Buffett Offers a Sketch of Berkshire's Next Era
By Anupreeta Das | The Wall Street Journal
Warren Buffett dodged a bear and stuck up for his son at a Berkshire Hathaway Inc. meeting that otherwise provided few surprises.
For most shareholders, that was just fine.
It could be that Berkshire shareholders, a generally happy bunch given the meteoric long-term gains in the stock, as well as its 22% jump since January, didn't have new questions. After all, Mr. Buffett himself invited hedge-fund manager Doug Kass, who is bearish on the stock, to "spice things up" at the meeting by asking tough questions.
Although one shareholder wanted to know why Mr. Buffett ate so many hamburgers, the five hours of questions from shareholders, financial analysts and journalists could be grouped into the following categories: the shape, size and value of Berkshire when Mr. Buffett is gone; the hidden identity of Mr. Buffett's successor; whither big deals; the health of subsidiary businesses big and small; the U.S. recovery and Europe's economic distress.
The answers haven't changed much.
However, Mr. Buffett did go further than he has before in sketching out what Berkshire might look like without him.
An analyst asked how a successor could run such a broad and unwieldy operation, especially one with diverse small businesses. Berkshire's major operations include insurance, railroads and manufacturing. Its smaller businesses run the gamut from newspapers to candy.
"My guess is that my successor will modestly organize things in a slightly different way," Mr. Buffett answered. "But it doesn't change anything. The real money is made by the major businesses."
He was quick to add that the Berkshire culture will remain unchanged. He also said that he expects his son Howard Buffett, who will take on the mantle of nonexecutive chairman as part of a succession plan, will essentially be the guardian of that culture.
Mr. Kass provided one of the meeting's more memorable moments, using the forum to pitch an idea to Mr. Buffett rather than asking a question. Knowing the Berkshire CEO's negative view of short selling, Mr. Kass proposed that Mr. Buffett give him $100 million in a managed account to make a wager, in which he would donate gains to charity.
Berkshire Vice Chairman Charlie Munger handled the answer: "No."
Mr. Kass also asked Mr. Buffett: "What gives you confidence that your successor's imprimatur will add as much value to Berkshire as you have?"
Mr. Buffett's answer reflected his belief that Berkshire is a brand that will outlast his name, and that because of its enormous cash hoard and prudent use of money, Berkshire will always be the go-to institution for ready investment dollars.
He said his successor as CEO will have "unusual" capital, especially during "turbulent times when the ability to say yes very quickly with very large sums sets you apart from virtually anyone else in the investing world.
"Berkshire is the 800 number when there's really panic in the market... I think when you come to a day when the Dow has fallen 1,000 points a day for a couple of days and the tide has gone out and you find out who has been swimming naked, those naked swimmers will call Berkshire," he said.
Berkshire invested $5 billion in Goldman Sachs Group Inc. at the height of the financial crisis in 2008 and put $5 billion in Bank of America Corp. in 2011. The aid helped both banks shore up their cash on terms that were lucrative for Berkshire.
Saturday evening, shareholders huddled together in groups around downtown Omaha, parsing Messrs. Buffett and Munger's words.
"What really hit me yesterday was the fact that they have really created a special and unique culture," said Paul Lountzis, whose fund owns Berkshire shares. "No one will be able to sing the song and be the man that [Mr. Buffett] is. But there are plenty of smart and talented people" at Berkshire to do the job, he said.
Mr. Lountzis, who has attended more than 20 Berkshire annual meetings, said that Mr. Buffett also needs to "prepare shareholders" by delegating some questions to his managers at the subsidiary businesses. That, he said, would be the "natural future for Berkshire to make the meeting better."
Other shareholders spent time reflecting on another of Mr. Kass's questions: "How, beyond the accident of birth, is your son qualified to be non-executive chairman?" The younger Mr. Buffett runs a charitable foundation and operates a family farm.
"Many people have wondered about Howard," said one shareholder who runs a small fund in Portland, Ore. "Warren handled it superbly and really spelled out what Howard's role will be as a keeper of the culture."
Anupreeta Das and David Benoit
Write to Anupreeta Das at anupreeta.das@wsj.com and David Benoit at david.benoit@dowjones.com
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