By Anupreeta Das
Berkshire Hathaway Inc. has dropped the biggest hint yet that a
future chief executive could either be reinsurance head Ajit Jain
or energy boss Greg Abel, as its founders indicated the $363
billion conglomerate is ready for a future without them.
Berkshire Chairman Warren Buffett and Vice Chairman Charles
Munger, in separate letters to shareholders, defended the company's
sprawling structure and argued why it should stay in place after
they are gone. Mr. Buffett didn't name his successor, but Mr.
Munger suggested Mr. Jain or Mr. Abel would be worthy
replacements.
The India-born Mr. Jain is credited with building Berkshire's
massive reinsurance business from scratch. Mr. Abel, meanwhile, is
a Canadian who joined Berkshire through its 2000 purchase of a
utility company, and has built it into a large energy provider
supplying 11 million customers globally.
Berkshire released the two letters, as it celebrated its 50th
year under the control of Mr. Buffett, 84, and right-hand man Mr.
Munger, 91. It also said fourth-quarter earnings dropped 17% to
$4.16 billion, and full-year profit rose 2% to $19.9 billion.
The vice chairman, who normally doesn't write shareholder
letters, offered the strongest guidance on the company's next
leader. Berkshire, he wrote, would remain a "better-than-normal"
company, with its current collection of businesses, even if Mr.
Buffett left the company tomorrow, if his successors were persons
of only moderate ability and if Berkshire wouldn't buy another
large business again.
"But under this Buffett-soon-leaves assumption, his successors
would not be of only 'moderate ability,'" Mr. Munger added. "For
instance, Ajit Jain and Greg Abel are proven performers who would
probably be under-described as 'world-class.'" He added that in
some ways, "each is a better business executive than Buffett."
Neither of the two executives is likely to leave Berkshire
Hathaway or want to change the company's structure in a big way,
according to Mr. Munger.
Berkshire Hathaway is a massive holding company with more than
80 operating businesses including a railroad, insurance companies
and candy, as well as a $117 billion portfolio of stocks. Mr.
Buffett is known for letting his managers run their businesses with
minimal interference. In recent years, he has outlined a succession
plan that would split his role into three.
He already has picked two investment managers who will
eventually take over his stock-picking function and suggested to
the board that his son Howard Buffett, a farmer, be made the
company's non-executive chairman. Mr. Buffett has said he and the
board have picked a CEO successor.
Mr. Munger appeared to be making a hypothetical case in naming
the two men in his letter. But analysts and Berkshire shareholders
have long speculated Mr. Jain, 63, is the most likely candidate to
succeed Mr. Buffett as CEO. Mr. Abel, 52, has been another name on
investors' short lists.
For his part, Mr. Buffett said his successor would have to be a
"rational, calm and decisive individual" with the ability to
allocate capital and "fight off the ABCs of business decay, which
are arrogance, bureaucracy and complacency."
In the section of his letter addressing the future of Berkshire,
Mr. Buffett didn't list any candidates by name. However, he said
the board and he believe Berkshire has the "right person to succeed
me as CEO ... In certain important respects, this person will do a
better job than I am doing."
Mr. Buffett filled the rest of his 15-page "past, present and
future" section of the letter with anecdotes, reminiscences and
self-deprecating humor, while expressing optimism about the future
of the U.S. and Berkshire Hathaway. He discussed why Berkshire
makes sense as it currently is structured--the centrality of
Berkshire's "special culture" to its economic health and the value
of being a conservative player. He also said that diversification
was key to Berkshire's profitability.
The question of whether Berkshire will hold together without its
founders has dogged shareholders in recent years. Mr. Buffett
defended Berkshire's conglomerate status and said if "used
judiciously," it "is an ideal structure for maximizing long-term
capital growth." Berkshire can move huge sums of money from one
business to another without incurring taxes and doesn't have
"historical biases" associated with being in one industry, he
wrote.
Mr. Buffett said Berkshire wouldn't spin off any businesses
voluntarily because it makes no sense. However, he noted regulators
might force the company to do so, as in the past.
The Omaha, Neb.-based investor traced Berkshire's journey from
his "monumentally stupid decision" in 1965 to buy a struggling
textile mill to the behemoth it is today. In doing so, he paid
tribute to Mr. Munger, whom he met in 1959 and who has been Mr.
Buffett's partner throughout his adventures at Berkshire. "The
blueprint he gave me was simple: Forget what you know about buying
fair businesses at wonderful prices; buy wonderful businesses at
fair prices."
That strategy paid off handsomely for Berkshire, which today
employs about 340,000 people and has more than $55 billion in cash.
As Mr. Buffett likes to point out, Berkshire owns 9 1/2 companies
(including half of H.J. Heinz, which Berkshire co-owns with 3G
Capital) that would be on the Fortune 500 list were they
independent.
"Listening to Charlie has paid off," Mr. Buffett wrote. Now
"Berkshire is ideally positioned for life after Charlie and I leave
the scene."
Write to Anupreeta Das at anupreeta.das@wsj.com
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