Berkshire after Buffett: is Greg Abel up to the top job?


During the 1990s, Greg Abel, then a high-flying energy industry executive, lived just a few blocks from Warren Buffett in Omaha, Nebraska, the home of Berkshire Hathaway.

The pair never met at the time, but three decades later Abel is in line to eventually succeed him at the top of Berkshire, handing the plain-speaking Canadian a challenge even more daunting than the one Tim Cook faced when he took the reins at Apple from Steve Jobs.

Buffett’s longevity means putative successors have either died or fallen by the wayside, but as Berkshire’s shareholders gather in Omaha for the group’s annual meeting on Saturday, the question of what the future holds when the legendary investor is no longer in charge is an ever more pressing one.

In the final part of a series, the Financial Times examines whether Abel will be able to deliver on Buffett’s promise that Berkshire, America’s last great conglomerate in an age when they have fallen out of favour, was really built to outlast a founder whose investment record, folksy charm and professorial wisdom have made him the country’s most admired business leader.

“You are coming after the GOAT [greatest of all time],” said Bill Stone, the chief investment officer of Glenview Trust, which owns Berkshire shares. Berkshire has “built up goodwill over all these years. It doesn’t completely go away when Buffett is gone . . . but you’re starting again”.

Abel, who joined Berkshire in 2000 and whose status as CEO-in-waiting was revealed by Charlie Munger, Buffett’s late business partner, at the 2021 shareholder meeting, will be tested on multiple fronts.

The 61-year-old will have to show he can allocate the nearly $10bn that flows from Berkshire’s operating businesses into Omaha each quarter just as the task of unearthing acquisitions, both big and at a good value to make a difference to the $862bn company, becomes harder.

At the same time, he will have to navigate a board on which two of Buffett’s children, Howard and Susie, as well as executives such as Ajit Jain, who heads Berkshire’s insurance business and has for years reported directly to the billionaire, sit.

Described by people who have worked with him as even-keeled and analytical, Abel had already assumed greater responsibility for Berkshire’s businesses since he was promoted to the board in 2018, taking oversight of companies including Precision Castparts, an aerospace group that counts Boeing as a customer, and Clayton Homes, America’s largest builder of modular housing.

It was his ability to wring out improvements in a company’s operating performance — as well as finding deal targets — that helped persuade Buffett he was the best pick. They are skills that Abel, who was born in Edmonton and graduated from the University of Alberta, honed in a three-decade career in the energy and utility industry.

After a spell at PwC, Abel was hired by one of the Big Four firm’s clients, CalEnergy, a small geothermal energy group. There he and David Sokol, CalEnergy’s then chief executive, embarked on an acquisition spree that included MidAmerican, an Iowa utility that Berkshire went on to buy in 2000.

The deal brought the pair into Berkshire. In 2008, Abel became CEO of MidAmerican, with Sokol telling the FT in 2021 that “Greg was better at it”, referring to running the business.

Sokol himself was once seen as a contender to succeed Buffett, but he resigned in 2011 amid an investigation of his trading in shares of chemicals group Lubrizol before Berkshire acquired the business. US regulators investigated but did not bring charges.

As Buffett, 93, has gradually stepped back from the conglomerate’s day-to-day operations, Abel has taken on the role of chief problem solver.

Berkshire after Buffett: an FT series

This is the final article in a four-part series digging into Berkshire, its rich success under Buffett and the management team that will one day lead the company into a new era.

Part one: Can any stockpicker follow the Oracle?

Part two: The risk ‘genius’ pulling the insurance strings

Part three: Berkshire’s prized energy business faces upheaval

Part four: Can Greg Abel fill Warren Buffett’s shoes?

During the past year, he oversaw a vexatious legal dispute over Berkshire’s $11bn acquisition of truck stop operator Pilot Travel Centers, according to people familiar with the matter. He also helped following the departure of one of Berkshire’s most senior employees, Tracy Britt Cool, who left before the pandemic to start her own investment firm. Abel took on the supervision of the businesses she had run, two people added.

Ron Olson, a Berkshire board director and one of the group’s main lawyers from Los Angeles-based firm Munger Tolles & Olson, said that Abel’s handling of the Pilot lawsuit, which they worked on closely together, gave him confidence that he was the right person to one day lead Berkshire.

“I could tell you that his preparation and thinking was impressive,” Olson said at an investment conference this past week. “He is strategic in his thinking. And he is decisive in his judgment.”

Shareholders have had limited glimpses of Abel since he joined the board, with the questions he has answered at recent annual meetings focused on specific businesses rather than Berkshire’s future.

But Buffett has said he and Abel “think alike on acquisitions. We think alike on capital allocation.” In a television interview last year, Abel conceded that working for him is “not the same as working for Warren” and “I’ve effectively apologised to them [Berkshire managers] many times for that outcome”.

However, “they also realise that they still have an opportunity to go run their businesses, what they love and what they wake up to do every day”.

It is Abel’s operational record that gives Christopher Bloomstran, a Berkshire shareholder at investment group Semper Augustus, hope that he will be able to further sharpen the performance of Berkshire’s subsidiaries, echoing the unglamorous but significant improvements Cook has been credited with at Apple in areas such as its supply chains.

Bloomstran said there was already evidence Abel had made a difference to the dozens of subsidiaries within Berkshire’s manufacturing, services and retailing division, home to an eclectic range of businesses such as NetJets, Fruit of the Loom, Lubrizol and Dairy Queen.

The division accounts for roughly two-thirds of Berkshire’s nearly 400,000 workforce and for several years had lacklustre profits.

“At the point Greg took over, you’ve had a steady increase in profitability where that group is largely humming and you can only believe it has to do with Greg’s more hands-on approach than Warren’s less hands-on approach,” said Bloomstran. He estimated that the division’s return on equity was the highest in almost two decades last year.

One notable exception to that record is the utilities business, where Abel first cut his teeth at Berkshire. Over the past year, the business has been rocked by costly litigation related to wildfires in the US.

Greg Abel speaks during a virtual Berkshire Hathaway annual shareholders meeting in 2021
Greg Abel is known to adopt a collaborative approach in board meetings and find ways to resolve issues or build a consensus in smaller groups © Daniel Acker/Bloomberg
Warren Buffett
Warren Buffett has always insisted that Berkshire Hathaway was built to outlast him and Charlie Munger © Ankit Agrawal/Mint/Getty Images

Extracting better returns from Berkshire’s existing businesses is likely to take on greater importance as the game-changing deals that built Buffett’s reputation, such as the 1996 acquisition of motor insurer Geico, prove elusive.

Not only does Berkshire have to contend with deep-pocketed private equity buyers, but Abel will lack the draw that Buffett has had for family-owned businesses that are considering selling.

In his annual letter to shareholders in February, Buffett lamented the dearth of deals that could “move the needle”, noting that there was “no possibility of eye-popping” performance.

Darren Pollock, a fund manager at California-based investment group Cheviot and a Berkshire shareholder, said that recognising the conglomerate was now operating in a very different world to that enjoyed by Buffett in his heyday would be important when judging his successor.

The job for the next generation of leaders would not be “to shoot the lights out” like Buffett and Munger did as they built Berkshire, said Pollock, but instead to invest in steady and reliable businesses.

According to people familiar with the matter, Abel’s dealmaking is expected to receive more scrutiny from the board than that of Buffett, who for decades has been afforded a latitude not enjoyed by most CEOs. It enabled the billionaire to rapidly execute deals.

It was a point acknowledged by Olson this week, who said that the board would not “handcuff” Abel, but that Buffett’s successor might nonetheless have less discretion.

“Let’s not get too anxious about it,” Olson said of Buffett’s future. “He’s going to be around for a while. But once that happens, there may well be changes.”

While the board may pay more attention to big deals or those cut in the midst of a market crisis — something Buffett pulled off several times, most famously when investing in Goldman Sachs at the height of the 2008 financial crisis — preserving Abel’s authority would be crucial, two people added.

“Both Warren and Charlie were very clear on this,” one current Berkshire employee said. “You need enormous authority in the chief executive and investment professionals to let them do their job. And the moment you migrate to investment by committee, that’s when you end up with the lowest common denominator problem.”

Abel, who still plays ice hockey, adopts a collaborative approach in board meetings and often finds ways to resolve issues or build a consensus in smaller groups, according to one person who has worked closely with him for several years.

Berkshire board profiles

Buffett has tasked the board with safeguarding the culture that he and Munger established. Excessive risk-taking, leverage and remuneration structures that lead to what Munger once described as “dumb outcomes”, are all off limits.

Having worked closely with Buffett and Munger for several years, Abel was steeped in the culture, one board member told the FT. Maintaining this culture is something Susie and Howard take very seriously.

“She [Susie] is tough as nails and unbelievably smart and she does not pull punches,” said one person who has worked with Buffett for years. “She defends her dad and she defends Berkshire.”

Buffett, who is chair as well as CEO of Berkshire, said in 2011 that he wanted his son Howard to become non-executive chair when he died.

While the board’s composition has changed significantly in recent years as several long-standing business partners, including Walter Scott and David “Sandy” Gottesman, have died, many of the current directors have deep ties to Buffett. They include Olson and Kenneth Chenault, the former head of American Express, which Berkshire has invested in for years.

“Every person on that board was chosen because they understood and believed in what the Berkshire culture and ethos is,” said the person who has worked with Buffett for years. “It is not about hiring this person with this competency. It’s all people Warren has known for a while, all people who have been through the trenches with Warren.”

Buffett, who turns 94 in August, has been slowing down, according to people familiar with the matter. He no longer sits on other boards and has scaled back his once regular appearances on television. Shortly before Munger’s death in November, he told shareholders: “At 93, I feel good but fully realise I am playing in extra innings.”

He is expected to field dozens of questions from shareholders as he holds court for hours at the CHI Health Center, an arena in downtown Omaha, at Saturday’s meeting.

Dubbed the Woodstock of capitalism, it is a spectacle that has showcased Buffett as modern sage, storyteller and dispenser of aphorisms. It is a role he has cultivated and one that Abel, who will also take to the stage for some of the event, will find impossible to replicate.

Abel rarely speaks to the media and declined to comment for this article. Berkshire did not respond to a request for comment.

The fact that Abel has a less magnetic personality should not be taken as a sign he will not be able to do the job, according to one person who has worked closely with him for years.

“He’s a spitting image of Buffett when it comes to intellect and analytical thinking,” the person said. “He might have less charisma than Buffett but anybody who underestimates him is a fool.”

Buffett has always insisted that Berkshire was built to outlast him and Munger. But there has long been speculation that once the pair are gone, Berkshire will face calls to break up, dismantling a conglomerate structure that is especially rare among large listed companies.

Asked in 2019 about the threat of an activist building a stake and pushing for Berkshire’s break-up, Buffett acknowledged that “anything could happen”, but said that any value unlocked from such a plan would prove fleeting.

While the timing of Abel’s ascension to the top job is unknown, the prospect of him coming under serious pressure to break up the group or sell a major asset was unlikely, according to several shareholders.

An activist would have to win over investors, many of whom have been holding the stock for decades. At the same time, Buffett’s decision to donate the fortune he has tied up in Berkshire shares to charities, including the Bill & Melinda Gates Foundation and the Susan Thompson Buffett Foundation, named for his late first wife, means a large chunk of stock will remain in friendly hands as they slowly sell out.

It is a point Buffett made to shareholders in November, when he announced a nearly $900mn donation to his family’s charities. Buffett noted that in the years after his death “Berkshire’s distinctive characteristics and behaviour will be supported by my large Berkshire holdings”.

In 2006, Buffett pledged to donate 21.6 per cent of Berkshire to the Gates Foundation. He earmarked another 4.4 per cent of his stock to the charities of his three children and his late wife.

But the donations Buffett has so far made have barely loosened his grip on the company, which he maintains through his holdings of class A shares, which carry 10,000 times the voting power of Berkshire’s B shares.

Stone, the longtime shareholder at Glenview Trust, said that when Buffett’s grip on the company was one day released, it would be like “passing the Rubicon”. After which, as Buffett has acknowledged, Berkshire “will need to earn whatever reputation it then deserves”.

With additional reporting from James Fontanella-Khan in New York and Mari Novik in London

#Berkshire #Buffett #Greg #Abel #top #job

About Author

Leave a Reply