Can His Successor Maintain Berkshire’s Success?

Replacing Warren Buffett is perhaps the ultimate poisoned chalice. With him at the helm, Berkshire Hathaway Inc. (BRK.A, BRK.B) has delivered a staggering total return of more than 5,500,000% to shareholders since Buffett took over the company in 1965.

That track record, combined with his down-to-earth, humble personality, transformed Buffett into a Wall Street icon and the most famous investor on the planet. His replacement, Greg Abel, has the biggest shoes in finance to fill and a job that is, some would argue, impossible to succeed in.

The Successor: Who is He?

Buffett handpicked Abel to replace him. The 62-year-old Canadian has worked at Berkshire for 25 years and is currently the chair and CEO of its energy business and the vice-chairman of its non-insurance operations.

Abel began his career as an accountant, then in 1992 joined utilities company CalEnergy, which would eventually be acquired by Berkshire Hathaway. Under Abel’s leadership, Berkshire Hathaway’s energy business grew into a large utility conglomerate and a key money generator.

Abel’s operational discipline, leadership, and regular guy personality helped him rise through the ranks. Buffett says he’s a better manager than him, while his trusted business partner and the so-called architect of Berkshire’s success, Charlie Munger, described him as “sensational at being a business leader,” “sensationally good at smoothly getting things done through other people,” and “a tremendous learning machine.”

Challenges of Following Buffett

Abel’s credentials, references, and the fact that he was handpicked personally by Buffett have helped calm investors’ nerves. He’s been molded to take over for a long time and has Berkshire and its culture ingrained in him.

The biggest issue is investor sentiment. Abel has the experience to keep growing Berkshire and will be flanked by very able advisors, including Buffett himself. However, he doesn’t have the cult-like following of his predecessor—in the week after the official announcement of the handover, Berkshire’s stock price dropped about 5%.

No matter how well Abel does, he’ll likely never match Buffett’s popularity—who could? The timing is tricky, too. There’s a lot of cash on the balance sheet investors want to see spent, expectations are high, bigger risks need to be taken to move the dial, and Buffett and Berkshire’s investment philosophy isn’t as fashionable as it used to be.

Comparing Buffett vs. Abel

Buffett has said he chose Abel to succeed him because they share similar values. They both believe in value investing, long-term thinking, cash generation, and robust balance sheets.

Abel told the media he has no plans to make major changes in Berkshire’s operations. One of the biggest differences is their management styles. Abel is said to be much more hands-on than Buffett.

The positive aspect is that Abel is known for getting the most out of businesses. The downside is that Berkshire has long succeeded by offering the companies it acquires quasi-independence.

The Bottom Line

Abel knows Berkshire Hathaway inside out and has the experience and credentials to succeed as its CEO. The people who work with him sing his praises, and Buffett even claims he’ll do a better job than he did. 

The problem is that investment acumen might not be enough. Buffett is loved. Knowing he’s calling the shots drew hordes of investors to buy shares in Berkshire. Take that away, and, for many, the company is losing its most valuable asset.