Even though Warren Buffett is 94 and decades past the average retirement age, the end of his run as CEO of Berkshire Hathaway Inc. was always going to come as a shock.
But it’s given investors some comfort that, while they never knew when that day would arrive, they at least knew who would replace him. In 2021, Buffett announced Greg Abel as his successor, and would go on to use the subsequent years to hype him up. Abel is “ready to be CEO of Berkshire tomorrow,” Buffett wrote in his 2023 annual letter.
Buffett made the handoff official at the company’s annual shareholder meeting on Saturday, telling the audience he would step down as CEO at the end of the year. It was an announcement that stunned even Abel and most of the board; the only directors privy to what was coming were two of Buffett’s children.
Berkshire stands out for its transparency on a governance issue that makes most other companies cagey. The default for boards and CEOs is guarding their succession plans like a state secret, shrouding the whole process in mystery.
Until 2021, Berkshire operated that way, too. Buffett and his former longtime vice chairman and righthand man Charlie Munger, who died in 2023, always assured investors they had a plan — a necessity when you have people in their 80s and 90s running the place. They just wouldn’t name names.
But at the Berkshire Hathaway annual meeting in 2021, conducted virtually during the Covid era, Munger let it slip in an exchange with Buffett:
Munger: I don't think we're getting too big to manage because we're different from practically every other big corporation in the United States, in that we are so excessively decentralized. We have decentralized so much and we have so much authority in the subsidiaries that we can keep doing it for a long, long time, as long as it keeps working. And I would say so far, that our decentralization has caused more benefits than defects, but nobody seems to copy us.
Buffett: Well, that's absolutely true. But I would say this, decentralization won't work unless you have the right kind of culture accompanying it.
Munger: Yeah. But we do. And Greg will keep the culture.
Buffett might have been pushed into the reveal, but rather than issue a vague statement saying Munger misspoke, he went on CNBC and announced that Abel, vice chairman of non-insurance businesses, would take over if anything were to happen to him. Buffett’s clarity and decisiveness put the issue to rest both internally and externally, allowing investors and employees to process the news and move on with their lives.
Thanks to Munger’s gaffe, the company stumbled into a succession model that more companies should consider. Buffett gave Abel four years to prepare for the handoff; for most CEOs, it’s a matter of mere months between the announcement and start date. Four years might not be realistic for most companies, but lengthening the transition period gives a new CEO time to learn at the feet of the person they’re replacing. It also gets rid of the distractions that can come with a prolonged bakeoff.
Compare that to JPMorgan Chase & Co., where pundits race to read the tea leaves on who might replace Jamie Dimon each time the bank reshuffles its ranks. When Jennifer Piepszak was named COO earlier this year, a company spokesman said she didn’t want the CEO job. Instead, the bank said she preferred a senior operating role supporting top leadership — a move designed to deflate any speculation that her promotion signaled she was Dimon’s heir.
JPMorgan is far from alone in running an old-fashioned horse race. The problem is, that type of internal competition can lead to infighting, paranoia and politicking. Take the succession battle at Johnson & Johnson. One CEO contender left the company after she said in an interview that she would “absolutely” be interested in a top job. “Her public airing of interest in a CEO role didn't go over well among J&J's leaders,” including the company’s current chief, according to the Wall Street Journal.
There are a lot of reasons a CEO might not name their successor, even when they know who it is. They don’t want other executives who lost out on the top job to leave. Or they might not yet know when they’re going to retire and are hoping to keep anyone waiting in the wings from getting antsy. Or maybe they aren’t ready to give up any power and control, or to share credit. Or they fear that saying who will replace them will make them seem, well, replaceable. Some of these hurdles are about ego; some are related to the business. If the former is what’s holding a CEO back, it’s time to reevaluate.
Buffett, a one-of-one kind of leader, didn’t need to worry about being viewed as replaceable. But even for the CEOs who do — i.e. most of them — his path can, once again, provide some inspiration.
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