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Buffett Nudges Berkshire Succession Plans Forward, and It's Time

Buffett Nudges Berkshire Succession Plans Forward, and It's Time
(Cliff Owen/AP)

By Wednesday, 10 January 2018 10:46 AM Current | Bio | Archive

Greg Abel and Ajit Jain are shaping up to be the next generation's Warren Buffett and Charlie Munger -- the largest shoes anyone in Corporate America will have to fill.  

On Wednesday morning, Berkshire Hathaway Inc. announced that both executives were added to the board. Abel, the company's energy division head, was appointed vice chairman of non-insurance business operations and Jain, who runs reinsurance, was made vice chairman of everything insurance-related.

It's a significant gesture toward Buffett's succession and the clearest indication yet as to who will lead the conglomerate when the Oracle of Omaha is gone. Buffett is 87, while his trusty sidekick Munger just turned 94 last week. They're staying in their own current roles as chairman and CEO and vice chairman, respectively.

Buffett is still keeping mum about which of the men will replace him to lead the world's sixth most valuable public company -- nowadays the only non-tech entity to rank that high -- but it's noteworthy that Abel has been elevated to a role in overseeing everything except Jain's turf. Both check the boxes for what Buffett is seeking in Berkshire's next chief, and "they've both got Berkshire in their blood," Buffett said Wednesday. That said, people who had recently spent time with Jain told Bloomberg News that he's been facing some health challenges that could eventually make working more difficult.

At 55 years old, Abel is more than a decade younger than Jain, and Buffett has said he wants someone who is "relatively young" and can serve for a long time. The insurance business also accounts for a smaller piece of the pie than it once did, as Buffett acquired a railroad, energy assets and numerous consumer and industrial businesses along the way. 

The decision naturally raises questions as to whether Buffett's or Munger's health has taken a turn, though Buffett assured listeners during his CNBC interview Wednesday that nothing's changed in that department and that he would alert shareholders immediately if he did have a health issue. Still, it's noticeable that he's aged since his last public appearances.

Buffett has always taken a pragmatic approach to his succession and wants to put everything neatly in place while he's lucid. He added Wednesday that it's important for Abel and Jain to get familiar with running operations beyond the ones for which they've been chiefly responsible.

A smooth transition is of utmost importance because regardless of the qualifications and achievements of the next in line, Berkshire shareholders will still have their doubts and that will likely impact the stock price. Buffett doesn't agree, positing last May that if he were to "die tonight, I think the stock would go up tomorrow." Perhaps, but regardless, some investors are already speculating whether a breakup or other changes will happen once he steps aside.

The only valid reason for dismantling the empire he built is if it becomes too difficult for the next CEO -- cough, Abel -- to allocate capital in the way Buffett has, primarily by identifying cheap, high-return acquisitions that make use of Berkshire's ever-growing pile of cash. Buffett himself has struggled to do that in this environment, raising the prospects of a potential dividend. Even so, Berkshire's latest earnings helped make his case for maintaining such a sprawling conglomerate, with last year's slump on the insurance side being offset by a rebound at the BNSF railroad and strength in the manufacturing operations. 

I still think transparency will be a major issue for Abel and Jain. Buffett's celebrity and long track record has allowed him to flout some of the conventions adhered to by other CEOs, such as earnings calls and more detailed quarterly statements, but his replacement likely won't be afforded that luxury.

Abel and Jain should use their new, higher-profile positions to become better acquainted with investors and gain their trust. Like Buffett said, this transition period could last a long time, or it could happen tomorrow.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

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Greg Abel and Ajit Jain are shaping up to be the next generation's Warren Buffett and Charlie Munger -- the largest shoes anyone in Corporate America will have to fill.  
buffett, berkshire, succession, plans
Wednesday, 10 January 2018 10:46 AM
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