- 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
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.
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