DealBook: Buffett Eager to Move On After Sokol Controversy

“TranslatorService.LanguageService”的默认终结点元素。这可 Daniel Acker/Bloomberg NewsWarren E. Buffett, second from right, sits with his children, from left, Howard, Susie and Peter at the Berkshire Hathaway shareholder meeting in Omaha, Neb.

OMAHA — At the annual gathering of Berkshire Hathaway’s investors here this weekend, Warren E. Buffett made it clear that, as far as he is concerned, it’s back to business as usual. But a former top manager for him, David L. Sokol, may make that a difficult goal to accomplish.

Mr. Buffett said at a news conference on Sunday that while he viewed the controversy caused by Mr. Sokol’s abrupt departure a month ago as sad, he saw little reason to dwell on the matter for very long.

“I’ve got no strong feelings about it, except that it’s a very sad situation,” he said.

He said he planned no major changes to Berkshire’s management practices, which largely leave the executives of the company’s subsidiaries to operate as they please. With more than 260,000 employees working for him around the world, something can and will inevitably go wrong, Mr. Buffett said.

His longtime investing partner, Berkshire’s vice chairman, Charles Munger, addressed the issue more bluntly. “We’ve had a close brush with scandal two times in 50 years,” he said Sunday. “We’re not going to devote a lot of time to this.”

Nevertheless, Mr. Sokol appears ready to keep the issue alive and wage a fight against Berkshire and his onetime boss. In a statement issued after Berkshire’s annual meeting, Mr. Sokol’s lawyer insisted that Mr. Buffett was “transparently scapegoating” his client, and that Mr. Sokol had not violated company policy with those trades.

Mr. Buffett already used the annual meeting on Saturday, attended by tens of thousands of ardent investors from around the world, to speak at length about what he knew of Mr. Sokol’s stock purchases in a chemical maker that he later recommended to Mr. Buffett as a potential acquisition.

Berkshire announced in March that it would buy the chemical producer, Lubrizol, for $9 billion. The deal produced a $3 million paper profit for Mr. Sokol.

Mr. Buffett said Saturday that Mr. Sokol’s actions were “inexplicable and inexcusable,” though he declined to personally attack him. Mr. Buffett said that Mr. Sokol had violated company trading policy. In his statement, Mr. Sokol’s lawyer defiantly denied that claim, saying, “At no time did Mr. Sokol violate the law or any Berkshire policy.”

Mr. Buffett sought to parry those assertions on Sunday, arguing that he has been forthright in disclosing the relevant details of the matter. He said that he did not know of any other details relevant to an investigation, and that he was cooperating with regulators in their inquiries.

“The facts are the facts,” he said. “His lawyer wasn’t there. I know what happened.”

Since Berkshire disclosed Mr. Sokol’s resignation and its circumstances, the controversy has threatened to mar Mr. Buffett’s lustrous reputation among investors. But Mr. Buffett said he did not expect the affair to cause permanent damage.

The pressure on Mr. Sokol is likely to grow. The Securities and Exchange Commission is looking into his trades, according to people briefed on the matter, using in part information submitted by Berkshire. Mr. Buffett said on Saturday that the data his company had turned over was “pretty damning.”

Mr. Buffett spoke at greater length Sunday about more traditional topics of discussion for Berkshire meetings.

Asked by reporters from various countries — including Germany, Brazil and South Korea — about whether he would be interested in acquiring companies in those areas, he responded yes to all of them.

Asked again about a potential successor to him, Mr. Buffett said only that even the worst of the unnamed candidates would be “very, very good.”

Shareholders appeared to side largely with Mr. Buffett. At Berkshire’s meeting on Saturday, most seemed more concerned with potential investments and successors than with the Sokol matter.

“I trust Buffett and the board,” Mary Murphy, from Omaha, said on Sunday. “He seemed like he was being honest and saying what he knew.”

 

At Swatch, an Enviable Problem: An Excess of Eager Customers for Its Products

Swatch, the world’s largest watchmaker, is rushing to add factory capacity so that it can make enough watches to meet demand. It wants to add as many as 2,000 employees this year — about 1,500 of them at home in Switzerland. But it is struggling to find enough qualified people.

“Managing our stock is at the moment not an issue for us because demand is so big that we unfortunately don’t even have the time to build up any stock,” Mr. Hayek said last month at Baselworld, the watch industry’s biggest fair. “I hate that feeling of missing sales because of a shortage in products.”

Swatch’s production and hiring problems reflect the overall health of a sector that has rebounded from the world financial crisis. Demand for watches has soared in Asia — a region that accounted for more than half of Swiss watch exports last year — with makers of mechanical watches capturing an increasingly large slice of the market. Exports of mechanical timepieces rose 32 percent in unit terms last year, compared with an 18 percent increase for less expensive quartz watches.

Swatch had a 42 percent increase in net profit last year, to a record 1.08 billion Swiss francs ($1.22 billion), from 763 million francs in 2009, on a 19 percent rise in revenue, to 6.44 billion francs.

While the company does not break down earnings by brand, revenue in its main watch and jewelry division rose 28 percent last year at constant exchange rates, compared with an increase of 8 percent in revenue in its parts production business, which accounts for about a quarter of its revenue.

Still, Mr. Hayek is pushing to change the modus operandi in his sector, from tightening rules on what defines a watch as “made in Switzerland” to forcing rivals to make their own components. Swatch has been talking with competition regulators about how far it could cut back its supply business, without endangering manufacturers that rely on Swatch parts.

“People assume that it’s a good business to sell components, but the only really attractive business is to sell finished products of our brands,” he said. “We are in a ridiculous situation that would be like having BMW supply all the engines for Audi and Mercedes. In no other industry do you have one company supply all the critical parts to the people who then compete directly with it.”

Swatch’s withdrawal as a supplier would be a sea change for the sector. As a result, such a move “cannot happen overnight,” said Jean-Frédéric Dufour, chief executive of Zenith, which is owned by the French group LVMH Mo?t Hennessy Louis Vuitton and is one of the few Swiss brands that does not buy from Swatch.

Still, Mr. Dufour said, by forcing rivals to invest more in production, Mr. Hayek “could help bring back the watch sector to how it was operating 100 years ago, when each brand really differentiated itself from others by the quality of its movements.”

Swatch’s hegemony over watch production is part of the legacy of Mr. Hayek’s Lebanese-born father, Nicolas, who died last year.

As a management consultant, Nicolas Hayek had been hired by banks to close two manufacturers in the early 1980s, at a time when Swiss watchmakers were getting crushed by less expensive Japanese competitors. Instead, he merged and acquired a stake in the struggling companies and revived the industry with the introduction of the inexpensive plastic Swatch watch.

The fashion frenzy generated by the colorful Swatches in turn required the group to develop mass volume production, building its leadership by later acquiring more component manufacturers.

In terms of volume, Swatch controls 70 to 80 percent of the sector’s watch movement production, according to a research study published last month by the investment firm Sanford C. Bernstein & Company.

The Hayeks own about 35 percent of the group’s equity, ensuring that Swatch remains essentially a family business. Mr. Hayek is joined by his elder sister Nayla as chairwoman, while the next Hayek generation is led by her son, Marc, who had a stint in the restaurant business but now oversees part of the group’s luxury watch business, including the Breguet and Blancpain brands, which Swatch acquired in 1999 and 2000.

Nick Hayek, meanwhile, cut his teeth in movies before joining his father at Swatch in 1994, initially in a marketing role. Having studied filmmaking in Paris, he started a production company making documentaries, short movies and two feature films, including “Family Express,” which starred Peter Fonda.

Nowadays, his movie-making is limited to occasional involvement in advertising campaigns, but he plays down the suggestion that he was pushed into making a U-turn in his career ambitions.

 

At Swatch, an Enviable Problem: An Excess of Eager Customers for Its Products

Swatch, the world’s largest watchmaker, is rushing to add factory capacity so that it can make enough watches to meet demand. It wants to add as many as 2,000 employees this year — about 1,500 of them at home in Switzerland. But it is struggling to find enough qualified people.

“Managing our stock is at the moment not an issue for us because demand is so big that we unfortunately don’t even have the time to build up any stock,” Mr. Hayek said last month at Baselworld, the watch industry’s biggest fair. “I hate that feeling of missing sales because of a shortage in products.”

Swatch’s production and hiring problems reflect the overall health of a sector that has rebounded from the world financial crisis. Demand for watches has soared in Asia — a region that accounted for more than half of Swiss watch exports last year — with makers of mechanical watches capturing an increasingly large slice of the market. Exports of mechanical timepieces rose 32 percent in unit terms last year, compared with an 18 percent increase for less expensive quartz watches.

Swatch had a 42 percent increase in net profit last year, to a record 1.08 billion Swiss francs ($1.22 billion), from 763 million francs in 2009, on a 19 percent rise in revenue, to 6.44 billion francs.

While the company does not break down earnings by brand, revenue in its main watch and jewelry division rose 28 percent last year at constant exchange rates, compared with an increase of 8 percent in revenue in its parts production business, which accounts for about a quarter of its revenue.

Still, Mr. Hayek is pushing to change the modus operandi in his sector, from tightening rules on what defines a watch as “made in Switzerland” to forcing rivals to make their own components. Swatch has been talking with competition regulators about how far it could cut back its supply business, without endangering manufacturers that rely on Swatch parts.

“People assume that it’s a good business to sell components, but the only really attractive business is to sell finished products of our brands,” he said. “We are in a ridiculous situation that would be like having BMW supply all the engines for Audi and Mercedes. In no other industry do you have one company supply all the critical parts to the people who then compete directly with it.”

Swatch’s withdrawal as a supplier would be a sea change for the sector. As a result, such a move “cannot happen overnight,” said Jean-Frédéric Dufour, chief executive of Zenith, which is owned by the French group LVMH Mo?t Hennessy Louis Vuitton and is one of the few Swiss brands that does not buy from Swatch.

Still, Mr. Dufour said, by forcing rivals to invest more in production, Mr. Hayek “could help bring back the watch sector to how it was operating 100 years ago, when each brand really differentiated itself from others by the quality of its movements.”

Swatch’s hegemony over watch production is part of the legacy of Mr. Hayek’s Lebanese-born father, Nicolas, who died last year.

As a management consultant, Nicolas Hayek had been hired by banks to close two manufacturers in the early 1980s, at a time when Swiss watchmakers were getting crushed by less expensive Japanese competitors. Instead, he merged and acquired a stake in the struggling companies and revived the industry with the introduction of the inexpensive plastic Swatch watch.

The fashion frenzy generated by the colorful Swatches in turn required the group to develop mass volume production, building its leadership by later acquiring more component manufacturers.

In terms of volume, Swatch controls 70 to 80 percent of the sector’s watch movement production, according to a research study published last month by the investment firm Sanford C. Bernstein & Company.

The Hayeks own about 35 percent of the group’s equity, ensuring that Swatch remains essentially a family business. Mr. Hayek is joined by his elder sister Nayla as chairwoman, while the next Hayek generation is led by her son, Marc, who had a stint in the restaurant business but now oversees part of the group’s luxury watch business, including the Breguet and Blancpain brands, which Swatch acquired in 1999 and 2000.

Nick Hayek, meanwhile, cut his teeth in movies before joining his father at Swatch in 1994, initially in a marketing role. Having studied filmmaking in Paris, he started a production company making documentaries, short movies and two feature films, including “Family Express,” which starred Peter Fonda.

Nowadays, his movie-making is limited to occasional involvement in advertising campaigns, but he plays down the suggestion that he was pushed into making a U-turn in his career ambitions.