No. of Recommendations: 14
Value Investor and investment manager Vitaly Katselnelson’s opinion on Berkshire CEO change.
Greg Abel is the right CEO for today’s BRK — actually, a better fit for BRK today than Buffett would be.
BRK requires three skill sets today. The first is replacing Ajit Jain, who will be very difficult to replace — though the succession is now identified. The new CEO’s job is to make sure the right people are running that business. The second is running the rest of the BRK portfolio of private companies, and this is where BRK needs the most help. Buffett was never a traditional CEO. He loved investing (capital allocation), not managing people, and he avoided conflict at all costs. He bought businesses, let managers run them, collected the cash flows, and reinvested. Today, BRK has a collection of more than 100 operating businesses. BNSF and GEICO are the ones that matter most, and both have become hallmarks of mediocrity.
BRK has reached a size where, absent a real financial dislocation, capital allocation is unlikely to be the source of forward returns. The low-hanging fruit is improving the performance of BRK’s core holdings, and maybe even shedding companies that shouldn’t be in the BRK portfolio.
Choosing Greg was one of the most important decisions Buffett made in decades. At his first annual meeting, we could see why. A corporate Mr. Fix-It is walking through every business, identifying key performance indicators, installing the right incentives, bringing technology to them, and replacing managers who need replacing — doing things Buffett could not and would not do, but that need to be done.
Abel is not Buffett and that is okay. In fact, it is a good thing. Greg Abel may not draw 40,000 people to Omaha for the annual meeting. But he’ll make the difficult decisions Buffett didn’t want to make. He’ll make the trains run on time, literally and figuratively.
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