Will Splitting Buffett's Role Work?
A group of Buffett biographers and experts discuss the implications of splitting Berkshire's top role in three.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser.
I'm here at the Value Investing Conference in Omaha, Neb., ahead of the Berkshire Hathaway Annual Meeting.
One of the topics on many people's minds, of course, is succession. One of the things that's unusual about Warren Buffett's eventual departure from Berkshire is that he will be replaced by several people instead of just one. There will be groups of people running investments, groups of people running the operating businesses, as well as a non-executive chairman. But how will this team perform?
I asked several Buffett authors what their thoughts were.
Robert Miles: Well, I don't think the culture will change, because the culture has been in place with a guy developing the culture over 47 years. Very difficult to change the culture.
I do think he is a genius, and you've got to divide his job into three parts. His son, or family members, are most likely to ensure the culture as a non-executive chairman, and then we now know there will be two CIOs responsible for allocating $60 million a day that's flowing into Omaha, and then there will be a CEO in charge of the other CEOs whose job is to stay out of the way and keep them happy and don't mess with the culture.
Glen Arnold: It's going to be extraordinarily difficult to replace the personality and the skills and the knowledge and experience of the guys at the top at the moment. But I'm sure ... the guys at the top at the moment are going to do their best in terms of making sure that there is a good team still remaining, but you can be never certain about these things. The guys that they are testing out at the moment--of course, there is one that we don't know the name of--I'm sure they have been selected to be extraordinarily good.
Jeff Matthews: I think it's a huge issue. I think it is the issue, because right now Buffett in his head does all those things. He preserves the culture, which is the chairman job; he does the investment allocation, which is the CIO job; and he runs the companies--he is the CEO job. And he does that himself in his head. When he is gone, you're going to have three different people.
But what happens, for example, if the businesses don't do well for a few years? What happens if it looks like all the money they are pouring into things like Fruit of the Loom or Shaw Carpets or the railroad aren't earning a good return on capital? What do the investment guys say? Do they start to say, "Hey, wait--why don't we get some more of the capital? Why don't you give it to us?" Or vice versa: What if those guys have a couple of bad years, and the operating guys starts to say, "Hey, wait a minute--why are we wasting money in stocks? Why don't we put it into our businesses, where we're going to get an assured return?"
So, I think that's the issue. And I think it's going to cause a lot of problems down the road after he's gone.
Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.