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Berkshire Hathaway Audit Committee Report on Trading in Lubrizol Corporation Shares by David L. Sokol

Berkshire Hathaway Audit Committee Report on Trading in Lubrizol Corporation Shares by David L. Sokol

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Published by: CNBC on Apr 27, 2011
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06/17/2011

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B E R K S H I R E H A T H A WA Y I N C .
TO:
The Board of Directors
FROM:
The Audit Committee
DATE:
April 26, 2011
RE:
Trading in Lubrizol Corporation Shares by David L. Sokol
A. Summary.
Berkshire Hathaway’s top priority is to maintain the highest standards of business ethics. Company policies require the employees of Berkshire Hathawayand its subsidiaries to uphold those standards. The Audit Committee hasconsidered
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the conduct of David Sokol in connection with his trading in the sharesof Lubrizol, and has determined that it violated those standards. In particular:
His purchases of Lubrizol shares while serving as a representative of Berkshire Hathaway in connection with a possible businesscombination with Lubrizol violated company policies, includingBerkshire Hathaway’s Code of Business Conduct and Ethics and itsInsider Trading Policies and Procedures.
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This report is the product of the Committee’s deliberations at its meetings of April 6, April 21 and April 26, 2011,as well as discussions during the meeting of the full Board of Directors on March 30, 2011 and communications onother dates between the Chair of the Audit Committee and Company management and legal counsel.
 
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His misleadingly incomplete disclosures to Berkshire Hathawaysenior management concerning those purchases violated the duty of candor he owed the Company.
These events should serve as an opportunity to reinforce to allofficers, directors and employees of Berkshire Hathaway and itssubsidiaries the importance of adhering to those policies and avoidingconduct that comes close to, or strays over, the line of propriety. Tothat end, we authorize Warren Buffett to release this report.
B. Facts.
In 2010, David Sokol was encouraged to scout for, and to bring to theattention of Warren Buffett, potential acquisition opportunities for BerkshireHathaway. Mr. Sokol was not authorized to make acquisition decisions forBerkshire Hathaway; that power remained with Mr. Buffett in consultation withCharles Munger, subject to ratification by the Board.That fall, Mr. Sokol met with investment bankers at Citi, discussedBerkshire’s acquisition criteria, and suggested that Citi send him information aboutcompanies in the chemicals industry that might meet Berkshire Hathaway’sacquisition criteria. In October, Citi sent Mr. Sokol a list of 18 companies in thechemicals industry. In November, Citi sent Mr. Sokol additional informationconcerning three of those companies, including Lubrizol, that were identified by
 
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Mr. Sokol. Citi’s data concerning Lubrizol and the other companies were derivedfrom publicly available sources.On Monday, December 13, 2010, Mr. Sokol met with Citi investmentbankers to discuss the list. Mr. Sokol said the only company on Citi’s list he foundinteresting was Lubrizol. A Citi representative said Citi had an investment bankingrelationship with Lubrizol and its CEO, James Hambrick. Mr. Sokol asked Citi toask Mr. Hambrick if he was willing to speak with Mr. Sokol concerning BerkshireHathaway and Lubrizol. Mr. Sokol added that Berkshire Hathaway does not dohostile transactions, and that if Mr. Hambrick met him and nothing came of theirmeeting, it would remain confidential.On Tuesday, December 14, Mr. Sokol bought 2,300 shares of Lubrizol, apartial fill of a 50,000 share limit order.On Friday, December 17, Citi reported the substance of the December 13meeting to Mr. Hambrick. Mr. Hambrick told Citi he would inform the LubrizolBoard of Berkshire Hathaway’s possible interest, and a Citi representative reportedthat fact to Mr. Sokol.On Tuesday, December 21, Mr. Sokol sold the 2,300 shares of Lubrizol.On January 5, 6 and 7, 2011, Mr. Sokol bought 96,060 shares of Lubrizol, apartial fill of a 100,000 limit order.

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