . Best of all, I’ll see @trailrunningmom and the kids on Sunday. I can’t explain the sensation, but despite the pain, I’m ready for next #Cyclocross season to begin... after some rest. #teamhorstsports #cxnats #horstengineering @parkavebikeshop #crossisboss #lifedeathcyclocross #crossiscoming You could say that at least for this week, I’m married to my #bicycle - - -

@renocxnats #cxnats @seven_cycles #sevencycles #teamhorstsports #horstengineering #crossspikes @horsteng #chapelofthebells #Cyclocross #lifedeathcyclocross Good day representing @horsteng at @renocxnats in the 45-49 age group. It’s a great course. The wind was blowing hard, but the sun finally came out. I’m happy with 37th place but should have made a move to get to 29th, which was 30 seconds ahead. That’s a long way when you are going flat out and cramping. 4,500 foot elevation was a factor. I’m disappointed that they cut one lap of my race when I wasn’t close to getting lapped by the leaders. You train this hard and come all this way; and you want to get the most racing for the $ and time invested. They only let 25 riders do the full six laps. The only positive to come out of that was that I watched fellow New Englander @adammyerson execute a perfect final sprint to win the Stars and Stripes again. Teammate @artroti43 had a good ride too. 
@seven_cycles #sevencycles #horstengineering #teamhorstsports @bicycleseastct #crossspikes #cxnats #renocxnats #Cyclocross #crossisboss @therichardsachs didn’t have the race he hoped for but it was still great to see him @renocxnats and “pit” for him. He said he officially started his second off season, but first of 2018. @artroti43 and I played soigneur/mechanic for 90 minutes, but minus the massage! atmo #renocxnats #richardsachs #teamhorstsports @horsteng #crossspikes #hauteframebuilding #Cyclocross #crossisboss #lifedeathcyclocross I previously hadn’t published this image, but it recently received an Honorable Mention in the 2017 @appalachianmountainclub Photo Contest for the People Outdoors category. Check out my blog (link in profile) for the interesting story of his photo (shot with this iPhone 6s), a trip report from this amazing Maine adventure, and past contest history. I love this image of two of my favorite women. I’m barred from submitting images to the 2018 contest, but I’ll be back in 2019. #appalachianmountainclub #baxterstatepark #katahdin Congratulations to Master Park, the Park Family, and the entire team at Park’s U.S. #Taekwondo at the Grand Opening of the new facility in the former VFW building. Our kids love it! So much better than being next door to the pawn shop and liquor store.😊#tkd 🇺🇸🇰🇷 This morning, the @trinitycollege Main Quad was bathed in beautiful sunshine ☀️but it was frigid and the wind was blowing! ❄️ The chapel was packed with an overflow crowd to celebrate the (shortened) life of a lovely friend. She will be missed. #circleoflife 🌏

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