OMAHA, Neb. (AP) — When Greg Abel becomes Berkshire Hathaway's new CEO next year he will of course take on additional responsibilities, but with Warren Buffett remaining as chairman, the surprise change announced at the annual meeting over the weekend is in some ways just another milestone in the company's succession plans.
Shareholders have been worrying about how to replace the world's greatest investor for decades — even before the 94-year-old hit a typical retirement age. So years ago, Berkshire's board started devoting part of every meeting to the succession question.
Then in 2018, Buffett began publicly handing over the reins when he put Abel in charge of all of Berkshire's dozens of manufacturing, retail, railroad and utility businesses. Fellow Vice Chairman Ajit Jain was given responsibility for the insurance companies including Geico, while Buffett kept responsibility for investing Berkshire's billions. Berkshire confirmed that Abel would be Buffett's successor in 2021 after former Vice Chairman Charlie Munger let it slip at a shareholder meeting.
Starting next year, Abel will have the final say on all of Berkshire's companies and investments, but he will also still have Buffett, Jain and two investment managers — Ted Weschler and Todd Combs — coming to the office every day to help. And the CEOs of Berkshire's many different subsidiaries handle all the day-to-day operations.
“Greg’s already been doing it for a couple of years, so his job really doesn’t change. His title does, but his job’s not really changing that much,” said Bob Miles, who has taught a course about Buffett and Berkshire at the University of Nebraska-Omaha for 15 years.
Berkshire's board approved the 62-year-old Abel's promotion to CEO and kept Buffett as chairman on Sunday. Berkshire Class B shares fell more than 5% Monday in response to the news after hitting an all-time high Friday, but many investors praised the plan.
“I think it gives Warren a little more bandwidth instead of running this conglomerate," Macrae Sykes, portfolio manager at Gabelli Funds, said in an interview with The Associated Press. "It gives Greg more transparency on the opps with also Warren still being his mentor as chairman,”
Unmatched track record of success
In six decades at the helm, Buffett turned a Massachusetts textile company into a sprawling but nimble conglomerate that owns everything from Daily Queen and See’s Candies to BNSF Railway and massive insurance and utility companies. As the company grew, Buffett's reputation grew with it as shares of Berkshire Hathaway climbed steadily, exceeding major indexes by wide margins and returning an average 19.9% each year to investors versus 10.4% for the Standard & Poor’s 500.
The decision to continue with the Oracle of Omaha, as Buffett is known, as head of the board differs from the succession plans laid out in the event of Buffett's death. The billionaire has long said that Howard Buffett, the second-born of his three children, should become chairman when he is gone to protect Berkshire's culture.
Abel will take over in a precarious time as the U.S. launches trade wars against friend and foe alike, which Buffett has called a mistake. But that could also create investment opportunities for Berkshire if there is a crisis.
So much money, so few places to put it
Then there is Berkshire’s $348 billion in cash.
Buffett says he doesn’t see many bargains to invest that money in now, not even Berkshire’s own stock, but he assured some of the estimated 40,000 attendees of the company’s annual meeting in Omaha, Nebraska, over the weekend that one day the company would be “bombarded with opportunities.”
Abel, a low-key Canadian with a love a hockey who makes it a priority to coach his kids' teams, said Saturday that he wouldn’t change Berkshire’s approach to investing, which he learned from Buffett. Maintaining Berkshire’s fortress-like balance sheet will always be a priority, he said.
Eventually, Berkshire might have to consider paying a dividend, which Buffett always resisted because he believed he could deliver better returns by reinvesting the cash. For now, Buffett and Abel want to keep building cash, so they are prepared when opportunities arise.
High praise for Abel
Buffett endorsed Abel, vowing to keep all of his shares that give him control of 30% of Berkshire Hathaway. Abel is a more hands-on manager than Buffett, asking managers tough questions and encouraging them to collaborate with other subsidiaries when it makes sense.
“It’s way better with Greg than with me because I didn’t want to work as hard as he works and I can get away with it because we’ve got a basically good business -- a very good business — and I wasn’t in danger of you firing me by virtue of the ownership and the fact that we could do pretty well,” Buffett said. "The fact that you can do pretty well doesn’t mean you couldn’t do better, and Greg can do better at many things,” he said.
The CEOs of Berkshire subsidiaries who report to Abel have praised his management style of personal accountability, but also autonomy. See's Candy CEO Pat Egan worked with Abel at Berkshire's utility unit for years before he took over the candymaker six years ago and said Abel makes sure he's considered every contingency.
“He’s allowed me to make a lot of decisions that he may or may not have agreed with, but he’ll support us at the end of the day, no matter what as long as we’re operating with integrity and principles and the long game," Egan said.
But Morningstar analyst Greggory Warren wrote that Buffett's succession announcement left him with plenty of questions and Abel will have to prove himself.
“Abel, in our view, will be held to a different standard than Buffett, with a greater focus on how well Berkshire is performing—especially with it being likely that there will be some churn in the company’s shareholders as we move past the end of an era for the firm,” Warren said.
Buffett's philanthropy continues
Buffett has always delegated the decisions about how to distribute his fortune, worth nearly $160 billion, to others through annual share donations to the Gates Foundation and four family foundations run by his children.
The Gates Foundation has received the biggest donations worth more than $40 billion since he started giving away his fortune in 2006.
He said last summer that his three children will decide how to distribute his remaining fortune after his death, but donations to the Gates Foundation will end. Buffett has said he expects it to take a decade to give away all his shares after his death, ensuring extended support for Abel from the family.
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AP Business writer Bernard Condon is in New York City. AP Business Writer Michelle Chapman contributed to this report from New York City.
Josh Funk And Bernard Condon, The Associated Press
