I’m a big fan of Warren Buffett. In May, my wife and I made the trip to Omaha for the Berkshire Hathaway shareholder’s meeting. We did a lot of fun things at the meeting, but the highlight, by far is having the opportunity to see (and hear) Buffett speak in person.
Predictably, there were questions about succession. Warren Buffett is 78 years old. He’s inching closer to the date actuarial tables say a white male should die. As far as I know, he’s doing fine today – but who knows what the future holds? I’m not sure there’s another CEO of another company who is as important to the success of their company. Apple shareholders seem to disagree. Apple stock goes down anytime there’s bad news about how Steve Jobs is doing. Apple has a very specific culture and way of doing things. If you think everything in production was Jobs idea, you’re wrong. He created the culture that generated and executed those ideas, but he’s not an endless fountain of R&D. Buffett, on the other hand, actually personally chooses almost all of the investments for Berkshire Hathaway. Who should worry more?
Of course, when Buffett dies, Berkshire will still own everything that it owns. It’s only the future of the investments of Berkshire that will be affected. The video above looks at a couple of possible candidates to succeed Buffett.
One of those candidates is David Sokol. Sokol is the former CEO of one of Berkshire’s subsidiaries, MidAmerica Energy, and was recently tapped to be the new CEO of NetJet, another subsidiary. In the video above, they jump back and forth between Sokol and Buffett talking about the deal to acquire Constellation Energy. Evidently it was Sokol’s idea. The deal fell through, but Berkshire still ended up making a bundle based on a clause that kicked in if Constellation backed out (which they did). That had to have earned him lots of points with the big boss. The fact that Sokol is from Omaha is icing on the cake.
The other candidate they talk about is Byron Trott, an investment banker that used to be with Goldman Sachs. Trott has since gone out on his own. Buffett has been quoted as saying that Trott is one of the few investment bankers that is worth the cost. Trott was reportedly the one that brought the Goldman deal to Buffett. In the video, Trott said that he drafted the deal with Buffett in mind, knowing that he would be interested. As a side note, a good friend of my uncle’s is a good friend of Byron Trott’s (he was both in his wedding and offered a top position at Trott’s new firm).
Interestingly, the video doesn’t mention Ajit Jain. In Buffett’s 2008 shareholder letter (and in previous letters), Buffett spoke very highly of Jain, saying, “Ajit came to Berkshire in 1986. Very quickly, I realized that we had acquired an extraordinary talent. So I did the logical thing: I wrote his parents in New Delhi and asked if they had another one like him at home. Of course, I knew the answer before writing. There isn’t anyone like Ajit.” Ajit is currently the head of several of Berkshire’s reinsurance businesses. Because insurance is the largest business at Berkshire, having a person with Ajit’s experience at the helm would make a lot of sense.
The other person you hear mentioned from time to time is Geico CEO Tony Nicely. The hot candidate right now, by all accounts, appears to be Sokol. The Bloomberg video mentions that one of the things Buffett really likes about Sokol is his humility. That’s funny, because that’s what I really like about Buffett (Maybe I’ll choose Buffett as my successor for writing this blog;)) Whoever he chooses, it will be an interesting and newsworthy event. I personally hope we get many more years of Buffett’s wisdom. If you have a few minutes, watch the video above. You can listen to what Bill Gates thinks of Buffett and Berkshire. It’s the only board Gates is on, other than Microsoft’s, so I think that’s actually pretty neat, too. Thanks for reading.
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#1 by chessiq on August 12th, 2009 - 9:27 pm
Todd, I am making this comment before watching the video – so hopefully it is not addressed in it;-)
)
Buffett has mentioned that there is no need for him to choose or call out a successor yet, because, sometimes, high talent is okay with being number two to the extraordinary guy, but when a peer takes over, they will leave. Do you think the other guys will leave once a non-Buffett takes over?
Unrelated (may be?), do you know who/what comes second to Berkshire? I know I could look it up, but it’s easier to ask you! (You are smart, nice, and are a shareholder
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Todd Metheny Reply:
August 12th, 2009 at 10:13 pm
1. I’m not sure whether the other guys will leave. I’ve heard him talk about that, and he used GE as an example. Welch tapped 3 candidates early on, and when he picked Immelt, Nardelli and McNerny both left. Buffett has hoped to avoid that, but with all the speculation, who knows what those guys will decide to do. I would think that it would depend on whether or not the new guys gives them as much autonomy and respect as Buffett has. If Sokol gets picked, and there seems to be a good chance of that, as of right now – Jain and Nicely still have pretty sweet jobs. I would think that Sokol would do everything in his power to keep those guys around, because they’ve had a lot to do with Berkshire’s success.
2. I’m not sure exactly what you mean. Who comes second at BRK? I think you might mean who is second in command at Berkshire? If that’s what you mean, then I would think that the answer is Charlie Munger. He always refers to Charlie as his partner, and I know that Charlie is a person that Buffett truly respects and admires. Buffett’s son, Howard, has been named non-executive chairman, so he’s up there in the chain of command as well. Is that what you meant? (3. Thanks for calling me smart;))
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#2 by chessiq on August 13th, 2009 - 7:41 pm
Todd, as always, thanks for the reply – and the details. It would be really cool if somebody took over and he managed to convince the other guys to stay.
On the second question, I was asking about a firm (an investment firm, probably) that comes second to Berkshire. Now that my question is clearer, I am wondering if anybody else has followed the Buffett model of owning a firm and use it to totally acquire other companies without wanting to flip them in the near time. Do you know of any other firms? If not, I guess my question is mute. In some ways, I think I wondering if there is competition against Berkshire. It is kind of interesting to think of somebody losing to no competition. May be other investors are its competition? Not sure what good is this question! Well, I started it, I might as well finish it
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Todd Metheny Reply:
August 15th, 2009 at 9:26 pm
There are actually quite a few people who have tried to do what Buffett has done. He has lots of competitors when it comes to buying companies. In one sense, he’s competing with every hedge fund and mutual fund manager out there. I can think of three companies that closely resemble the Buffett model for attempting to acquire businesses and more assets with the cash flow of the current investments. The most prominent (though times have been someone tough lately, is Sears Holding Company, owned by Eddie Lampert (read his wikipedia page if you get a chance, he’s an interesting character). Markel and Leucadia are two others that you see in the news quite a bit.
Many others sort of mirror Buffett stylistically, including The Sequoia Fund (started by a now deceased friend of Buffett’s, Bill Ruane). Mohnish Pabrai has a partnership that is modeled after the original Buffett partnerships. I would say that Seth Klarman is the modern investor with a style closest to Buffett’s.
Who comes second? I’m not sure. I think it would depend on the criteria – size, holdings, etc. Let me know if that doesn’t really answer your question and I’ll try again;)
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