Buffett on Berkshire Hathaway's Future

The 'Oracle of Omaha' on the company's future after his departure

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Oct 16, 2017
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Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) has been one of the best stocks to own for the past five decades, but the largest cloud currently overhanging the company is the age of its largest shareholder and leader,Ă‚ Warren Buffett (Trades, Portfolio).

What happens to Berkshire after Buffett has been the topic of many debates, although trying to decipher what will actually happen to the conglomerate is impossible. There are many variables to consider, such as who takes over, what happens to Berkshire's largest holdings and if the company adopts a cash return policy. None of these are known today.

For his part, Buffett has issued some guidance on the topic. Here is the "Oracle of Omaha" himself speaking about succession plans on various occasions:

“If I die tonight, I think the stock would go up tomorrow...And there’d be speculation about breakups and all that sort of thing, so it would be a good Wall Street story.” -- 2017 annual meeting.

“Future CEOs should come from internal candidates whom the Berkshire board has grown to know well. Our directors also believe that an incoming CEO should be relatively young, so that he or she can have a long run in the job. Berkshire will operate best if its CEOs average well over 10 years at the helm. (It’s hard to teach a new dog old tricks.) And they are not likely to retire at 65 either (or have you noticed?).” -- 2014 annual letter to investors.

"I actually would hope that we have somebody that's already very rich — which they should be if they've been working a long time — and really is not motivated by whether they have 10 times as much money than they and their families can need or a hundred times as much.

And, they might even wish to perhaps set an example by engaging for something far lower than actually what you could say their true market value is. That could or could not happen, but I think it would be terrific if it did. I can't blame anybody for wanting their market value.

If they didn't elect to go in that direction, I would say that you would probably pay them a very modest amount and then have an option which increased in striking price annually." -- 2017 annual meeting.

"If the board hires a compensation consultant after I go, I will come back mad." -- 2017 annual meeting.

"To further ensure a continuation of our culture, I have suggested that my son, Howard, succeed me as a nonexecutive chairman. My only reason for this wish is to make change easier if the wrong CEO should ever be employed and there occurs a need for the chairman to move forcefully. I can assure you that this problem has a very low probability of arising at Berkshire – likely as low as at any public company.” -- 2014 annual letter to investors.

“Both the board and I believe we now have the right person to succeed me as CEO – a successor ready to assume the job the day after I die or step down. In certain important respects, this person will do a better job than I am doing.” -- 2014 annual letter to investors.

“My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency. When these corporate cancers metastasize, even the strongest of companies can falter. The examples available to prove the point are legion, but to maintain friendships I will exhume only cases from the distant past.” -- 2014 annual letter to investors.

“All told, Berkshire is ideally positioned for life after Charlie and I leave the scene. We have the right people in place – the right directors, managers and prospective successors to those managers. Our culture, furthermore, is embedded throughout their ranks. Our system is also regenerative. To a large degree, both good and bad cultures self-select to perpetuate themselves. For very good reasons, business owners and operating managers with values similar to ours will continue to be attracted to Berkshire as a one-of-a-kind and permanent home.” -- 2014 annual letter to investors.

Disclosure: The author owns no stocks mentioned.