Warren Buffett’s Final Brushstrokes
Warren Buffett is retiring as CEO of Berkshire Hathaway but he may still make a few final brushstrokes on his canvas as Chairman.
“I mean, Berkshire, you know, in a crazy way, I look at Berkshire as a painting. You know, and it’s unlimited in size. It’s got an ever-expanding canvas and I get to paint what I want. And if somebody wants to paint something else, then I’ll get a smaller little thing and I’ll paint away.”
For some reason, I assumed that any major announcement would come at the beginning of the Berkshire Hathaway annual meeting rather than at the end, so I was very surprised when Warren Buffett gave us the big news after the end of the question and answer session. Mr. Buffett will be stepping down as Chief Executive Officer at the end of the year, passing the baton to Vice Chairman Greg Abel. As I wrote last week, there were signs that a major announcement could be coming, but it still caught me off guard.
Mr. Buffett’s statement on Saturday was not entirely clear regarding his future role, although he did indicate that he would remain involved if he could be helpful with major opportunities. However, he made it crystal clear that Mr. Abel would be calling the shots, both from an operational and capital allocation standpoint. In a press release this morning, Berkshire clarified that Mr. Buffett will remain Chairman of the Board. and CNBC anchor Becky Quick wrote that Mr. Buffett plans to continue going to the office every day.
This news marks the end of an era. Warren Buffett has long viewed Berkshire as his masterpiece and treasured working on the canvas every day. Stepping down as CEO means that Mr. Buffett will have to come to terms with ceding much of his authority to Greg Abel. No matter how confident Mr. Buffett is in Mr. Abel’s abilities, letting go of control cannot be easy after sixty years at the helm. Mr. Abel has already been managing Berkshire’s non-insurance subsidiaries on a day-to-day basis, and he will now assume oversight of the insurance business as well as Berkshire’s capital allocation. Presumably Vice Chairman Ajit Jain will remain with Berkshire and will continue to manage the insurance operations on a day-to-day basis.
There is not much that I have to say about this transition because I have already written about it several times in recent years. My main concern remains the preservation of Berkshire Hathaway’s unique culture. Mr. Abel is likely to be in charge of Berkshire Hathaway for at least a decade and could remain in place well into the 2040s. Eventually, he will hand the reins to another executive, perhaps someone who never had a chance to work with Warren Buffett. Over the same timeframe, Berkshire’s shareholder base will change dramatically as Warren Buffett’s estate is eventually distributed and voting control shifts to institutions. There will be pressure to break up the company and to “optimize” it in ways that alter Mr. Buffett’s canvas.
I am grateful that Mr. Buffett will remain as Chairman. Aside from a somewhat weaker voice than in years past, Mr. Buffett seemed to be in good health during the annual meeting. He rambled at times but always remained coherent and his diversions from questions had a purpose. Few men in their fifties or sixties could handle being on stage and under the spotlight for over four hours.
While Mr. Buffett did not reveal the specific reason for his decision to step down as CEO, I am confident that he would tell shareholders if he had any major health problems. He has done so on at least two occasions in the past, in 2000 and in 2012. In 2009, Mr. Buffett was critical of Apple’s decision to not disclose more about the health of Steve Jobs after a surgery. He pledged to always tell Berkshire shareholders if he faced a serious condition:
“If I have any serious illness, or something coming up of an important nature, an operation or anything like that, I think the thing to do is just tell the … Berkshire shareholders about it. I work for ’em. Some people might think I’m important to the company. Certainly Steve Jobs is important to Apple. So it’s a material fact. Whether he is facing serious surgery or not is a material fact. Whether I’m facing serious surgery is a material fact. Whether (General Electric CEO) Jeff Immelt is, I mean, so I think that’s important.”
My guess is that Mr. Buffett is feeling the normal effects of the aging process and wanted to leave the CEO position on his own terms rather than being forced to by future circumstances that might be out of his control. In doing so, he is providing Berkshire shareholders will a sense of continuity that would be absent if the transition took place suddenly due to his incapacity or death.
In the coming months, Mr. Buffett and Mr. Abel will presumably collaborate on major operational and capital allocation decisions. Starting on January 1, 2026, Mr. Abel will be fully in charge. However, I expect that the board will exert more oversight of Mr. Abel than has been the case with Mr. Buffett especially when it comes to major capital allocation decisions. There have been many occasions when Mr. Buffett committed Berkshire to large acquisitions without the board even being aware of the situation. It is highly doubtful that Mr. Abel would have the same flexibility. As Chairman of the Board, Mr. Buffett will still be in the loop when it comes to large acquisitions and, as he said during the meeting, his presence could bring many deals to Berkshire especially during times of crisis.
It seems like many of the mainstream media reports on this news repurposed pre-written obituaries to write about Mr. Buffett’s life and career as if it was entirely in the rear view mirror. But I am hopeful that the last chapter is yet to be written and the final brushstrokes have yet to be made. It is impossible to thank Warren Buffett sufficiently for what he has done for shareholders. The letter I sent him this morning will no doubt be one of hundreds, if not thousands, that will flood Berkshire’s headquarters in the weeks to come.
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