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Greg Abel faces succession challenge Berkshire Hathaway from the legendary Warren Buffett Week.
Considered by many to be the world’s greatest investor, Buffett built Berkshire from troubled times. new england In 1962, he started buying textile mills at $7.60 a share, and today the conglomerate’s stock price exceeds $750,000 a share. Even after giving away more than $60 billion over the past 20 years, Buffett’s personal fortune in Berkshire stock is still worth about $150 billion.
Berkshire Hathaway has outperformed the S&P 500 for decades as Buffett acquired insurance companies such as Geico and National Indemnity, manufacturers such as Iscar Metalworking, and retail brands dairy queenmajor utility companies, and even BNSF, one of the largest railroad companies in the United States. Along the way, Buffett has bought and sold hundreds of billions of dollars in stocks and reaped huge profits from his famous long-term bets on companies like American Express, Coca-Cola and Apple.
Berkshire Hathaway has struggled to maintain that pace in recent years because it has grown so large and has struggled to find new major acquisitions. Even a $9.7 billion acquisition of OxyChem this fall might not be big enough to make a dent in Berkshire’s bottom line.
Investors will be watching closely to see what changes Abel might make to Berkshire’s trajectory, but don’t expect any major changes.
Buffett isn’t going anywhere, and Abel has been running all of Berkshire Hathaway’s non-insurance operations since 2018. Buffett will remain chairman and plans to continue coming to the office every day to help identify new investments and provide Abel with any advice he requests.
some changes may occur
CFRA Research analyst Cathy Seifert said it’s natural for Abel to make some changes to the way Berkshire operates. Taking a more traditional leadership approach to nearly 400,000 employees spread across dozens of subsidiaries makes sense, she said.
But Berkshire Hathaway operates under an extremely decentralized structure that trusts its executives to make big decisions. Everyone associated with the company says there are no plans to change that.
When Buffett’s longtime business partner, the late Charlie Munger, assured shareholders at an annual meeting that Abel would maintain the company’s culture, the world learned that Abel would become Berkshire’s designated successor in 2021.
Part of Buffett’s pitch to company founders and CEOs considering selling their companies has been that Berkshire will largely allow them to continue running their companies the same way as long as they deliver results.
“I think the investment community probably appreciates Greg’s management style in terms of getting things done,” Seifert said. “If it helps improve performance, that’s fine.”
Abel plays an active role in managing the company
Abel has proven himself to be a more hands-on manager than Buffett, but he still follows Berkshire’s autonomy model of acquiring companies. Abel asked tough questions of company leaders and held them accountable for their performance.
Abel did announce some leadership changes earlier this month, following the departure of investment manager and Geico CEO Todd Combs and the announcement of CFO Marc Hamilton’s retirement. Abel also said he would name NetJets CEO Adam Johnson Serves as manager of all of Berkshire’s consumer, service and retail operations. This effectively created a third division of the company and took some of the work away from Abel’s job. He will continue to manage the manufacturing, utilities and rail businesses.
Abel will eventually face more pressure to start paying dividends. From the beginning, Berkshire has insisted that it is better to reinvest profits rather than pay quarterly or annual dividends to shareholders.
But if Abel can’t effectively use Berkshire’s $382 billion in cash, investors may push to start paying dividends or adopt a traditional stock buyback program to increase the value of their holdings. Currently, Berkshire Hathaway only buys back shares when Buffett thinks they are cheap, which he hasn’t done since early 2024.
Still, with Buffett controlling nearly 30% of the stock’s voting rights, Abel will be immune to that pressure for some time. After his death, this will gradually diminish as his children distribute his shares to charity as agreed.
Berkshire has solid fundamentals
Berkshire’s many subsidiaries tend to follow the economy and make huge profits when the country prospers. Berkshire’s utilities typically generate reliable profits, and insurers such as Geico and General Reinsurance offer more than $175 billion worth of premiums that can be invested before claims come due.
Investor Chris Ballard, managing director at Check Capital, said much of Berkshire Hathaway’s business “pretty much takes care of itself.” He sees a bright future for Berkshire Hathaway under Abel.
One of the biggest questions now may be how much, if any, additional leadership changes there will be in the wake of Coombs’ departure. Vice Chairman Ajit Jain, the 74-year-old head of the insurance unit that Buffett has long praised, continues to work long after retirement because they enjoy working for Buffett.
“As long-term shareholders, we’re not too concerned about Todd’s departure and don’t think this is just the tip of some kind of iceberg,” said Ballard, whose company counts Berkshire as its largest holding. “Todd’s situation is unique. This is just a reminder that Warren’s departure is coming and they are preparing for a new phase – one that we remain excited to see unfold.”