Warren Buffett shook the investment world on Saturday with four words: “The time has arrived.”
The investing legend and longtime CEO of Berkshire Hathaway (BRK-B, BRK-A) made official this weekend plans to hand over the CEO role at Berkshire to the company’s vice chairman, Greg Abel, at the end of the year. Abel was first identified as Buffett’s successor in 2021.
At 94, Buffett’s pronouncement that he step back from CEO duties — which he will recommend to the board in a meeting set for Sunday — is less a shock than a matter of necessity. Either Buffett or Father Time was going to make a call soon; Buffett took action first.
Preparations for Buffett to leave his post at Berkshire Hathaway, which he’s held since 1970, have been underway for years.
Abel and Ajit Jain, who runs Berkshire’s insurance operations, were named vice chairmen at Berkshire in 2018. And as far back as 2014, Buffett’s longtime right-hand man, Charlie Munger, was writing about these two as potential successors for Buffett.
“Ajit Jain and Greg Abel are proven performers who would probably be under-described as ‘world-class,'” Munger wrote. “‘World-leading’ would be the description I would choose. In some important ways, each is a better business executive than Buffett.”
‘Calm and decisive’
In his 2014 annual letter, Buffett reflected on the 50 year anniversary of his investment partnership by outlining what would be needed to keep Berkshire going for another 50.
“Managing Berkshire is primarily a job of capital allocation, coupled with the selection and retention of outstanding managers to captain our operating subsidiaries,” Buffett wrote.
“Obviously, the job also requires the replacement of a subsidiary’s CEO when that is called for. These duties require Berkshire’s CEO to be a rational, calm and decisive individual who has a broad understanding of business and good insights into human behavior. It’s important as well that he knows his limits.”
During Saturday’s meeting, Buffett repeatedly downplayed this year’s volatility in the stock market, noting we’ve seen far sharper sell-offs — both for the overall market and Berkshire stock. The former is down 3% this year; the latter, up 17%.
At one point, Buffett said the market action this year “is really nothing.”
Future Berkshire CEOs will likely deal with worse environments that will test their mettle.
‘Character is crucial’
Elsewhere in that 2014 letter, Buffett outlined the qualities needed, challenges to be faced, and pitfalls avoided for the next CEO of Berkshire Hathaway.
Here are some of the highlights:
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“Character is crucial: A Berkshire CEO must be ‘all in’ for the company, not for himself.”
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“He can’t help but earn money far in excess of any possible need for it. But it’s important that neither ego nor avarice motivate him to reach for pay matching his most lavishly-compensated peers, even if his achievements far exceed theirs.
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“A CEO’s behavior has a huge impact on managers down the line: If it’s clear to them that shareholders’ interests are paramount to him, they will, with few exceptions, also embrace that way of thinking.”
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“My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency.”
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“When these corporate cancers metastasize, even the strongest of companies can falter. The examples available to prove the point are legion, but to maintain friendships I will exhume only cases from the distant past. In their glory days, General Motors, IBM, Sears Roebuck and U.S. Steel sat atop huge industries. Their strengths seemed unassailable. But the destructive behavior I deplored above eventually led each of them to fall to depths that their CEOs and directors had not long before thought impossible.”
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“If our noneconomic values were to be lost, much of Berkshire’s economic value would collapse as well. ‘Tone at the top’ will be key to maintaining Berkshire’s special culture.”
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“Fortunately, the structure our future CEOs will need to be successful is firmly in place. The extraordinary delegation of authority now existing at Berkshire is the ideal antidote to bureaucracy… We don’t have a legal office nor departments that other companies take for granted: human relations, public relations, investor relations, strategy, acquisitions, you name it. “
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“We do, of course, have an active audit function; no sense being a damned fool. To an unusual degree, however, we trust our managers to run their operations with a keen sense of stewardship. After all, they were doing exactly that before we acquired their businesses. With only occasional exceptions, furthermore, our trust produces better results than would be achieved by streams of directives, endless reviews and layers of bureaucracy.”
On Friday, Berkshire stock closed at a record high.
The next chapter
Seen one way, the Berkshire Hathaway Greg Abel will inherit from Warren Buffett next year doesn’t look all that different from the company Buffett was leading in 2015. Berkshire’s made only one major acquisition over the years — a 2015 deal for Precision Castparts.
Its investment portfolio has grown alongside the broader market and come to be defined by a successful bet on Apple (AAPL) — a fact that prompted Buffett to say Saturday Apple CEO Tim Cook has made more for Berkshire shareholders than he ever did. But the Berkshire portfolio remains consistent with what it’s been for decades now, a collection of predictable businesses held in large size, for long periods.
Of course, in business, life, or otherwise, substantial change will happen over a decade whether you’re looking for it or not.
Buffett said Saturday that after Abel takes over as CEO, “I would still hang around, and could conceivably be useful in a few cases, but the final word would be what Greg said, in operations, in capital deployment, whatever it might be.”
Anyone who has been witness to a leadership change where the old boss sticks around to “advise” knows these arrangements tend to fall off fast — you’re either in or out.
Charlie Munger has now been gone for two Berkshire shareholder meetings. Donald Trump has won two presidential elections. Berkshire’s annual earnings have ballooned from $19.8 billion in 2014 to $89 billion in 2024. The Yankees still haven’t won a World Series.
Berkshire’s board will meet Sunday to discuss Buffett’s proposal outlined Saturday. Buffett said he expects they will “unanimously” agree to his timeline. More details will emerge in the months ahead.
The next phase of Berkshire Hathaway’s corporate history is now underway. No amount of planning would’ve removed the uncertainty assured in the years ahead, but what Buffett thinks needs to happen next is not quite a mystery — it’s all been written down.
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