Berkshire Hathaway camp highlights the challenge facing Warren Buffett’s successor

Berkshire Hathaway’s annual meeting in Omaha, Nebraskan, was the first time shareholders had heard in person from the group’s billionaire founder, Warren Buffett, since the outbreak of the pandemic.

A group of institutional investors pressing Berkshire to disclose more on climate change has been given a short cut, while the 91-year-old has made it clear he can dispense with board approval when striking big deals — a necessity for most other CEOs around the world. the world. USA.

“If Warren thinks the deal is good, the deal is okay,” Buffett said of the board’s reasoning, as he held court Saturday at a meeting that reminded shareholders that Berkshire still represented Warren’s bid. “I can make a deal with anyone and the whole process is not screwed up.”

Although many investors have enjoyed ignoring the agreement that has long been a hallmark of how Buffett has run Berkshire, the first rally in Omaha since the coronavirus crisis has also been shown on how to change lives once a billionaire becomes irresponsible.

His designated successor, Greg Abel, who is a Berkshire vice president and runs a slew of businesses outside of the company’s insurance, was able to walk around the conference room unrecognized as he spoke with Berkshire’s corporate directors.

When the media approached, Abel offered a quick handshake before moving forward. The CEO, whom Buffett promoted to vice president in 2018 along with insurance chief Ajit Jain, didn’t seek to grow Aura the way Buffett and Charlie Munger, who helped build the Berkshire company, did.

Greg Abel, center, vice president of Berkshire Hathaway, at the annual meeting in Omaha. © Dan Brouillette/Bloomberg

Some shareholders said they were disappointed by the answers Abel gave to questions on his path, including why Burlington Northern Railroad, which he oversees, lags behind its competitors.

“Anything related to Abel was confused,” said Cole Smead, president of Smead Capital Management, a longtime Berkshire shareholder who has been cutting his stake.

Buffett added to Abel’s answer to the BNSF, saying the group was methodical when making changes to its 20,000-mile course. But any concerns about the answers at Berkshire’s AGM are overshadowed by the broader question of how the group will be run after its founder is gone.

Many investors and analysts said the trust that Buffett built over several decades to manage the $713 billion group just as he wants is unlikely to be given immediately – or perhaps at all – to Appel.

There are already signs of change. Berkshire agreed that the positions of CEO and President, both held by Buffett, would be separated upon his departure.

Smead worries that the move risks disrupting Berkshire, which has long relied on Buffett’s ability to strike billions of dollars in deals within days. “Part of Berkshire’s strength is speed [in decision making]Buffett and Munger have “a record of trusting the board of directors,” he said.

She worked for Berkshire last March when she snatched an $11.6 billion takeover of the Ghanaian insurance company. After he expressed interest in having dinner with the Ghanaian CEO, the deal was quickly completed. Shareholders are concerned that Abel will not have the same latitude.

Buffett said his “guess” was that his successor would face a different board internally, one that would “set some restrictions or they will have some more deliberations on some things than they do with me.”

Kathy Seifert, an analyst with investment research group CFRA, hopes these consultations will extend to the issue of climate change disclosure, an issue on which Berkshire investors Calpers, Federated Hermes and CDPQ have submitted a decision.

Claiming that the asset managers who proposed the decision don’t really represent the opinions of retirees managing their money, Buffett said “what they care about is whether we tick their boxes.”

Seifert described Buffett’s response as “a bit confusing,” adding, “That’s not how the president of an important company sees it.” [should act]. This must be taken seriously.” The decision on climate disclosure was rejected.

As Berkshire’s latest results reveal that the group spent $51.1 billion in the US stock market last quarter and reported operating profit before the same period last year, Buffett made a solid defense of how the company operates.

“Berkshire is very different,” he told shareholders, adding that the board “recognizes that our culture is 99.99 percent running the business.”

The entry of the Berkshire Hathaway annual meeting into the headquarters of CHI Health Center in Omaha.
The entry of the Berkshire Hathaway annual meeting into the headquarters of CHI Health Center in Omaha. © Dan Brouillette/Bloomberg

One of the issues raised at Saturday’s general meeting was whether the fact that a large portion of Apple’s fortune is tied to Berkshire Hathaway Energy, rather than the parent company, creates a conflict of interest. Abel joined Berkshire in 2000 when the group acquired MidAmerican Energy, a company he helped run.

It’s an issue that Buffett acknowledged the Board Governance Committee may have one day to examine. Munger, who is often sharper than his long-term business partner, added that he wishes “we have 20 conflicts of interest just like him.”

Buffett realized change was inevitable once he was gone, but some investors say the board has already taken steps to retain a culture that helps unite a sprawling group that employs more than 370,000 people.

Berkshire last year added Chris Davis, a fund manager and third-generation contributor to Berkshire, to its board of directors. Buffett’s daughter, Susan, was also elected director.

“The board changes are about ensuring continuity of values ​​and legacy,” said Christopher Rosbach, chief investment officer at J Stern & Co, a longtime Berkshire shareholder. “But they also put people and processes in place to ensure successful governance [and] that when succession occurs, Berkshire maintains the agility it needs to make the investments it makes.”

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