McKenna Linked To By American Lawyer Re: Berkshire Corporate Governance
Ok, so it’s not a quote. And they don’t even mention my name. But indulge me a minute. I’m thrilled to have been linked to by American Lawyer’s Amy Kolz in the AmLawDaily Blog.
I’ve been writing a lot about the David Sokol “usurpation of corporate opportunity” case. That’s the one where he used his playa position to make a cool $3 million on the purchase of Lubrizol by Berkshire Hathaway.
Now $3 million is Starbucks tip money to a guy like David Sokol. He’s one of Buffett’s “guys who run my companies because they want to not because they need the money.” Unfortunately, Sokol turned out to be an ungrateful brat who was thinking more about his own legacy, family, and investments rather than Uncle Warren’s reputation.
Warren Buffet may have not been entirely innocent in this deal. Or write it off as a “senior moment”. Either way, Buffett can’t remember Sokol ever telling him in enough detail what he was up to before Buffett agreed to buy Lubrizol. And then Buffett tried to paper over his lapses in judgment by concocting a mock investigation riddled with conflicts of interest.
Creating conflicts of interest is exactly what David Sokol is accused of, in lawsuits, when he bought Lubrizol ahead of recommending it to Berkshire Hathaway as an acquisition.
Well done, grasshopper.
The “some eyebrows” referred to below are mine.
“…The upshot of these risks is that while it was once common for lawyers to serve on their client’s boards, “today, it’s the exception rather than the rule,” says Douglas Richmond, a senior vice president in the professional services group of AON Risk Services, a large broker of lawyers’ professional liability insurance. Some firms outright forbid the practice, says Richmond. Those firms that allow board memberships are very sensitive to the risks, and often carefully document the relationship to let the company know the differing roles of lawyer and board member. “If it’s being done, it’s done very carefully,” he says.
It’s not a stretch to assume that Buffett and Berkshire Hathaway view Olson and Munger Tolles’s long-running history with the company as outweighing the risks that could accompany Olson’s board seat. As we’ve previously reported, Munger Tolles has been Berkshire’s go-to law firm ever since founding partner Charles Munger left the law firm to join Buffett in a business partnership in 1965. (Munger is now the vice-chairman of Berkshire.) The law firm’s relationship is particularly important because Berkshire does not have a general counsel.
Still, the selection of the firm and Olson to assist the independent audit committee’s report on Sokol raised some eyebrows. Olson was named as a board member defendant in a shareholder derivative suit relating to Sokol’s trading filed in Delaware Chancery Court in April. And though the audit committee is comprised of independent directors, Olson does not qualify as independent under NYSE listing rules given the $4.68 million in Berkshire legal fees paid to his law firm in 2010, according to a recent proxy.
“It’s a little bit unusual because it’s hard to be objective [about the evidence] when you’re a defendant in a lawsuit even if it’s a tangential role and you’re [only] accused of not providing sufficiently vigilant oversight,” says Francis Pileggi, a litigation partner at Eckert Seamans Cherin & Mellott…”
Read the rest here.
