Circumstances surrounding David Sokol's recent resignation fromBerkshire Hathaway are credit negative for the company, Moody'sInvestors Service says, due to an appearance of conflict ofinterest and, more broadly, management-succession risk at thecompany.

Sokol served as chairman ofBerkshire's MidAmerican Energy, NetJets and Johns Manville units.He announced his resignation in late March. 

Berkshire CEO Warren Buffett says in a March 30 statement thathe had not asked for Sokol's resignation and that the news “came asa surprise to me.”

According to Moody's, conflict-of-interest concerns stem fromSokol's involvement in identifying Lubrizol—a chemical company—as aBerkshire acquisition target. Moody's says that Berkshire's March30 statement indicates that Sokol traded Lubrizol shares duringDecember and January, around the time of his discussions withLubrizol and Citibank regarding the acquisition.

“We believe that [Sokol's] trading of Lubrizol shares around thetime of his discussions with Citibank and Lubrizol creates theappearance of a conflict of interest on his part,” Moody's says.“In addition, these activities may be investigated by theSecurities and Exchange Commission, the Financial IndustryRegulatory Authority, and other parties. Finally, the sequence ofevents raises questions about the adequacy of Berkshire's riskcontrols, particularly in the area of securities trading, whereBerkshire is an active player.”

Moody's says it expects Berkshire's management team to addressany repercussions quickly and adds that the company's “Aa2” seniordebt rating and stable outlook are not affected at this time.

Speaking more broadly about Berkshire's governance challenges,Moody's says the company “faces management-succession risk giventhe vital role played by CEO Warren Buffett, 80, in shapingstrategy and managing investments.”

Moody's adds, “As Berkshire prepares for a leadership change, weexpect the firm to develop more robust governance practices, riskoversight and risk controls.”