Every year at the Berkshire (BRK-B) meeting, one of the questions for Buffett always gets is about the Berkshire succession plan. For the record, there are two positions at issue. One is the Chief Executive position.
The Chief Executive position is one that we can speculate on fairly intelligently. We have a lot of hints and clues. Buffett has, I believe intentionally, consistently suggested who he feels the top managers in his organization are. He praises most of his managers effusively…but we know, in particular, who he considers the top talent in the organization.
The short list for this position, by my estimation, includes David Sokol, Ajit Jain and Tony Nicely (by my estimation, Nicely lags behind Jain and Sokol in the race – but I’m speculating, of course). Sokol, the hometown Omaha candidate, figured prominently in the BYD transaction (according to reports). He’s also simultaneously running Net Jets, which has bounced back from being the perceived drag it was last year, and MidAmerica Energy. He reportedly also had a prominent role in the Constellation Energy deal, which was also successfully profitable for Berkshire (even though the deal fell through in the end, Berkshire made a handsome profit).
Ajit Jain has gotten his share of press as well, especially in the Berkshire letters. Buffett always speaks highly of Ajit at the meetings, and he’s a household name to any shareholder. He also tends to be prominently featured in Buffett’s letters. In the 2008 letter, Buffett had this to say about Ajit:
“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.”
Buffett also appears to be high on Tony Nicely, CEO of one of Berkshire’s most important subsidiaries, Geico. Nicely has been with Geico a long time and had excellent results:
“At GEICO, Tony Nicely – now in his 48th year at the company after joining it when he was 18 – continues to gobble up market share while maintaining disciplined underwriting. When Tony became CEO in 1993, GEICO had 2.0% of the auto insurance market, a level at which the company had long been stuck. Now we have a 7.7% share, up from 7.2% in 2007.”
I think Buffett’s discussion of his managers is an attempt not only to show his appreciation to them for their work (and keep them around), but to familiarize shareholders with their name, and “brand” them for investors. People like names they know – and Buffett knows this better than anyone (see his investments in KO, PG, KFT, HOG, etc.).
Based on his involvement in several of the recent prominent Berkshire acquisitions and attempted acquisitions, Sokol appears to be the favorite to be handed the keys to Camelot. That’s what we know about the potential CEOs. Less clear is what Buffett intends to do with regard to the CIO (chief investment officer) position. Buffett has said that there are currently 4 candidates for this position. All four are independently wealthy, and all four have expressed interest in coming to Berkshire for reasons that have nothing to do with money.
I’ve seen speculation all over the board for the CIO position. Some of the biggest names in investing. Lots of “value investors” (why is it in quotes? Because who doesn’t call themselves a value investor these days?) whose names are well known to the kind of people that also consider themselves value investors.
For the most part, we haven’t had nearly as much information to speculate on with regard to the CIO list. I recently saw speculation about Michael Burry being one of the candidates. His make-up makes sense for the most part. He’s independent. He looks in places that other people aren’t looking. He’s his own source of investment ideas. He has some experience as a writer, both on his blog (blog-like site), and more recently, in the NY Times. He’s been revered in a couple of recent books. So this isn’t a nonsensical choice. On the other hand, I haven’t seen any indication that Buffett knows who Burry is. I mean, he probably does. Burry’s profile has risen considerably over the last year. He’s obviously a very talented investor. But he’s not connected to Buffett it any way. He admires him, like anyone else, but with all Buffett’s contacts I’d sort of be surprised if he were actually on the list…
At the annual meeting, in response to whether any of the CIO candidates used leverage, Charlie Munger mentioned that he knew that at least one of the candidates made 200% in 2009 while employing no leverage. To this comment, Buffett replied, “well that certainly narrows it down,” with a bit of disdain in his voice (it’s clear that Buffett keeps these secrets by design, and to me, it seemed he’d prefer Charlie didn’t give such an excellent clue). In any case, it was an excellent clue, and it has led to some intelligent speculation.
In particular, Street Capitalist had this very rational, believable idea of who might be on the list. Li Lu is the investor that turned Munger and Buffett onto BYD (an investment of $200 million that has increased to over $2 billion). Evidently, Li Lu also manages at least a portion of Charlie Munger‘s personal fortune (Charlie is amazing at surrounding himself with great people). Lu has an amazing story, which includes being a leader and organizer of the protestors at Tiananmen Square.
I’d encourage you to read the article over at Street Capitalist. Included in the post are notes on a talk given by Lu at Columbia Business School in 2006, outlining Lu’s investment strategy. It sounds like someone I’d want at the helm. The question is, would Buffett? I suppose we’ll see. Thanks for reading.
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I just wanted to say thanks for the nice links to get more info on various things. I have spent the week at street capitalist’s blog… and I think I would not have learnt of his blog if you hadn’t linked to it.
Regarding the succession of Buffett, I think Berkshire shareholders are lucky to have such talent surrounding Warren. People change. My wish/prayer would be that the people that are aroung now are good both as investors/managers, and as people, such that if Buffett is gone/out, those who do not directly takeover still stay, and do as good a job as they have always done. As Christ instructed, they would humbly serve. [He who wants to be first/leader has to be a servant (first and foremost).