StashLearn
Financial education, no lectures.
Ask
Get the app

Join millions of investors on Stash

Investing, simplified

Start today with as little as $5
Get the app
Money News

Warren Buffett Names Two Successors

January 11, 2018

 

  • Warren Buffett names his likely successors at Berkshire Hathaway
  • A succession plan is vital to a company’s ongoing operational success
  • Berkshire Hathaway has large equity stakes in companies like Wells Fargo, United Airlines, and American Express
3 min read

When Warren Buffett, a.k.a. the Oracle of Omaha, speaks, people listen.

That’s why people paid careful attention earlier this week when Buffett named two likely successors for his multi-billion dollar business, Berkshire Hathaway, where he is chief executive.

Berkshire Hathaway is one of the most successful companies in the world, and Buffett is one of the wealthiest people on the planet, with an estimated net worth of $87 billion.

But Buffett is also 87 years old. His business partner and company vice chairman is Charlie Munger, who is 94 years old. Business experts have speculated for years about who might replace them.

With that in mind, Buffett made two high-profile promotions on Wednesday that experts say indicate his decision. He made Gregory Abel, 55, vice chair of the company’s non-insurance businesses, according to a company press release. Abel currently heads up Berkshire Hathaway Energy.

He also promoted Ajit Jain, 66, to be vice chair of the company’s insurance group. Jain is the executive vice president of Berkshire’s National Indemnity Company, the release says.

Both executives, who have been at Berkshire Hathaway for decades, were also named directors of the company’s board, which increased in size to 14 people from 12 to accommodate the new members.

What’s a board of directors?: A board of directors is a group of people who oversee the operations of a company and represent the interests of the shareholders.

A succession plan is a formal plan just about every company creates, specifying who takes over the leadership of a business when a the chief executive steps down.

Abel is expected to be tapped as Berkshire’s CEO, when Buffett steps down, according to the New York Times, which further reported Jain may take over Munger’s role as vice chairman.

Why is Warren Buffett doing this now?

Although Berkshire Hathaway’s press release said that Buffett and Munger will stay on in their current positions, both are well past the time that most executives retire.

By naming two relatively young insiders to new executive positions, Buffett is mapping out something called a succession plan. That’s a formal plan just about every company creates, specifying who takes over the leadership of a business when a the chief executive steps down, or dies. Having a succession plan ensures the company will continue operating smoothly, and with a minimum of hiccups when leadership changes.

Berkshire without Buffett

Much of Berkshire Hathaway’s success has been based on Buffett himself, who built the company from a struggling cotton mill and cloth spinning company he purchased in 1962, to its current gargantuan size. In fact, the company’s stock has increased a staggering 1.8 million percent over the last 50 years.

Understandably, the investing world wants to know that Berkshire Hathaway is in good hands when Buffett and Munger step down, and that the company will be led by people who have a strong vision for future growth.

“It’s part of a movement toward succession over time, and [Abel and Jain] are the two key figures at Berkshire,” Buffett told CNBC on Wednesday. “They both have Berkshire in their blood and know the operations like the back of their hands.”

Buffett’s son Howard is likely to be named the company’s chairman when his father departs, the Times reports.

Berkshire Hathaway: Background

Berkshire Hathaway is a conglomerate of  63 companies, some of which are among the most recognized brands in the U.S. Berkshire, for example, owns battery maker Duracell, and underwear manufacturer Fruit of the Loom. It also owns paint company Benjamin Moore, and the confectioner See’s Candies.

In addition to manufacturing, Berkshire also has significant holdings in the property/casualty insurance market, as well as energy businesses. In its most recent annual report, Buffett writes that his bets in insurance have fueled much of the company’s gains over the last 50 years. One of its crown jewels is automobile insurer Geico.

But Berkshire Hathaway isn’t only about the companies that it owns outright. With a market cap of $510 billion as of January 11, 2017, it also has large equity stakes in companies including Wells Fargo Bank, United Airlines, and American Express.

That means in addition to what Berkshire owns outright, it also owns a significant portion of other large U.S. companies that it finds promising.

Berkshire Hathaway is a public company with two classes of shares.

Its class A shares for professional investors–meaning people or institutions with a lot of cash to spend, and a lot of investing experience–are worth nearly $310,200 each, as of January 11, 2018. It also sells Class B shares for regular investors, which are relatively more affordable at $206.96*.

*Source:Yahoo Finance, January 11, 2018.

 

By Jeremy Quittner
Jeremy Quittner is the financial writer for Stash.

Next for you
Do You Roll with Buffett? Consider Berkshire Hathaway on Stash

Quiz

Quiz: Your Money in the News

Are you keeping up with the headlines? Test your financial news smarts now.

Take the quiz
Explore more articlesChoose a topic to learn more about
politics Careers market news pop culture Retirement
Disclaimers

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit www.stashinvest.com/disclosures.