“And Greg will keep the culture.”
— Charlie Munger, 2021 Berkshire Hathaway Annual Meeting
When Roger Lowenstein published Buffett: The Making of an American Capitalist in 1995, Warren Buffett was sixty-five years old, an age when most CEOs are getting ready to pass the baton to a younger executive. It was well known that Mr. Buffett had no intention of retiring soon, but I doubt Mr. Lowenstein (or anyone else) suspected that Mr. Buffett’s tenure as CEO of Berkshire Hathaway was only at its halfway point! When I read the book shortly after publication, my impression was that the biography told a story that was pretty much in the rear view mirror. When I finally purchased shares of Berkshire Hathaway in early 2000, I thought that I might be buying five more years of Mr. Buffett’s leadership, if I was very lucky.
On this final day of 2025, Mr. Buffett will conclude a tenure of more than six decades at the helm of a company that underwent a transformation so profound that he is properly regarded as the founder of Berkshire Hathaway. Mr. Buffett’s accomplishments have been dissected in great detail over the years, including on this website, and one would hope that Mr. Lowenstein will entertain the idea of writing a sequel someday. Mr. Buffett’s life and career will be studied for decades to come, but right now the focus for Berkshire shareholders should be squarely on the formidable challenge facing his successor.
When Charlie Munger revealed the identity of Mr. Buffett’s successor in 2021, Greg Abel was fifty-eight years old. Mr. Abel is now sixty-three, nearly as old as Mr. Buffett was in 1995. However, Mr. Abel clearly has no plans to retire soon. In a letter published last month, Mr. Buffett clearly stated that Berkshire must avoid hiring CEOs “whose goal is to retire at 65, to become look-at-me rich or to initiate a dynasty.” Mr. Buffett hopes that Berkshire might have only five or six CEOs over the next century. Clearly, the pressure is on Mr. Abel to be the first in a string of exceptional successors carrying forward Mr. Buffett’s legacy.
Mr. Abel’s first challenge is to somehow retain Berkshire Hathaway’s unique corporate culture which is based on what Charlie Munger called a seamless web of deserved trust.
Berkshire’s decentralized approach all but requires a very high level of trust without which the system would quickly fall into chaos. The foundation of Berkshire’s seamless web of deserved trust was the relationship between Warren Buffett and Charlie Munger, but this level of trust did not develop instantly. The two men hit it off immediately when they met in 1959 and cooperated on business ventures throughout the 1960s, but it was only in the 1970s that the two truly became business partners.
Trust takes time to develop and can be easily lost.
It is clear that both Warren Buffett and Charlie Munger had a great deal of trust in Greg Abel’s abilities to name him as Berkshire’s next CEO. Mr. Abel has been at Berkshire for over a quarter century, managing the company’s energy subsidiary for many years before becoming Vice Chairman of non-insurance operations in 2018 and once again proving his management skills in that role. It is fair to suppose that a seamless web of deserved trust currently exists between Berkshire’s board and Mr. Abel. However, the seamless web needs to extend down into Berkshire’s hundreds of subsidiaries to make its decentralized system work in the years and decades to come.
During the first half of Mr. Buffett’s tenure are CEO, most acquisitions were handshake deals with founders or longtime managers of subsidiaries. These subsidiary leaders had tremendous trust in Mr. Buffett and, in return, he allowed the managers to operate with minimal supervision. This system worked very well for decades even though there were inevitably unfortunate exceptions. However, in recent years, Berkshire’s size has increased to the point where any future acquisition that “moves the needle” must be very large. The possibility of acquiring privately held subsidiaries of adequate size run by founders or their families diminishes every year. Under present conditions, Mr. Munger’s seamless web of deserved trust is likely to transition into Ronald Reagan’s maxim of “trust, but verify.” Mr. Abel is a much more hands-on manager than Mr. Buffett and seems uniquely suited to creating such an environment of earned and deserved trust.
Mr. Abel’s second challenge is closely related to the first: He must attempt to improve the performance of Berkshire’s laggards while simultaneously sustaining the culture.
One of the most obvious current examples is the situation at Pilot, now a wholly owned subsidiary that Berkshire acquired from the founding family over a period of several years. At a surface level, the Pilot acquisition was right out of Mr. Buffett’s playbook. The Haslam family built Pilot over several decades into a successful business familiar to anyone who has driven on America’s interstate highway system. However, a very ugly lawsuit two years ago illustrated all that can go wrong with handshake deals. Berkshire assumed a certain level of good faith that failed to materialize. To make matters worse, the performance of the business has lagged badly ever since Berkshire assumed full ownership.
Mr. Abel appointed a new CEO and management structure at Pilot. The company is investing in improving its locations and continues to own real estate along America’s interstates that cannot be replicated. But the verdict on this acquisition will not be in for many years to come. Mr. Abel must manage the situation at Pilot knowing that the managers of other Berkshire subsidiaries are paying close attention. Good managers are not afraid of ambitious goals and do not shy away from accountability, so making such demands at Pilot is not going to hurt Berkshire’s culture. What could hurt is a sense of arbitrariness, unfairness, or a short-term focus that managers of other subsidiaries take as a signal of what may happen to their businesses.
Pilot is an example that is almost certainly fixable in the long run, but this is not necessarily the case for all of Berkshire’s subsidiaries, particularly some of the smaller businesses that were acquired decades ago under very different economic conditions. Mr. Abel must learn from Mr. Buffett’s mistake of keeping the textile mills operating for decades after it became clear that they would never produce acceptable returns on capital. Mr. Buffett has always said that Berkshire will tolerate underperforming subsidiaries as long as they do not consume capital. It would be risky for Mr. Abel to embark upon a program of “optimization” that includes major divestitures of businesses that are merely sub-par, but he shouldn’t be tolerant of large laggards if they appear to be unfixable.
Mr. Abel’s third challenge is to manage Berkshire’s overall capital allocation. In many ways, this will be the greatest challenge of all because of the shoes he is stepping into. At the risk of stating the obvious, Mr. Abel should not attempt to fill those shoes completely.
Warren Buffett has unique skills when it comes to capital allocation because of his background as both an investor and a businessman, honed through eighty years of experience. He also had the great fortune to partner with Charlie Munger, perhaps the only businessman of his time who could equal Mr. Buffett in raw intellect. The Buffett-Munger duo produced Lollapalooza results that will simply not be repeated.
Mr. Abel’s background is as a businessman, not as an investor, yet he now takes the reins of a company with over $354 billion of cash on the balance sheet generating tens of billions of dollars of additional free cash flow annually. In addition to deploying this massive pile of cash, Mr. Abel is also responsible for Berkshire’s $283 billion equity portfolio. The departure of Todd Combs leaves Mr. Abel with just one investment manager, Ted Weschler, although Mr. Buffett will still be serving as Chairman and presumably will be available to assist with investing duties, at least for the foreseeable future.
Berkshire has been a net seller of equity securities in recent quarters and overall market valuations continue to be elevated. This could change very quickly, but for now it seems like large allocations of cash toward publicly traded stocks is not in the cards. Acquiring a privately held business large enough to move the needle at Berkshire will also be very difficult. A company like Chick-fil-A or Mars would be an ideal fit for Berkshire if purchased for a sensible price. It is not inconceivable that such a deal could happen at some point over the next decade, but I consider this quite unlikely.
Berkshire last disclosed repurchasing its own stock in May 2024. After many years of trading at bargain levels, Berkshire finally started trading at a higher valuation last year and there are reasons to believe that Mr. Buffett might regard Berkshire’s current price as reasonably valued. Naturally, Mr. Buffett likes to buy back stock at bargain levels rather than at “reasonable” levels, but we should be aware of the risk of anchoring on a nominal price level. As Berkshire continues to post earnings quarter after quarter and retain all of the earnings, a static stock price can quickly fall into bargain territory again. As a result, Mr. Abel may well have opportunities to repurchase Berkshire stock in the coming years.
When will Berkshire pay a dividend?
This is a perennial controversy among longtime Berkshire Hathaway shareholders. Throughout most of its history, Berkshire shareholders would have been far poorer if Mr. Buffett had paid dividends to shareholders. This is because Berkshire has historically been able to act as a compounding machine, deploying retained earnings within the conglomerate at high to reasonable rates of return in a manner that shielded shareholders from immediate personal income tax consequences.
It is true that any shareholder who wishes to have income can “create their own dividend” by periodically selling shares, transforming Berkshire into an income stock. This works well as long as shares are trading at reasonable levels and shareholders do not become forced sellers. However, this is a personal finance matter that should not concern management so long as attractive internal reinvestment is possible.
With Mr. Buffett at the helm, shareholders have been more tolerant regarding retention of cash on the balance sheet than they are likely to be in the future. The optionality of Mr. Buffett having an enormous pile of cash to work with in a crisis can perhaps justify the low rates of return available on cash and treasury bills. With Mr. Buffett still in the picture as Chairman, this tolerance might continue for a period of time, but eventually Berkshire will have to adopt a more typical policy of returning cash to shareholders. This could take the form of repurchases, if shares are available at reasonable prices, or it could take the form of a dividend. Dividends could come either as regular quarterly cash payouts, as periodic special dividends, or as a combination of the two. It seems inevitable that Berkshire will declare some form of a cash dividend within the next five to ten years unless very large repurchases are possible at reasonable prices.
Berkshire Hathaway is a unique company due not only to Mr. Buffett’s exemplary leadership but because of shareholders who have held the stock for many decades.
I agree with Mr. Buffett’s assessment that “Berkshire has less chance of a devastating disaster than any business I know.” For this reason, Berkshire has been my most important investment for over a quarter century. The fact that the vast majority of my shares are in taxable accounts with large embedded capital gains creates a strong bias for inaction, but one I believe is justified based on the company’s prospects under Greg Abel’s leadership. I am taking Charlie Munger’s advice and holding on to my stock.
The real test for Mr. Abel might not come immediately but when Mr. Buffett is no longer serving as Chairman, either due to poor health or death. Hopefully that day is many years from now, but the reality is that it will almost certainly come within the next decade. Once Mr. Buffett dies, his shares will be given to philanthropic interests very quickly. Within a decade of his death, the voting picture will change dramatically even if his children remain on the board, or his grandchildren take board seats. At that point, probably in the 2040s and hopefully still under Mr. Abel’s leadership, Berkshire will face a much greater inflection point.
But that’s a concern for another day. For now, I’m sure that I join all Berkshire shareholders in wishing Greg Abel the best of luck as he takes over as Chief Executive Officer in 2026!
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