In an age of immediate and exhaustive information, Warren Buffet’s announcement last week that he had chosen a successor left many investors and analysts perplexed and frustrated that he then failed to name exactly who that successor might be. In his annual letter to shareholders, the Berkshire Hathaway leader stated that “the person is an individual to whom [directors] have had a great deal of exposure and whose managerial and human qualities they admire.”
So, does the Sage of Omaha owe us more than that? According to some, including Lawrence Hrebiniak of the Wharton School, there should apparently be more concern at the announcement of a “secret” successor than no announcement at all. While I have argued in this blog before that there is a long-term danger of the “CEO Icon” mystique that requires companies like Berkshire Hathaway to ensure that succession is a priority, I disagree with Hrebiniak that Buffett is “losing it just a bit.”
In fact, there are some pretty real reasons why you don’t announce a successor before the deal is finalized. For one thing, the deal isn’t done until the deal is done. David Sokol, the original best bet for a successor to Buffet, resigned over allegations of insider trading. Had a been prematurely named by Berkshire as the next CEO, it would have been disastrous.
Similarly, in Buffet’s letter to shareholders, he mentions that there are two backup executives who could also be considered. He further stated that he has not plan to retire in the near future. So imagine, if he named an actual successor today, and then for whatever reason it didn’t work out, investors would absolutely believe they were getting second best with one of the two backups. While that could end up being the case, it could also be that the context changes and one of the other two are ultimately more qualified.
Buffet is in a situation strikingly similar to that of the late Steve Jobs, or former Microsoft CEO Bill Gates. When the CEO is the identity of the company, investors and interested parties have a right to want to know that the company will succeed the current leadership. But Warren Buffet has shown himself to be a wise man many times over. It’s reassuring to know that the situation is a priority at Berkshire Hathaway, but with no indication to the contrary, I believe that’s enough. For now.