Buffett Zeroes In On Likely Successor -- WSJ

Berkshire promotes bosses of reinsurance, utility units as part of planning for next CEO

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 11, 2018).

It is now officially a two-man race to succeed Warren Buffett as chief executive of a conglomerate that owns everything from auto insurer Geico to fast-food chain Dairy Queen.

Berkshire Hathaway Inc. on Wednesday promoted Ajit Jain, head of the company's reinsurance operations, and Greg Abel, chief executive of its utility business, to newly created spots on its board of directors and new jobs overseeing Berkshire's day-to-day operations.

"They are the two key figures at Berkshire" in terms of succession, Mr. Buffett said Wednesday on CNBC. "I know that if I were in the position of those two fellows...I would like to get some experience with supervising a whole group of businesses before I eventually took over."

Mr. Buffett and Berkshire Vice Chairman Charles Munger will stay in their roles and oversee the company's investments and large acquisitions.

Mr. Buffett has led Berkshire for more than 50 years and the name of his successor has long been one of the best-kept secrets in corporate America. He said Wednesday that he is in "remarkably good health" and doesn't plan to leave his job as Berkshire's chairman and CEO in the near term. But at age 87, he said, "10 years would be a long time" for him to stay in the post.

Mr. Jain was named vice chairman of insurance operations, and Mr. Abel was named vice chairman of the noninsurance business operations. That means that managers of the conglomerate's 60-odd operating businesses will now report to either Mr. Jain or Mr. Abel, rather than to Mr. Buffett as they have previously.

Berkshire comprises about 60 businesses across multiple sectors. The noninsurance operations -- which include well-known brands like Duracell, Benjamin Moore and Fruit of the Loom -- employed more people at the end of 2016 and contributed about 80% of the company's earnings that year, the most recent for which annual information is available.

But the insurance businesses, including Geico, are also critical because they contribute about $100 billion in "float" -- money that the company holds to pay claims and invest in public equities like Wells Fargo & Co. and Apple Inc. They employed 44,330 at the end of 2016 as compared with 323,316 at the noninsurance businesses under Mr. Abel's supervision.

Messrs. Jain and Abel aren't in a "horse race" to win the top spot, Mr. Buffett said on CNBC; nonetheless, Wednesday's news is the clearest confirmation yet that they are the top candidates. Mr. Munger dropped a hint that was the case in a letter to shareholders more than two years ago, but the company hadn't officially confirmed that they are in line for the top job.

The two men didn't respond to requests for comment.

Mr. Jain, 66 years old, has worked for Berkshire since 1986 and is famous for writing large insurance or reinsurance policies on unusual risks -- such as last year's agreement with American International Group Inc. to take responsibility for tens of billions of dollars in AIG insurance claims if they run unexpectedly high.

Mr. Buffett said at last year's annual meeting that Mr. Jain "has made a lot more money for Berkshire than I have."

Mr. Abel, 55 years old, joined Berkshire in 2000 when Berkshire bought what was then called MidAmerican Energy Holdings Co., an Iowa-based utility. He has overseen a number of acquisitions for Berkshire, including a $5.6 billion deal in 2013 for Nevada's largest utility.

Some shareholders are confident that Mr. Abel will be Mr. Buffett's successor, because he is younger and has more experience running nonfinancial companies. "The CEO has got to be somebody that knows an awful lot about operating businesses," said Bill Smead, chief executive of asset management firm Smead Capital Management Inc., which holds Berkshire shares. Mr. Abel is "a better fit," he said.

During the company's annual meeting last year, Mr. Buffett suggested that whoever ultimately steps into his role will be responsible for spending the company's huge pile of cash and that his successor could take the reins while Mr. Buffett is still alive.

Berkshire currently holds more than $100 billion in cash. Mr. Buffett has lamented the difficulty of finding attractive large acquisition targets. A few potential acquisitions fell through in 2017. Kraft Heinz Co. dropped a $143 billion offer, which would have been partly backed by Berkshire, for Unilever PLC. And Texas power-transmission company Oncor terminated a deal with Berkshire's utility arm in favor of a higher offer from Sempra Energy.

Mr. Buffett has helmed Berkshire since 1965. Even as the company grew to be one of the largest in the world, it remained highly decentralized, with each operating business run relatively independently. Berkshire employs about 25 people in its headquarters in Omaha, Neb., a number that Mr. Buffett said isn't changing with the new appointments. Mr. Jain works out of Stamford, Conn., and Mr. Abel is based in Des Moines, Iowa.

Some parts of the succession plan are well known. Mr. Buffett's oldest son, Howard, is a member of Berkshire's board and set to take on the role of nonexecutive chairman in the future. And Berkshire hired two portfolio managers in recent years, Todd Combs and Ted Weschler, who are expected to oversee all of Berkshire's equity investments someday.

But even with the recent news, Mr. Buffett continues to keep the name of his chosen successor close to the vest. The successor's name could change depending on when Mr. Buffett leaves the company, he suggested.

"Our directors know what they would do tomorrow morning if it happened, but they don't know what they would do four years from now, say, if it happened then," Mr. Buffett said on CNBC, referring to a change in leadership.

Berkshire's class A shares rose 1.3% Wednesday to a new closing high. "My sense is this is overwhelmingly favorable and approved [by shareholders], partly because it's been anticipated," said Lawrence Cunningham, a law professor at George Washington University who has written books about Berkshire.

The elevation of two new vice chairmen also could help the company weather any changes if Mr. Munger, who is 94, dies or steps away from the business. Mr. Munger said on CNBC that shareholders can probably expect another seven years for Mr. Buffett as CEO, but not as long for him.

"I have to face reality," he said.

He added that Messrs. Jain and Abel are highly qualified and "do some things better than Warren does."

Mr. Buffett responded, "A lot better."

--Erik Holm and Allison Prang contributed to this article.

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

January 11, 2018 02:47 ET (07:47 GMT)