Charlie Munger: Jain and Abel – Buffett’s “world leading” successors

Charlie Munger BiznewsFor the past decade, I have been privileged to watch the lower profile member of the Berkshire Hathaway double act at the company’s AGM in Omaha. Charlie Munger (right) is as much the reason for Berkshire amazing performance as chairman and media front-man Warren Buffett. As this is the 50th anniversary of Buffett taking control of Berkshire, Munger penned his thoughts on the company’s past and his expectations for the next half century. In looking ahead he addressed what is likely to happen when Buffett goes. And by what he shared, immediately narrows the field of probable successors to two; reinsurance head Ajit Jain and electricity utility leader Greg Abel. Jain and Abel. Has a ring to it…. – AH    

By Charlie Munger*

The next to last task on my list was: Predict whether abnormally good results would continue at Berkshire if Warren Buffett were soon to depart.

The answer is yes. Berkshire has in place in its subsidiaries much business momentum grounded in much durable competitive advantage. Moreover, its railroad and utility subsidiaries now provide much desirable opportunity to invest large sums in new fixed assets. And many subsidiaries are now engaged in making wise “bolt-on” acquisitions.

Provided that most of the Berkshire system remains in place, the combined momentum and opportunity now present is so great that Berkshire would almost surely remain a better-than-normal company for a very long time even if (1) Buffett left tomorrow, (2) his successors were persons of only moderate ability, and (3) Berkshire never again purchased a large business.

But, under this Buffett-soon-leaves assumption, his successors would not be “of only moderate ability.”

For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.” “World-leading” would be the description I would choose. In some important ways, each is a better business executive than Buffett.

And I believe neither Jain nor Abel would (1) leave Berkshire, no matter what someone else offered or (2) desire much change in the Berkshire system.

Nor do I think that desirable purchases of new businesses would end with Buffett’s departure.

With Berkshire now so large and the age of activism upon us, I think some desirable acquisition opportunities will come and that Berkshire’s $60 billion in cash will constructively decrease.

My final task was to consider whether Berkshire’s great results over the last 50 years have implications that may prove useful elsewhere. The answer is plainly yes.

In its early Buffett years, Berkshire had a big task ahead: turning a tiny stash into a large and useful company. And it solved that problem by avoiding bureaucracy and relying much on one thoughtful leader for a long, long time as he kept improving and brought in more people like himself.

Compare this to a typical big-corporation system with much bureaucracy at headquarters and a long succession of CEOs who come in at about age 59, pause little thereafter for quiet thought, and are soon forced out by a fixed retirement age.

I believe that versions of the Berkshire system should be tried more often elsewhere and that the worst attributes of bureaucracy should much more often be treated like the cancers they so much resemble.

A good example of bureaucracy fixing was created by George Marshall when he helped win World War II by getting from Congress the right to ignore seniority in choosing generals.

* Charlie Munger, 91, is the vice chairman of Berkshire Hathaway. This is part of a contribution he made to chairman Warren Buffett’s annual letter to shareholders, distributed over the weekend.