“I plan to work past 100 but to do so I may have to learn to think outside the box.” — Warren Buffett interviewed by The Wall Street Journal.
Warren Buffett turns 80 years old on Monday and apparently has not run out of puns just yet. Mr. Buffett has always indicated that he intends to work as long as he is capable of doing the job. Those who have spoken to Mr. Buffett in recent years or listened to his responses during the five hour annual meeting seem convinced that he has not missed a beat and he is reportedly in excellent health.
The Social Security Administration’s actuarial tables indicate that an 80 year old man can expect to live another 7.78 years on average. Obviously, this is just an average and includes individuals who are currently in poor health. As a result, many Berkshire shareholders expect Mr. Buffett to remain in his job for at least five years and possibly much longer. Regardless, there are no guarantees in life and Berkshire has a succession plan in place. According to The Wall Street Journal article cited previously, Mr. Buffett has designated Berkshire Board Member Bill Gates to monitor his performance in the coming years and to let him know if it becomes necessary to step down.
Succession Concerns Will Persist
We have argued in the past that most of the concerns regarding Berkshire’s succession plans are unfounded. However, it is also natural for Berkshire shareholders to have some anxiety over the issue given Mr. Buffett’s track record. Who can replicate such a track record in the future?
Seeking someone to replicate Mr. Buffett’s track record is not the solution. Berkshire Hathaway is far too large today to ever hope to replicate the historical returns of the past 45 years. In fact, it would be disastrous for a new CEO to attempt to manage Berkshire as if it were still a much smaller enterprise. Instead, the company will need a new CEO who can continue to motivate managers of Berkshire’s diverse collection of operating companies and to oversee the activities of the investment managers who will be hired to manage Berkshire’s portfolio.
Who might these successors be? We have argued that David Sokol is the most likely CEO candidate (here is one of several articles on Mr. Sokol and the succession issue) and he has obviously gained the confidence of Mr. Buffett particularly given the situation at NetJets. Mr. Sokol’s management of NetJets has not been without controversy, to put it mildly. How the NetJets situation will ultimately play out could decide whether Mr. Sokol eventually takes over as CEO.
From an investment management standpoint, we seem to have more clarity given Charlie Munger’s recent comments regarding Li Lu’s future role at Berkshire. Investment managers could be named while Mr. Buffett remains as CEO based on a plan described in the 2006 letter to shareholders. The plan called for one or more investment managers to work under Mr. Buffett with portions of Berkshire’s capital. With Lou Simpson’s planned retirement at the end of the year, it is possible that Li Lu or another investment manager may be named to assist with investments.
Berkshire Hathaway shareholders are likely almost unanimous in wishing Mr. Buffett a happy 80th birthday on Monday and hoping that he stays at the helm of Berkshire for a long time to come. However, being a realist, Mr. Buffett has made provisions for succession that should provide reassurance to shareholders.
Disclosure: The author of this article owns shares of Berkshire Hathaway.