* Buffett says internal successor lined up for top job
* Vice Chairman Munger praises Berkshire execs Abel, Jain
(Adds investor comment on letter, BNSF details and CEO
prerequisites from letter)
By Luciana Lopez and Jonathan Stempel
NEW YORK, Feb 28 (Reuters) – Warren Buffett, the billionaire
chief executive of Berkshire Hathaway Inc, told
investors on Saturday that the company had found his successor,
and the company’s vice chairman, Charlie Munger, identified two
Berkshire executives as candidates.
In Berkshire’s annual report to shareholders, Greg Abel, the
head of Berkshire’s energy companies, and Ajit Jain, a top
insurance executive, were said by Munger to be “proven
performers who would probably be under-described as
“‘World-leading’ would be the description I would choose,”
Munger said in a letter to Berkshire shareholders. “In some
important ways, each is a better business executive than
Buffett’s son, Howard, would become non-executive chairman
after the departure of his father, who is also Berkshire’s
In his previous letters to shareholders, the 84-year-old
Buffett has said Berkshire board had been fully aware of his
chosen successor but that he was keeping his options open.
Investors have long speculated about who would, or could,
succeed Buffett, particularly after he was diagnosed with, and
then beat, prostate cancer in 2012.
Munger, whom Buffett describes as “my partner,” is 91.
“Both the board and I believe we now have the right person
to succeed me as CEO – a successor ready to assume the job the
day after I die or step down,” Buffett said.
“In certain important respects, this person will do a better
job than I am doing,” Buffett added.
Berkshire on Saturday also reported a 17 percent drop in
fourth-quarter net income, but a 2 percent increase in full-year
profit. Operating profit rose in both periods.
Neither Buffett’s nor Munger’s letter on Saturday referred
by name to Matthew Rose, executive chairman of the BNSF railroad
unit, who has also been mentioned by investors as a possible
Buffett said BNSF is, by far, Berkshire’s most important
non-insurance unit but “was not good in 2014, a year in which
the railroad disappointed many of its customers” despite
capital outlays far exceeding those of Union Pacific Corp
, its main rival.
BUFFETT’S ABCs FOR NEW CEO
Buffett strongly suggested in his letter that his potential
successor already works within Berkshire and laid out the
challenges facing his successor as Berkshire grows ever larger.
He said Berkshire’s earnings and capital resources will
eventually reach a level where management will not be able to
intelligently reinvest all of the company’s earnings.
“At that time our directors will need to determine whether
the best method to distribute the excess earnings is through
dividends, share repurchases or both,” Buffett said.
Buffett said his successor will also need to avoid the
“debilitating forces” that decades ago befell companies such as
General Motors, IBM, Sears Roebuck and U.S. Steel.
“My successor will need one other particular strength: the
ability to fight off the ABCs of business decay, which are
arrogance, bureaucracy and complacency,” he said. “When these
corporate cancers metastasize, even the strongest of companies
Buffett has run Berkshire since 1965, transforming it from a
failing textile company into a conglomerate with a $363 billion
market value and more than 80 operating businesses in such areas
as insurance, railroads, energy, food and apparel.
The Omaha, Nebraska-based company also has more than $117
billion of equity investments.
ABEL, JAIN TOP CONTENDERS
Age will also be a factor, and Buffett said Berkshire may be
best off if his successor stays on for at least a decade.
“Our directors also believe that an incoming CEO should be
relatively young, so that he or she can have a long run in the
job,” Buffett wrote. “It’s hard to teach a new dog old tricks.
And they are not likely to retire at 65 either – or have you
Buffett also said Berkshire’s directors believe future CEOs
should be internal candidates they know well.
Abel, 52, leads Berkshire Hathaway Energy, and Jain, 63, has
been Buffett’s top insurance deputy for three decades.
In Saturday’s letter, Buffett said: “Ajit’s underwriting
skills are unmatched. His mind, moreover, is an idea factory
that is always looking for more lines of business he can add to
his current assortment.”
In last year’s letter, Buffett called Abel an “extraordinary
Bill Smead, who oversees $1.3 billion at Smead Capital
Management in Seattle and invests $55 million in Berkshire,
called Jain a “brilliant” insurance executive but said Abel
could be a better fit as CEO.
“I think you want someone who is good at overseeing numerous
stand-alone companies,” he said. “That would be advantage Abel.”
Because Berkshire Hathaway Energy is a “mini-conglomerate”
itself, “you practice in the miniature and then ultimately that
puts you in the position to be the one,” Smead said.
(Editing by David Holmes and Jennifer Ablan; Editing by Steve