Tags: warren buffett | berkshire hathaway | plans | breakup

The Economist: Buffett Should Set Berkshire Breakup Plans While He Still Can

By    |   Friday, 25 April 2014 10:18 AM

Warren Buffett should cap his brilliant career as a corporate empire builder by devising a breakup plan for Berkshire Hathaway now, according to The Economist.

In a commentary entitled “Life After Warren,” the Economist noted Buffett is 83 years old and needs to think about the day ahead when he no longer heads the sprawling Berkshire conglomerate.

“And the truth is that a business built on its boss’s knack of picking winners, his unquestioned authority within the company and his unrivaled reputation beyond it is unlikely to do anything like as well without him.”

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The Economist goes to great pains to praise Buffett’s track record, noting Berkshire shares have amassed an annual return of 21 percent over the past 50 years — an astonishing feat.

But it concludes the company has become so huge now that it can only buy other huge companies to move the profit needle forward — an infinitely harder avenue to substantial growth going forward.

Mr. Buffett says he has a succession plan, but Berkshire’s board may turn into a battlefield once he steps down, with his replacement as chief executive torn between his son Howard, who will be the chairman, and strong-willed directors such as Bill Gates, the article states.

“It is all too common for a long-serving star boss to hand over to an apparently well-chosen successor only for him to fall flat… Even diehard Buffett fans acknowledge that shares in Berkshire may plummet when he says goodbye.”

Berkshire’s annual shareholder jamboree in Omaha is set for May 3.

“There is no need for Mr. Buffett to start this sale of the century now. But he should tell shareholders that a gradual break-up will be his main recommendation to his successor,” The Economist concluded.

In a live CNBC interview, Buffett admitted he sometimes has difficulty taking a stand against pay plans at companies where Berkshire has a stake. That very thing happened this week when Berkshire abstained on a controversial proxy vote at Coca-Cola — one of Berkshire’s marquee holdings — that critics said could give executives an excessive $13 billion in options.

"I love Coke. I love the management, I love the directors … so I didn't want to vote no. It's kind of un-American to vote no at a Coke meeting,” Buffett told CNBC.

Stuart Grant, an attorney who represents shareholders against boards, criticized Buffett’s lack of action in the Coca Cola case.

"One of the great things about this country has been balance of power," Grant said. "That's exactly what a board needs to do with management. Boards need to be able to say no, boards need to be able to push back."

In a column for Institutional Investor, Vitaliy Katsenelson, chief investment officer at Investment Management Associates and a devotee of Buffett’s value investing style, agreed.

“By failing to vote against something that was clearly wrong, Buffett, who in my mind… used to be a moral compass for corporate America, became another middling American politician — the common type that all of us respect so little, that votes not for what he believes in but for what is going to keep him in the good graces of his party of get him re-elected,” Katsenelson.

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Warren Buffett should cap his brilliant career as a corporate empire builder by devising a breakup plan for Berkshire Hathaway now, according to The Economist.
warren buffett, berkshire hathaway, plans, breakup
Friday, 25 April 2014 10:18 AM
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