Warren Buffett, chief executive officer of Berkshire Hathaway Inc. for more than four decades, said the board has picked his eventual replacement.
Buffett didn’t identify the choice in his annual letter to shareholders Feb. 25, saying instead that directors were “enthusiastic” and have had “a great deal of exposure” to the person designated to take over as CEO. Buffett, 81, didn’t specify a timeline for the switch.
Buffett praises Berkshire managers by name in his letters and has said previously the company had multiple candidates qualified to take over in an emergency. Tony Nicely, CEO of the Geico insurance unit, reinsurance head Ajit Jain and Director Bill Gates have been cited by investors as potential contenders. The board’s agreement on one individual suggests the company is increasing its focus on transition.
“It’s more of a commitment, clearly,” said Alice Schroeder, author of “The Snowball, Warren Buffett and the Business of Life” and a Bloomberg View columnist. “This is not the if-I-get-hit-by-a-bus plan. This is the succession plan.”
Nicely, 68, has reported to Buffett since 1996 when Omaha, Nebraska-based Berkshire acquired full control of Geico. The company has expanded to No. 3 in the U.S. auto-insurance market under Nicely. Gates, co-founder of Microsoft Corp., is Buffett’s friend. Buffett committed the bulk of his wealth to the philanthropic foundation started by Gates, 56, and his wife Melinda Gates.
‘In the Family’
“The Geico culture and the Berkshire culture are almost one in the same,” said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners Inc., who said he considered Nicely the most likely pick. “In the realm of choosing someone almost in the family, that’s Gates.”
Berkshire relies on Buffett, also the chairman and head of investments, to oversee a $77 billion stock portfolio and operating units with more than 270,000 workers. He runs the firm from Omaha with a staff of less than 25 people and consults with Vice Chairman Charles Munger, 88, about investments. The quality of Berkshire’s businesses and managers will give the new CEO “a running start,” Buffett said.
“Do not, however, infer from this discussion that Charlie and I are going anywhere,” Buffett said. “We continue to be in excellent health, and we love what we do.”
Buffett said in the letter that he’s “on the prowl” for large acquisitions after record earnings at Berkshire’s railroad and energy units helped build funds. The company’s cash hoard increased to $37.3 billion on Dec. 31 from $34.8 billion three months earlier. Fourth-quarter net income declined 30 percent to $3.05 billion on smaller gains from derivatives.
Buffett is under pressure to demonstrate Berkshire is prepared for a transition. The stock trailed the Standard & Poor’s 500 Index last year as Buffett was pushed to apologize for his oversight of David Sokol, a former manager. Sokol, once considered a possible successor, left the company in April and was accused by Berkshire of violating its insider-trading policies.
“After the Sokol disaster, he had to settle that issue,” said Jeff Matthews, a Berkshire shareholder and author of “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett.” It was “painfully obvious they needed to have that locked down.”
Berkshire declined 4.7 percent last year while the S&P 500 was little changed. Buffett owns more than $40 billion of Berkshire stock. The company is valued at about $198 billion. Buffett didn’t return a message seeking comment.
Berkshire has hired former hedge-fund managers Ted Weschler and Todd Combs since the end of 2009 to help Buffett with investments and said last year that it had identified four company executives capable of being CEO. One had board approval to step in “should a replacement be needed currently,” according to a passage in a 2011 regulatory filing.
In addition to the designee, there are “two superb back-up candidates as well,” Buffett said Feb. 25 on the first page of his letter.
The person designated to replace Buffett is the same manager who was identified by the board last year, the billionaire told CNBC today. This means Sokol wasn’t the top candidate in 2011 before his departure, Buffett said. He told CNBC the pick hasn’t been told of the selection and that the next CEO will probably not come from the board of directors.
“I don’t think it’s going to be the case,” Buffett told CNBC. “But certainly we’ve got incredible business talent on the board and they’re intimately familiar with Berkshire.”
Jain, 60, was hired by Buffett more than 20 years ago to run a reinsurance business specializing in large risks. The manager is routinely praised by Buffett in his annual letters to shareholders. Buffett said in March 2011 that while Jain is qualified to be CEO, “he’s not looking to take my job.”
“I still think Ajit has a good shot at being No. 1,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. “Insurance is still a major aspect of Berkshire Hathaway.”
Matthew Rose, who started at Berkshire in 2010 after selling the railroad he led to Buffett, will join Nicely and Jain in Buffett’s circle of most trusted managers, Howard Buffett, the billionaire’s son and a director at the company, said in May.
Kass said he considers Rose, 52, along with energy executive Gregory Abel and Franklin “Tad” Montross, 56, CEO of Berkshire’s General Reinsurance Corp., among the possibilities.
Abel, 49, who joined Berkshire in 2000, replaced Sokol as chairman of MidAmerican Energy Holdings. Buffett introduced Abel to Berkshire shareholders in the annual letter published in 2003, calling the manager Sokol’s “key associate.”
Buffett has said his son would make an effective non-executive chairman after his departure.