What Will Happen to Berkshire afer the Buffett Era? — Lawrence Cunningham

“What will enable the great company to endure beyond the Warren Buffett era, is Berkshire’s corporate culture.”—Lawrence Cunningham

Berkshire Beyond BuffettThe 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.

As important as personnel is, more important is the question of shareholder control. Buffett has been Berkshire’s largest shareholder since 1965, today owning 20% of the economic interest and holding 34% of the voting power. While many assume that after he departs, Berkshire will go from having a controlling shareholder to lacking one, that’s misleading.

As I detail in chapter 14, Buffett has carefully planned for his shares to be distributed gradually over a period of up to twelve years to foundations, which will in turn sell the shares in steady annual liquidations. For that time, Buffett’s estate, through its executors, will continue as Berkshire’s controlling shareholder, making a gradual rather than an abrupt shift.

More important than all this, and what will enable the great company to endure beyond the Warren Buffett era, is Berkshire’s corporate culture. My book tells the stories of Berkshire’s 50 significant direct subsidiaries, which define the company today, representing 80 percent of its value. As I examined each, through archival research plus interviews and surveys, a pattern emerged: the same traits began to appear repeatedly, nine altogether. These intangible traits translate into financial gain. They also secure the company’s future, hence the book’s sub-title: The Enduring Value of Values.

In tomorrow’s post I’ll identify and discuss the nine values that define Berkshire Hathway.

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