After Buffett
Talk at Berkshire’s annual meeting turns to succession.
Warren Buffett said Berkshire Hathaway Inc. should look beyond stock pickers when selecting its next chief executive officer.
A CEO should have “a significant array of skills,” Buffett, 84, said Saturday at Berkshire’s annual meeting in Omaha, Neb. The billionaire said he’s unlikely to support someone whose only expertise is in investing, but could accept a candidate who also had operational experience.
Shareholders have speculated for years about who will eventually replace Buffett as CEO. The billionaire, who is also chairman, has said his son Howard Buffett could replace him as leader of the board, and that money managers Todd Combs and Ted Weschler could handle the company’s investments. Berkshire has a stock portfolio valued at more than US$100 billion, including the biggest stakes in Wells Fargo & Co. and Coca-Cola Co.
In his annual report to shareholders in February, Buffett outlined the qualities that he and the board were looking for in his successor, while keeping the leading candidate’s identity secret. He wasn’t asked directly at Saturday’s meeting about who will be the next CEO.
Investors have speculated that Ajit Jain and Greg Abel are the leading candidates. Both were named in a separate letter that Berkshire vicechairman Charles Munger, 91, wrote in the annual report. Munger described them as examples of “world-leading” executives who are in some ways better than Buffett. Jain, 63, runs Berkshire’s namesake reinsurance operation, while Abel, 52, oversees the energy-utility business.
Buffett fuelled Berkshire’s earlier growth by investing premiums held at insurance units in stocks. Over his five- decade tenure at the company, the balance shifted more toward operating wholly and majority-owned businesses. Its operations now include manufacturers, retailers and BNSF, one of the largest U.S. railroads.
“I’ve learned a lot from operations that I wouldn’t have learned if I’d stayed in investments all my life,” Buffett said.
Combs and Weschler, former hedge fund managers, were hired in the past five years to help run investments. Since then, their duties have expanded. They’ve helped their boss vet possible acquisitions and he’s praised their dedication to Berkshire.
On Saturday, Buffett said both had a deep understanding of businesses’ competitive strengths and good character, a trait that he said is sometimes lacking among money managers.
The billionaire said that he and Munger had run into plenty of “dysfunctional people with 160 IQs,” including when Buffett led Salomon Inc.
“We’ve specialized in them,” Munger said Saturday.
At the meeting, Buffett and Munger fielded five hours of questions from shareholders, analysts and journalists, in- cluding some that criticized the business practices of firms that Berkshire owns or works with, such as Brazil’s 3G Capital.
Buffett took two questions that led him to praise 3G Capital, which critics say ruthlessly cuts jobs at companies it acquires. In 2013, Berkshire and 3G bought H.J. Heinz Co, which is now buying Kraft Foods Group Inc. Last year, 3G merged its Burger King unit with Tim Hortons Inc., leading to dozens of layoffs at the coffee retailer’s Oakville, Ont., headquarters and regional offices.
“The 3G people have been successful in building marvellous businesses,” Buffett said. “I don’t know of any company that has a policy that says we’re going to have a lot more people than they need.”
The meeting had a more festive air this year, with one of the more than 40,000 people who attended shouting out “Warren and Charlie, we love you” at the start of the main event of what Buffett calls Woodstock for Capitalists.
“It’s not Disneyland, it’s Warren-land,” said David Rolfe, chief investment officer of Wedgewood Partners Inc.
Berkshire holds more than 80 companies, including the Burlington Northern railroad, Geico car insurance, Benjamin Moore paint, Dairy Queen ice cream, Fruit of the Loom underwear, and See’s candies, and owns more than US$115 billion of stocks.
Its breadth and depth, which includes US$63.7 billion of cash, has given Berkshire a strong balance sheet that Buffett said will help it thrive should the economy, propped up by low interest rates that many expect to rise soon, heads south.
“We will be very willing to act if economic turbulence of any kind occurs, and will be prepared, and most people won’t be,” he said. He denied that Berkshire needed special regulatory oversight by possibly having become too big to fail.
“We will be ... prepared, and most people won’t be