“60 Minutes” aired a story Sunday discussing Warren Buffett’s desire for his son, Howard, to take over the chairmanship of Berkshire Hathaway (NYSE:BRK.A, BRK.B) once he has gone to the big stock market in the sky. The mere mention of the word “succession” and Warren Buffett in the same sentence drives investors into a tizzy, with opinions on the matter varying widely.
Frankly, investor concerns about Warren Buffett’s successor are seriously overblown, and the Oracle of Omaha knows this.
As Warren Buffett points out, the actual title for Howard Buffett would be “non-executive chairman,” an unpaid position involving no day-to-day decision-making. Furthermore, Howard Buffett’s appointment would have to be approved by the board, and while it’s unthinkable that it would put the kibosh on the elder Buffett’s wishes, it’s not a done deal.
But even if the board’s approval is a rubber stamp, how much trouble can the “uneducated farmer” get into? He has served on the Berkshire board for the past 18 years and has plenty of business and life experience that many of us will never have.
Sure, Howard Buffett didn’t go to Columbia Business School like his dear ol’ dad, but I’m sure he’s got more than enough brainpower to earn Warren’s trust. Besides, have you seen the current board’s roster? Bill Gates, Stephen Burke, Susan Decker and Ron Olson, to name a few. This is a bright group with hundreds of years in cumulative business experience. Heck, I failed to mention Charlie Munger, Tom Murphy and Don Keough — and all three are older than the senior Buffett. If nothing else, Howard Buffett lowers the average age of the board considerably.
As for the more responsibility-laden CEO position, nothing has changed, with that line of succession still in the air. On the investment side of things, Buffett already has brought in Todd Combs and Ted Weschler to manage some of Berkshire Hathaway’s $60 billion invested in public markets. A third investment manager might be hired in the future. But for now, Berkshire Hathaway has two exceptionally talented money managers helping Buffett with the arduous task of finding good stocks to own.
Weschler, at age 50, could be ready for an even greater role given his past experience in private equity. Simply put, Weschler knows how to find, evaluate and buy businesses. Everything Buffett has done, with the exception of running a publicly traded company, Weschler also has done. Buffett could move over to the non-executive chairman role immediately (sorry, Howie) and insert Weschler in the CEO role, and Berkshire Hathaway wouldn’t miss a beat. I’m sure the board would like to see Weschler perform in his current role first before handing over the keys to the candy store, but if it happened, very little would change.
The reason: Berkshire Hathaway is like a giant mutual fund closed to new investors. Its problem isn’t money rushing into its coffers from new investors, but rather that the existing investments are generating far more cash than is necessary to continue growing, which puts incredible stress on Buffett to find additional opportunities.
The general consensus has been that once Buffett is gone, his successor, no matter who this person is, wouldn’t be nearly as effective. That’s entirely misguided. Buffett has created a business that runs itself. He no longer has to go looking for deals; they come to him. When he’s no longer in charge, those businesses interested in selling to a first-rate organization with the means to make a deal happen quickly still will put Berkshire Hathaway at the top of the list.
Look at Berkshire Hathaway’s website, and there are no less than 52 links to companies it owns — a good number of them publicly traded at one time or another, including its newest acquisition, Lubrizol. Should Buffett not pass the baton to Weschler, he has plenty of qualified candidates within those businesses to choose from. I know things went terribly wrong with David Sokol over the Lubrizol affair, and that might lessen the board’s enthusiasm to hire from within, but clearly one or two people within the organization are deserving of the opportunity.
Warren Buffett’s desire to make Howard Buffett non-executive chairman is a brilliant move. It says to anyone interested in succeeding the world’s greatest investor as CEO that just because the founder is dead and gone, it doesn’t mean you can operate the business as your own personal fiefdom. And who better to play watchdog than his own flesh and blood? In the end, however, I suspect Warren Buffett knows things won’t change too much when he’s not around, anyway — and that’s a good thing.
As of this writing, Will Ashworth did not own a position in any of the aforementioned stocks.
