BREAKINGVIEWS: Buffett's "trust me" succession plan doesn't fly

NEW YORK Mon Feb 27, 2012 3:49pm IST

A woman displays playing cards for sale with a picture of Berkshire Hathaway Chairman Warren Buffett as the king of spades at a souvenir stand at the company trade show during the BH annual meeting in Omaha, Nebraska April 30, 2011. REUTERS/Rick Wilking/Files

A woman displays playing cards for sale with a picture of Berkshire Hathaway Chairman Warren Buffett as the king of spades at a souvenir stand at the company trade show during the BH annual meeting in Omaha, Nebraska April 30, 2011.

Credit: Reuters/Rick Wilking/Files

Related Topics

Stocks

   
Priyanka Gandhi Vadra, daughter of Congress party chief Sonia Gandhi, adjusts her flower garlands as she campaigns for her mother during an election meeting at Rae Bareli in Uttar Pradesh April 22, 2014. REUTERS/Pawan Kumar

Election 2014

More than 814 million people — a number larger than the population of Europe — are eligible to vote in the world’s biggest democratic exercise.  Full Coverage 

NEW YORK (Reuters Breakingviews) - Warren Buffett says he has at last identified someone to replace him when he's gone. Anointing a successor at Berkshire Hathaway is an important step in what will be one of the most significant corporate transitions since the torch was passed at Apple. Yet in his annual letter published on Saturday, Buffett demurred on saying exactly who. Given recent events, his "trust me" plan doesn't fly.

Few industry titans want to be a lame duck. Buffett, even at 81, is no exception. Though he has hired two money managers, Todd Combs and Ted Weschler, to eventually take over the company's $100 billion-plus investment portfolio, Buffett made clear neither man would be running Berkshire, saying they'd both report to the future mystery chief executive.

The Oracle of Omaha's shortlist needed a redraft not long ago. David Sokol, who turned around Berkshire's flailing corporate jet business, was considered by many Buffettologists to be next in line. But Sokol left amid scandal last year after he traded in shares of Lubrizol at the same time he was recommending his boss buy the company -- which Buffett eventually did for nearly $10 billion. The episode cast doubt on Buffett's character assessment skills, especially when he initially defended Sokol's actions.

And though Buffett has built Berkshire into an investing powerhouse, he himself has struggled with the sprawling $200 billion conglomerate lately. He and partner Charlie Munger have failed to deliver the outsized returns that made them famous. In 2011, the company's gain in book value per share -- Buffett's preferred performance measure -- of 4.6 percent only narrowly exceeded that of the S&P500, in one of its weaker showings since 1965. Berkshire also lagged the broader market in 2009 and 2010. And Buffett conceded that a winning streak of 43 five-year periods is probably about to break.

Ajit Jain, who runs Berkshire's reinsurance business, still looks to be a front-runner to succeed Buffett, though others like Tony Nicely of Geico could also fit the bill. Buffett's mentor, Ben Graham, once said the essence of investment management is the management of risks. Buffett should help his own shareholders manage one of the biggest risks at Berkshire -- and just tell them precisely who he has in mind to run the place.

CONTEXT NEWS

-- Warren Buffett, the chairman and chief executive of Berkshire Hathaway, said he has settled on a successor for the company, but did not say who, in his annual letter to shareholders published on February 25. "When a transfer of responsibility is required, it will be seamless, and Berkshire's prospects will remain bright," Buffett wrote.

-- Berkshire annual report, click here

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

(Editing by Jeffrey Goldfarb and David Evans)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Oil Imports

Oil Imports

India to make May-July oil payments to Iran - sources.  Full Article 

DLF Shares

DLF Shares

DLF slides 3 percent, underperforms rivals.  Full Article 

Global Economy

Global Economy

Chinese factories stalling as euro zone business picks up  Full Article 

Rupee Falls

Rupee Falls

Rupee falls for third day; foreign fund inflows key.  Full Article 

Record High

Record High

BSE Sensex hits record high for third straight day.  Full Article 

M&M Upgraded

M&M Upgraded

Credit Suisse upgrades Mahindra & Mahindra to 'outperform'  Full Article 

Breakingviews

Breakingviews

Manchester United’s crisis has silver lining  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage