Warren Buffett's Company Chooses His Successor

By Terence O'Hara
Washington Post Staff Writer
Sunday, March 5, 2006

Warren E. Buffett, the folksy multibillionaire whose business holdings range from Geico insurance to Dairy Queen restaurants, announced yesterday that his successor has been chosen.

He just won't say who it is.

Buffett, 75, said in his annual letter to shareholders of Berkshire Hathaway Inc., his Omaha-based holding company, that he and his fellow directors had considered three Berkshire executives to take over if he "should die tonight." He said one of the three was chosen unanimously to succeed him as chief executive.

After 41 years as chief executive of Berkshire, Buffett gave no hint of plans to retire or scale back his duties as a manager or investor, two pursuits that have made him the world's second-richest person, after only his friend Bill Gates of Microsoft Corp. "I feel terrific," said Buffett, who is a major investor in The Washington Post Co. and sits on its board of directors.

Speculation on who would take on one of the most coveted jobs in America -- controlling 66 highly profitable businesses in a wide array of industries, as well as a $73 billion investment portfolio -- has become a parlor game for Berkshire shareholders and thousands of other Wall Street professionals and everyday investors. For shareholders, the question is whether someone else could match Buffett's knack for picking undervalued companies like those he has snapped up on the basis of a chance meeting or a phone call from an entrepreneur.

Buffett's advancing years and the age of his longtime partner Charles Munger, 82, led Buffett to address the succession issue for the first time in his annual shareholder letter. The letter is not only a long recitation of Berkshire's performance, but also a much-anticipated rumination by Buffett about emerging investment strategies, public policy and market risk.

"We have three managers at Berkshire who are reasonably young and fully capable of being CEO," Buffett said in the letter. "Berkshire's board has fully discussed each of the three CEO candidates and has unanimously agreed on the person who should succeed me if a replacement were needed today."

Speculation on who that person is has focused mostly on the companies and managers within Berkshire whom Buffett has most often singled out for praise. They include Tony Nicely, the chief executive of District-based auto insurance company Geico, one of Buffett's favorite companies for more than 50 years. Nicely, who is 62, has been chief executive for 12 years. In his letter yesterday, Buffett mentioned Nicely in the third paragraph, calling him "brilliant."

Four other Berkshire operating managers who could take the job have been identified by the financial magazine Barron's: Richard Santulli, chief executive of NetJets, which sells fractional ownership in corporate jets; Joseph P. Brandon, chief executive of General Reinsurance Corp., the largest insurance division within Berkshire; Ajit Jain, another insurance executive; and David L. Sokol, the chief executive of MidAmerican Energy Co., an Iowa-based utility and the largest non-insurance company within Berkshire.

Gregory J. Skoda, chairman of Skoda, Minotti & Co., who has advised dozens of companies on chief executive succession, said replacing Buffett is impossible.

"There isn't another Warren Buffett," he said. "The first hurdle [Berkshire's directors] have to overcome is they can't be expecting another of the same person."

And succeeding someone with Buffett's reputation and track record is no cakewalk, Skoda said, especially if Buffett decides to stay on the board or remain involved in some other way at Berkshire after he gives up the reins to a successor.

Berkshire yesterday said its net worth grew by $5.6 billion in 2005, a 6.4 percent increase in book value. That compares with a 4.9 percent growth in the Standard & Poor's 500-stock index. It was the first year since 2002 that Berkshire beat the S&P. Since 1965, however, Berkshire' average annual gain has been 21.5 percent, more than double that of the S&P.

Fourth-quarter profit rose 54 percent, to $5.13 billion ($3,330 a share), from the comparable period a year earlier.

Buffett controls about 40 percent of Berkshire, a stake worth more than $40 billion. He has said all of his Berkshire holdings will go to charity.

In the letter to shareholders, Buffett acknowledged with wry candor that death wasn't the only circumstance in which he would have to be replaced. He said he is relying on his board to show him the door if his abilities ebb as he ages, "particularly if this decay is accompanied by my delusionally thinking that I am reaching new peaks of managerial brilliance."

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