Shake-up in the bid to succeed Warren Buffett

Berkshire Hathaway Inc.’s Gregory Abel, considered a candidate to succeed Chief Executive Officer Warren Buffett, got a promotion and the prospect of greater visibility with the resignation of his mentor, David Sokol.

“I perceive him as stepping into that top-four circle of potential successors,” David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, said yesterday in an interview. “He is very much a contender.”

Buffett, 80, is sizing up executives at Berkshire’s more than 70 subsidiaries in search of a successor. Abel, 48, joined Berkshire in 2000 and helped Sokol expand the company’s MidAmerican Energy Holdings. In 2008, Sokol stepped back from daily operations and Abel took over as CEO of the unit. On March 30, Sokol resigned amid revelations about his stock dealings, and Buffett named Abel chairman of MidAmerican.

“That’s a notch up the ladder in the hierarchy,” said Andrew Kilpatrick, who wrote “Of Permanent Value: The Story of Warren Buffett.” Abel is “sort of new on the scene of being in this very, very top mix, but he’s definitely there. He’s been below the radar because Sokol was so ahead of him.”

Buffett disclosed this week that Sokol had purchased stock in Lubrizol Corp. Ticker:(LZ) while helping to negotiate Berkshire’s takeover of the company. The stock purchases, executed in January, may have given Sokol a profit of about $3 million, according to disclosures by Buffett and data compiled by Bloomberg. Both Sokol and Buffett said the trades were legal.

The U.S. Securities and Exchange Commission is investigating, said a person with knowledge of the matter who declined to be identified because the information isn’t public.
‘Dave and Greg’

Buffett introduced Abel to Berkshire shareholders in the billionaire’s 2002 annual letter, calling the manager Sokol’s “key associate.” In subsequent letters, Abel’s name always followed Sokol’s as Buffett praised “Dave and Greg” for their work expanding the energy business.

Sokol said in an interview last year that Abel began working with him at MidAmerican in the early 1990’s when the company was independent. Sokol, previously MidAmerican’s CEO, sold the company to Buffett for about $9 billion. Sokol said it was his idea to promote Abel three years ago.

“I went to Warren and said, ‘Greg is doing a fantastic job,’” Sokol said on Aug. 16 at Bloomberg headquarters in New York. “Warren said ‘If that’s what you think is the right thing to do, then that’s fine.’ So I turned the CEO title over to Greg.”
CEO Candidates

Berkshire said in February it has four candidates to succeed Buffett as CEO, without identifying them. Kass, who has accompanied students to meet Buffett in Omaha, Nebraska, said top candidates may be Abel, railroad CEO Matt Rose, reinsurance head Ajit Jain and Tony Nicely, chief of Geico Corp. Buffett is also Berkshire’s chairman and biggest shareholder.

Abel helped Sokol expand MidAmerican under Berkshire through the acquisition of a natural-gas pipeline and power producers in California and the U.K. Profit at the unit gained 5.6 percent to $1.13 billion last year. Berkshire posted $13 billion of net income last year, up 61 percent from 2009.

“I think Greg Abel was really the hands-on, day-to-day manager at MidAmerican,” Philip Smyth, senior director and utility credit analyst at Fitch Ratings, said in a telephone interview. “It’s my understanding that his focus was and is on MidAmerican.”
Abel’s Compensation

Abel’s total compensation over the past five years amounted to $57.3 million, according to MidAmerican regulatory filings. His salary increased to $1 million from $775,000 in 2008, the year he was promoted. Abel has retained a minority stake in MidAmerican.

Buffett relied on Sokol, 54, as a manager and a dealmaker for more than a decade. The billionaire sent Sokol to China to scout an investment in carmaker BYD Co. and tasked the executive with the turnaround of NetJets Inc., Berkshire’s luxury-flight unit. In 2007, Buffett wrote the foreward for Sokol’s self- published book, “Pleased, But Not Satisfied.”

Sokol’s Lubrizol stake as reported by Buffett would have been worth about $9.92 million on Jan. 7, based on the closing price on the New York Stock Exchange. The shares have risen about 30 percent to $133.96 since Buffett’s deal was announced, boosting the stake, if Sokol still owns it, to $12.9 million.

“I don’t believe that I did anything wrong,” Sokol told CNBC in a televised interview. “I can understand the appearance issue, and that’s why we made it public.”

Abel is on the Drake University board of trustees, the executive board of the Mid-Iowa Council Boy Scouts of America and the board of the American Football Coaches Foundation, according to a biography posted on MidAmerican’s website.

To contact the reporters on this story: Andrew Frye in New York at [email protected]; April Lee in New York at [email protected].

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