October 23rd, 2014
“What will enable the great company to endure beyond the Warren Buffett era, is Berkshire’s corporate culture.”—Lawrence Cunningham
The following post is by Lawrence Cunningham, author of Berkshire Beyond Buffett: The Enduring Value of Values.
What will happen to Berkshire Hathaway after the Warren Buffett era? The answer to that multi-billion dollar question lies in my book, Berkshire Beyond Buffett: The Enduring Value of Values, which lays out in detail Berkshire’s five-pronged succession plan with all its nuances and complexities. Here is a thumbnail sketch.
At most companies, succession planning focuses on grooming a senior manager who can assume the role of chief executive. Today you hear about who should succeed Jamie Dimon at JPMorgan and 15 years ago about who should succeed Jack Welch at General Electric. The personnel aspects of Berkshire’s succession plan are a bit more involved—although, despite enormous attention, they are also the least significant parts of its plan.
Buffett’s management roles will be divided into an executive function (CEO) and an investment function (CIO). The next CEO will come from among existing Berkshire executives, probably one of its 50 significant subsidiaries. This successor will get responsibility for Berkshire’s acquisitions and allocating capital. Chapter 9 of the book shows how many Berkshire managers excel in these areas, providing a wealth of managerial talent.
The second function is handling investments. Berkshire hired two people in the past half-decade—Ted Weschler and Todd Combs—for that job. They’ll face challenges ahead, including tough choices about when to sell big stakes and what to do with the proceeds. While still important, the investment side of Berkshire has greatly declined in significance in recent years, now representing only about 20 percent of its value.
Third, for board chairman, Buffett says he’d propose a member of his family, widely assumed to be Howard, his eldest son. That job would be to sustain the cultural heritage I outline in Berkshire Beyond Buffett. In an interview for the book, Howard noted that Berkshire is his father’s life’s work, and sustaining the legacy is vital to him.