“Greg will keep the culture,” said Munger, the 97-year-old vice president. The sighting, which briefly caused Buffett to miss a beat, was interpreted by those listening as a rare signal on who was to succeed him.
Greg Abel is the 58-year-old vice chairman of Berkshire, and CNBC confirmed on Monday that Munger’s hint was indeed a nod that Abel is next on the list. “The directors agree that if anything happened to me tonight, it would be Greg taking over tomorrow morning,” said Buffett.
Abel leads the company’s non-insurance investments, including the Burlington Northern Railroad, manufacturing companies and utilities he once led as managing director. He had been one of the two men most often in a hurry to one day succeed Buffett, alongside his other lieutenant Ajit Jain.
It was already known that a succession plan had been drawn up by the board of directors, but the alleged heir had been kept away from the rest of the world. It was a secret that had captivated Berkshire shareholders for at least a decade given the age of Munger and Buffett. Buffett will be celebrating his 91st birthday in August.
On Saturday, investors took a closer look at Abel and Jain.
On stage, the duo sat side by side with Buffett and Munger at the annual reunion of the year, answering questions and defending their strategies. Abel spent much of his time championing Berkshire’s investments in renewables and explaining why the company didn’t need to pass a shareholder proposal that would hold it accountable for actions taken by his companies on climate change.
Ed Walczak, a portfolio manager at Vontobel, was among the investors who noticed Munger’s comment, which came late in the three-and-a-half hours of questions of the day. He said it was interesting that the answer came when neither Munger nor Buffett were asked directly about who would take over.
“The good news with Greg was that he had the answers on his tongue. There was no question or ambiguity in his answers, ”he said. “Hopefully Charlie is right that the culture can be replicated.”
Abel took on a more high profile role on Saturday, after a rather subdued performance the year before when he joined Buffett at a grim annual reunion and played a supporting role for his boss. This year, he presented his thoughts on the inflationary pressures affecting Berkshire, the battle for the takeover of rival rail operator Kansas City Southern, as well as the way he spends his days at work.
“I’m trying to figure out what our competitors are doing, what the fundamental risks are around these businesses, how they’re going to be disrupted,” he said. “It always comes down to allocating our capital correctly in these companies in relation to risk?”
James Shanahan, analyst at Edward Jones, said Abel appeared to be a “very capable” executive and the meeting benefited both from his presence and that of Jain. The pair offered a glimpse of an area where investors have complained about being slightly information-deprived: the performance of the company’s underlying operating activities.
Considering the “Berkshire Handbook, which does not have an active investor relations function, Greg’s information sharing and transparency was a welcome change,” said Cathy Seifert, analyst who covers the company at CFRA Research.
Abel and Jain were promoted to company vice presidents in 2018, further strengthening their pioneering status for the CEO role and making them one of Berkshire’s most visible leaders alongside Todd Combs and Ted Weschler , who help manage Berkshire’s investment portfolio. Buffett said at the time that the promotions were “part of a succession movement.”
But Buffett’s succession plan has drawn fire from some major shareholders. BlackRock voted this year against Walter Scott, head of the board’s governance committee, citing, among other things, “limited disclosure on succession planning.” Buffett’s outsized leadership role at Berkshire makes the risk of succession even greater, BlackRock said.
“There’s this board game about succession,” Seifert said. “From Berkshire’s point of view, the issue of succession has been resolved and to paraphrase. . . they have Greg.
Abel will face challenges when he inherits Berkshire, although the business is not immediately changing. Buffett plans to donate the vast majority of his wealth, which is primarily held in Class A shares of Berkshire Hathaway. As these shares are converted to Class B and sold to new investors, the group could face more pressure from its shareholders and potentially attract the attention of an activist, Seifert said.
Buffett himself conceded this point. In 2019, he said “there is no perpetuity” and that Berkshire “must deserve to be maintained in its current form”.
The pressure is already mounting. This year, investors have increasingly expressed frustration with Berkshire’s efforts on climate change. A shareholder proposal on climate change disclosures garnered around 25% of the votes cast, a figure that belies widespread investor support in Berkshire for the adoption of the measures. Buffett’s Class A shares have 10,000 times the voting power of Class B common shares which are more widely held by the general public.
The major holders of this Class B share, including BlackRock and Norges Bank, voted in favor of the proposal.
“The remaining shareholders who voted in favor of the resolution sent the company a strong message about the importance of recognizing climate risk,” said Dan Bakal, director of Ceres, a sustainable investor network.
Shanahan added that Buffett’s participation skewed the outcome of the vote, but over time the change in the shareholder base would leave a mark on the company. “I think he threw the box down the road, but it’s inevitable that investors and other stakeholders will demand disclosure of progress.”
Buffett spent part of Saturday defending the way he led the company through the crisis and justifying why Berkshire’s board of directors advised shareholders to vote against two shareholder proposals. Characteristically, he also joked about the two nonagenarians at the top.
“People are talking about the management of aging at Berkshire,” he said. “I always guess they’re talking about Charlie when they say that. But I want to point out that in three more years [when Munger turns 100]Charlie will age at 1 percent per year. No one ages less than Charlie.
Additional reporting by Patrick Temple-West