Berkshire Hathaway jamboree highlights challenge facing Warren Buffett’s successor

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

A group of institutional investors pushing Berkshire to disclose more on climate change have been overlooked, while the 91-year-old has made it clear he can do without board approval when concluding a deal. big deals – which is required for most other CEOs across America.

“If Warren thinks the deal is OK, the deal is OK,” Buffett said of the board’s thinking, as he held court on Saturday in a meeting that reminded shareholders that Berkshire remains Warren’s show. “I could make a deal with anyone and the process won’t be completely messed up. »

Although many investors have enjoyed the disregard for convention that has long characterized the way Buffett has run Berkshire, the first rally in Omaha since the coronavirus crisis also offered a window into how life could change once the billionaire would no longer be in control.

His anointed successor Greg Abel, who is Berkshire’s vice chairman and leads the company’s vast collection of businesses outside of insurance, was able to wander through the convention floor unrecognized as he discussed with the directors of the Berkshire subsidiaries.

When approached by the media, Abel offered a quick handshake before moving on. The executive, whom Buffett promoted to vice president in 2018 alongside insurance chief Ajit Jain, did not seek to cultivate an aura the way Buffett and Charlie Munger, who helped build Berkshire, did.

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

Some shareholders said they were disappointed with the answers Abel gave to questions put to him, including why the performance of Burlington Northern Railroad, which he oversees, had lagged behind rivals.

“Anything related to Abel has been groped,” said Cole Smead, chairman of Smead Capital Management, a longtime Berkshire shareholder that has reduced its stake.

Buffett added to Abel’s response on BNSF, saying the group was methodical when making changes to its 20,000 miles of track. But any concerns over the responses to Berkshire’s AGM are overshadowed by the larger question of how the conglomerate will be run when its founder is gone.

Several investors and analysts have said that the confidence Buffett has built over decades to run the $713 billion group exactly as he wants is unlikely to be immediately — or perhaps ever — given to Abel.

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

Smead fears the move could lock in Berkshire, which has long relied on Buffett’s ability to close multibillion-dollar deals within days. “Part of Berkshire’s strength is speed [in decision making], ” he said. Buffett and Munger have “a track record that gives the board confidence.”

That worked in Berkshire’s favor in March when it landed the $11.6 billion takeover from insurer Alleghany. After expressing interest during a dinner with the CEO of Alleghany, the deal closed quickly. Shareholders fear that Abel does not have the same leeway.

Buffett said his “guess” was that his successor would face a different board internally, which would “put more restrictions or they will have more consultation on certain issues than they do with me.”

Cathy Seifert, an analyst at investment research group CFRA, hopes these consultations will extend to the issue of climate change disclosure, an issue on which investors from Berkshire Calpers, Federated Hermes and Canadian pension plan CDPQ have filed A resolution.

Claiming that the asset managers proposing the resolution don’t really represent the views of the retirees whose money they manage, Buffett said “what interests them is whether we tick their boxes.”

Seifert described Buffett’s response as “a little disconcerting”, adding, “That’s not how the head of an important company [should act]. This must be taken very seriously. The climate disclosure resolution was voted down.

While Berkshire’s latest results showed the group invested $51.1 billion in the US stock market last quarter and reported operating profit just before the same period a year ago, Buffett offered a solid defense of the operation of the company.

“Berkshire is just different,” he told shareholders, adding that the board “understands that our culture is 99.99% about running the business.”

Berkshire Hathaway Annual Meeting attendees enter the venue at the CHI Health Center in Omaha.
Berkshire Hathaway Annual Meeting attendees enter the venue at the CHI Health Center in Omaha. © Dan Brouillette/Bloomberg

A question raised at Saturday’s AGM was whether the fact that a significant portion of Abel’s wealth is tied to Berkshire Hathaway Energy, rather than the parent company, creates a conflict of interest. Abel joined Berkshire in 2000 when the conglomerate acquired MidAmerican Energy, a utility he helped run.

It’s an issue that Buffett acknowledged the board’s governance committee may one day have to consider. Munger, often more acerbic than his longtime business partner, joked that he wished “we had 20 conflicts of interest like this.”

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

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

“The changes to the board of directors are intended to both ensure continuity of values ​​and legacy,” said Christopher Rossbach, chief investment officer of J Stern & Co, a longtime Berkshire shareholder. “But they also put the people and processes in place to ensure that governance works. [and] that when succession takes place, Berkshire retains the agility it needs to make the investments it does.

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