Succession planning has been top of the agenda at the Berkshire AGM for the past decade. Warren Buffett, the company’s chairman and largest shareholder, turns 81 this year. His right hand man, Charlie Munger, turns 87. What was once a distant issue for the company’s younger shareholders is now a pressing one.
Today the company’s succession plans are in tatters. David Sokol, the man touted to run the company’s operating businesses post-Buffett, resigned citing his desire to ‘utilize the time remaining in my career to invest my family’s resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendents and funding for my philanthropic interests.’
In other words, he wanted more and he wanted it soon. Buffett doesn’t want to move over yet and Sokol doesn’t want to wait until he’s ready. That is likely to be a common problem.
Buffett’s announcement also indicated that Sokol had bought shares in Lubrizol before strongly advocating the business to Buffett. Other media sources suggest the timing of the purchases aligned with Sokol telling Lubrizol’s bankers, Citigroup, that Berkshire might be interested in a takeover. When Buffett eventually concurred and Berkshire agreed to buy Lubrizol, Sokol pocketed himself a tidy US$3m.
This might be an isolated incident but it is indicative of a much wider succession planning issue. Berkshire’s risk management, compliance and ethics reside in one head. Other companies have risk management divisions, compliance procedures and ethical guidelines, all of which Buffett is scornful of, precisely because they don’t have Warren Buffett.
The Sokol saga shows that maintaining the Berkshire culture is going to be nigh on impossible without Buffett at the helm. And without the culture, it doesn’t make much sense for this motley collection of businesses to reside under one roof. Perhaps the show can role on for another decade, but the Berkshire we know and love won’t survive Buffett’s departure.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.