The Man Who Almost Replaced Warren Buffett: David Sokol's Dramatic Rise and Fall
When Greg Abel took over as chief executive of Berkshire Hathaway earlier this month, he faced inevitable questions about stepping out of Warren Buffett's immense shadow. However, this leadership transition has also reignited memories of another executive who, for years, was widely considered the most likely successor to the legendary investor. David Sokol, a star performer at Berkshire, saw his promising trajectory disintegrate in a matter of weeks following a controversy related to his personal stock trades.
A Star Executive's Meteoric Rise
David Sokol, an Omaha native, earned Warren Buffett's confidence through his exceptional managerial and investing skills. He was instrumental in growing key businesses within the Berkshire Hathaway conglomerate and successfully turning around others. His work ethic was legendary; Buffett once told Fortune magazine, "He gets more done in a day than probably I get done in a week, and I'm not kidding." Sokol was popular with Berkshire's board and was publicly singled out by Buffett for his numerous accomplishments.
His journey began humbly. The youngest of five children born to a grocery-store manager and a homemaker, Sokol lived at home while attending the University of Nebraska, marrying during his junior year and living with his wife in a trailer. After working as a structural engineer, he was hired to run Ogden Projects, a waste-energy business. In 1991, he became CEO of CalEnergy, transforming it into a sprawling utility through aggressive acquisitions, including the purchase of MidAmerican Energy in 1998.
Demanding Leadership and Personal Tragedy
Sokol earned a reputation as a hard-driving, sometimes difficult manager, with some colleagues nicknaming him "The Great Young God," a nod to both his formidable intelligence and his ego. He expected others to match his intense work ethic. Jonathan Bram, a founding partner of Global Infrastructure Partners and Sokol's longtime banker at Credit Suisse, noted, "He's a good person, I never felt that he was unreasonably demanding."
During this period, Sokol and his family endured profound personal tragedy. In 1999, his youngest child, David Sokol Jr., died after a battle with Hodgkin lymphoma, just weeks after graduating from high school. Sokol later spoke of his son's "extraordinary inner strength" in a biography.
Integration into the Berkshire Empire
In late 1999, Berkshire Hathaway purchased 80% of MidAmerican Energy, eventually acquiring the rest. Greg Abel was MidAmerican's president, but Buffett's public accolades were directed at Sokol, the company's CEO. Buffett famously said at the time of the deal, "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 decided to pay Sokol $50 million and Abel $25 million if the business met certain goals. In an act of generosity that deeply impressed Buffett, Sokol pushed back, insisting that he and Abel should each receive $37.5 million. Sokol continued to oversee MidAmerican's growth and also successfully turned around NetJets, Berkshire's fractional jet ownership business.
His ability to improve various Berkshire businesses—from roofing and insulation to real estate brokering—earned consistent praise. Sokol is an avowed fan of Ayn Rand's "Atlas Shrugged," a novel that makes a moral case for capitalism and self-interest. In his self-published management book, "Pleased But Not Satisfied," he wrote of the importance of integrity while also advocating for putting pressure on employees, even keeping a notebook ranking them in the order he would terminate them if forced.
The BYD Investment and Peak Influence
In 2008, Sokol led a $230 million investment in BYD, then a Chinese battery maker, after recommendations from investor Li Lu and Charlie Munger, Berkshire's vice chairman. Sokol traveled to China to investigate the company, and MidAmerican later purchased a 9.9% stake. This proved to be a home-run investment for Berkshire, with BYD eventually surpassing Tesla as the world's top seller of electric vehicles.
By early 2011, Sokol had firmly established his stature at Berkshire and was widely seen as Buffett's inevitable successor. Then, in March of that year, Berkshire acquired the chemicals company Lubrizol in a $9 billion deal. It soon emerged that Sokol had purchased about $10 million worth of Lubrizol shares two months earlier and had suggested the deal to Berkshire. The value of his stake rose by $3 million upon the acquisition.
A Swift and Acrimonious Fall
Sokol resigned from Berkshire shortly after his stock purchase became public. Buffett initially stated that the trades were not a factor in Sokol's decision, suggesting Sokol wanted to spend more time managing his family's resources. However, a later report by Berkshire's audit committee concluded that Sokol's trading violated "the highest standards of business ethics." At the annual meeting, Buffett expressed bewilderment, noting Sokol had made about $24 million that year and implying he didn't need the extra money. "Dave did not disguise the trading, which, you know, that's somewhat inexplicable," Buffett said.
The departure became acrimonious. Sokol's attorney criticized Berkshire's treatment of him, stating he "deserved better" and claiming Buffett had been informed about the Lubrizol stock ownership. The Securities and Exchange Commission later said it would not take action against Sokol.
Life After Berkshire
Since leaving, David Sokol, now 69, has maintained a low profile. He has had little contact with Berkshire Hathaway and its executives, according to sources close to the matter. However, a friend says he has expressed pride in Greg Abel's recent appointment as CEO. Sokol purchased a $19.9 million home in Fort Lauderdale, Florida, in 2017 and started an investment firm, Teton Capital, to manage his wealth, estimated at several hundred million dollars. He remains active as an investor.
Some Berkshire investors remain mystified by Sokol's dramatic rise and fall. Darren Pollock of Cheviot Value Management, a longtime Berkshire shareholder, reflects, "By all appearances, Sokol was a man of integrity and talent who was poised to replace Buffett. One uncharacteristic and fateful act got in the way." The story of David Sokol serves as a poignant reminder of how quickly fortunes can change, even for those seemingly destined for the very top.
