NEW YORK, NY – SEPTEMBER 19: Philanthropist Warren Buffett (C) is joined onstage by 24 other … More
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One of the most perilous moments for any company is leadership succession.
When the company is doing badly, the first question is whether the new CEO can turn things around (Kelly Ortberg taking over from Dave Calhoun at Boeing).
If the company is doing well, the question becomes about whether they can continue the progress (Tim Cook stepping up at Apple).
When the company is Berkshire Hathaway and the outgoing CEO is Warren Buffett, the question is whether anyone can fill the biggest pair of shoes in the history of capitalism.
Warren Buffett announced he was stepping down as CEO of Berkshire Hathaway at its annual shareholder meeting on May 3, and that he would recommend Greg Abel should take over at the end of the year. Abel joined the company when it invested in MidAmerican Energy in 1999, and in 2018, both Abel and Ajit Jain were elevated to be vice chairmen, putting them in line as potential successors. Three years later Buffett explicitly tapped Abel as the next CEO.
On one level, it is hard to imagine Berkshire Hathaway without Buffett. In many ways, he is Berkshire Hathaway. But he and his late business partner Charlie Munger are incredibly intelligent guys, and they were tremendous investors in businesses. When I met Buffett in 2004, he was already thinking about his succession plan for Berkshire Hathaway. This was not rushed in the slightest. He and Munger had seen a lot of management teams and developed a keen sense of who a great leader is and also what it takes to be a great investor.
Boards get this process wrong all the time, either because they don’t have someone lined up before they need them or because they don’t do their homework and choose the wrong person. Either way, they’re soon left scrambling to find a replacement. Disney had to bring back Bob Iger. Laxman Narasimhan barely lasted a year at Starbucks. UnitedHealth is turning to its former CEO Stephen Hemsley in the hopes that he can pull it out of a nosedive.
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Of course, it’s possible that Abel won’t work out, but the process has been executed flawlessly, and after 26 years at the company, he’s exceedingly well prepared. This wasn’t a rushed decision. And Buffett is known for his ability to identify good value. Everything he does is based around maximizing value over long time horizons. There’s a reason he once said “our favorite holding period is forever.”
Buffett took the same view on long-term value that he applies to stocks and applied it to his succession planning, telling The Wall Street Journal a few days after announcing Abel as CEO that “really great talent is rare. It’s rare in business. It’s rare in capital allocation. It’s rare in almost every human activity you can name.”