Warren Buffett announced his plans to step down as CEO of Berkshire Hathaway at its annual shareholder meeting on May 3. He recommended Greg Abel to take over at the end of the year. This marks a significant moment in the history of the multinational conglomerate.
The announcement was made during one of the most closely watched aspects of corporate governance: leadership succession. For any company, this can be a perilous moment. Questions arise about the new leader’s ability to either turn things around during tough times or maintain the momentum during prosperous periods.
When the outgoing CEO is Warren Buffett, one of the most revered figures in business history, the stakes are even higher. Abel’s journey within Berkshire Hathaway started in 1999 when the company invested in MidAmerican Energy. By 2018, both Abel and Ajit Jain had been elevated to vice chairmen, positioning them as potential successors.
Three years later, Buffett explicitly tapped Abel to be the next CEO. On one level, it is hard to imagine Berkshire Hathaway without Buffett. Characterized by his investment acumen and leadership, Buffett has been synonymous with the company.
Alongside his late business partner Charlie Munger, Buffett has led Berkshire Hathaway to unimaginable heights through strategic investments and a long-term outlook. Leadership transitions are often fraught with challenges. Many companies falter, either because they lack a succession plan or they appoint the wrong person.
Disney, for instance, had to bring back Bob Iger after a challenging leadership change. UnitedHealth recently turned to its former CEO Stephen Hemsley in hopes of revitalizing the company. Berkshire Hathaway, however, appears to have approached the transition thoughtfully and methodically.
Abel’s 26-year tenure at the company positions him as exceptionally well-prepared to take the helm.
buffett’s transition at berkshire
The decision to elevate him illustrates a well-executed succession plan designed to ensure the company’s continued success.
Buffett’s long-term vision has always been about maximizing value. Known for his preference for long-term investments, famously saying, “Our favorite holding period is forever,” Buffett applied this same philosophy to succession planning. In an interview, he noted, “Really great talent is rare.
It’s rare in business. It’s rare in capital allocation. It’s rare in almost every human activity you can name.”
This vision underscores why Buffett’s selection of Abel as his successor is seen as a masterstroke in succession planning.
A Canadian from Edmonton, Abel appears to be a natural fit for the top position given his long tenure and experience within the company. Berkshire Hathaway has grown into a colossal conglomerate under Buffett’s leadership, reflecting an empire established during his long reign of strong growth. One significant move Abel could make to distinguish his leadership would be to pay a dividend, a strategy Buffett and Munger avoided.
Although Berkshire once issued a dividend in 1967, Buffett joked that he must have been in the bathroom when it was declared. Introducing a dividend would signal a new direction and potentially offer substantial returns to investors. Buffett himself mentioned in 2018 that a dividend might be considered in 10 to 20 years, although he is unlikely to see it implemented.
Greg Abel’s history in the utilities sector as president of CalEnergy makes it plausible that he might focus investment in that industry. The conservative nature and cash-generating potential of utilities align with Berkshire’s investment philosophy. Abel’s track record includes roles at Aegis, Kraft Heinz, Nuclear Electric Insurance Ltd., and the Hockey Canada Foundation, suggesting he has the expertise to navigate and expand Berkshire’s diverse holdings.
The potential for major acquisitions remains strong, particularly in the utilities sector, and recent investments in Constellation Brands and Domino’s Pizza indicate ongoing strategic diversification. Despite the stock and market levels being near historical highs, Berkshire Hathaway continues to show immense potential for future growth. While growth may slow due to the sheer size of the enterprise, the capacity for long-term prosperity and shareholder value remains robust.
