Berkshire Hathaway jamboree highlights challenge facing Warren Buffett’s successor

Berkshire Hathaway’s annual meeting in the Nebraskan city of Omaha was the first time shareholders had heard in person from the group’s billionaire founder Warren Buffett since the onset of the pandemic.

A group of institutional investors pushing for Berkshire to disclose more on climate change were given short shrift, while the 91-year-old made clear that he can dispense with the board’s approval when striking big deals — something that is requisite for most other CEOs across America.

“If Warren thinks the deal is OK, the deal is OK,” Buffett said of the board’s thinking, as he held court on Saturday at a meeting that reminded shareholders that Berkshire remains very much the Warren show. “I could make a deal with anybody and it doesn’t get all messed up with process.”

Although many investors relished the disregard for convention that has long been a hallmark of how Buffett runs Berkshire, the first gathering in Omaha since the coronavirus crisis also offered a window into how life may change once the billionaire is no longer in charge.

His anointed successor Greg Abel, who is Berkshire’s vice-chair and runs the company’s vast collection of businesses outside insurance, was able to wander across the convention floor without being recognised as he chatted with the managers of Berkshire subsidiaries.

When approached by media, Abel offered a quick handshake before moving on. The executive, who Buffett promoted to vice-chair in 2018 alongside insurance chief Ajit Jain, has not sought to cultivate an aura in the way that Buffett and Charlie Munger, who helped build Berkshire, have.

Some shareholders said they were disappointed by the answers Abel offered to the questions directed his way, including over why the performance of Burlington Northern Railroad, which he oversees, had lagged rivals.

“Anything tied to Abel was fumbled,” said Cole Smead, president of Smead Capital Management, a longstanding Berkshire shareholder that has been cutting back its stake.

Buffett added to Abel’s answer on BNSF, saying the group was methodical when making changes to its 20,000 miles of track. But any misgivings over answers at Berkshire’s AGM are overshadowed by the broader question of how the conglomerate will be run when its founder is gone.

Several investors and analysts said the trust Buffett has built up over several decades to run the $713bn group exactly as he wants is unlikely to be immediately — or perhaps ever — afforded to Abel.

There are already signs of change. Berkshire has agreed that the positions of CEO and chair, both held by Buffett, will be split when he leaves.

Smead worries that the move risks hobbling Berkshire, which has long relied on Buffett being able to strike multibillion-dollar deals in a matter of days. “Part of the Berkshire strength is speed [in decision making],” he said. Buffett and Munger have “a record that gives the board confidence”.

It worked in Berkshire’s favour in March when it clinched the $11.6bn takeover of insurer Alleghany. After indicating his interest over a dinner with the Alleghany CEO, the deal was completed rapidly. Shareholders worry Abel will not have that same latitude.

Buffett said his “guess” was that his successor would face a different board internally, one that would “put some more restrictions or they’ll have some more consultations on some matters than they do with me”.

Cathy Seifert, an analyst at investment research group CFRA, hopes that such consultations extend to the question of climate change disclosure, an issue on which Berkshire investors Calpers, Federated Hermes and Canadian pension plan CDPQ tabled a resolution.

Claiming that the asset managers proposing the resolution did not really represent the views of the retirees whose money they manage, Buffett said “what they care about is whether we check their boxes”.

Seifert described Buffett’s response as a “little disconcerting”, adding: “this is not how the head of a significant company [should act]. This should be taken very seriously.” The resolution on climate disclosure was defeated.

As Berkshire’s latest results revealed the group had ploughed $51.1bn into the US stock market last quarter and reported operating earnings just ahead of the same period a year ago, Buffett offered a robust defence of how the company operates.

“Berkshire is just plain different,” he told shareholders, adding that the board “understands that our culture is 99.99 per cent of running the business”.

One issue raised at the AGM on Saturday was whether the fact that a significant portion of Abel’s wealth is tied up in Berkshire Hathaway Energy, rather than the parent company, creates a conflict of interest. Abel joined Berkshire in 2000 when the conglomerate acquired MidAmerican Energy, a utility that he helped run.

It is an issue that Buffett acknowledged the board’s governance committee may one day have to examine. Munger, often more acerbic than his long- term business partner, quipped that he wished “we had 20 conflicts of interest just like it”.

Buffett recognised that change is inevitable once he has gone, but some investors say the board had already taken steps to retain a culture that helps unite a sprawling conglomerate that employs more than 370,000 people.

Last year Berkshire added Chris Davis, a money manager and third-generation Berkshire shareholder, to its board. Buffett’s daughter Susan was also elected as a director.

“The board changes are about both ensuring the continuity of the values and legacy,” said Christopher Rossbach, chief investment officer of J Stern & Co, a longtime Berkshire shareholder. “But they are also putting the people and processes in place to ensure the governance works [and] that when the succession takes place Berkshire retains the nimbleness it needs to make the investments it does.”