Legendary investor Warren Buffett has finally chosen his successor, a man who has some pretty sizable boots to fill: Gregory Abel.
The company had previously revealed Buffett’s job would be split into three parts: a CEO to oversee capital allocation and Berkshire’s operations; investment managers to oversee the stock portfolios; and a separate board chairman. We just never knew who would take on what role.
After years of speculation, Buffett at long last revealed 59-year-old Abel, who is the chairman and CEO of Berkshire Hathaway Energy, and the vice chairman of non-insurance operations, will be the future CEO of Buffett’s US$640 billion company.
So why is Greg Abel the man for the job?
We now know who the man for the job is. But how did Buffett and the wider Berkshire Hathaway leadership come to the agreement that Abel would become the future CEO?
When Buffett appointed Ajit Jain to the role of vice chairman of Berkshire Hathaway’s insurance operations, and Abel to CEO of Berkshire Hathaway Energy, he said this was “part of the movement toward succession”.
Buffett has consistently sung praises about both Jain and Abel, but has always remained tight-lipped about which vice chairman would take over as CEO, if any.
However, in the company’s annual meeting on May 1, Buffett gave some insight into why Abel was chosen ahead of Jain: “The likelihood of someone having a 20-year runway though makes a real difference.”
The 20-year runway Buffett references is the time the men could spend in the job. Abel is 58, which makes him 11 years younger than his fellow vice chairman Jain, who is 69. This means he’d likely spend longer in the role, and have the opportunity to make more of an impact.
But Jain is next in line.
“If, heaven forbid, anything happened to Greg tonight then it would be Ajit,” Buffett said.
During the meeting, the company’s vice chairman Charlie Munger made another comment that goes some way toward explaining the company’s decision: “Greg will keep the culture”.
Abel’s history at Berkshire Hathaway
We know Abel’s age and ability to keep Berkshire Hathaway closer to its roots make him the best candidate for future CEO.
But that’s not all: Abel also has a long history with Berkshire Hathaway.
He’s been with the company for more than two decades, and has seen it acquire multimillion-dollar businesses first hand. In fact, that’s actually how he got a job there.
Berkshire Hathaway acquired a controlling interest in an energy company called MidAmerican Energy in 1999 for US$2 billion. At the time, Abel was working as an accountant for MidAmerican.
By 2008, he’d worked his way up to become the company’s president. Later, the company changed its name to Berkshire Hathaway Energy, and Abel was promoted to the company’s CEO in 2018.
And with good reason. Abel was pivotal in turning the company’s energy division into a profitable unit, churning out nearly US$20 billion in revenue per year. Berkshire Hathaway Energy generates around 10 per cent of the company’s total earnings, and is one of the US’ largest power suppliers. In 2015, the said Abel had a reputation for being an “astute deal maker”.
His base salary was reportedly around US$16 million in both 2019 and 2020, but he earned annual bonuses of around US$3 million in those years too, according to CNBC.
Do experts agree with Buffett’s choice?
Many industry experts and investment analysts don’t think Buffett’s choice comes as much surprise at all, and welcomed the CEO’s announcement.
“We have a great deal of comfort with Abel as CEO and with the overall future leadership of the company. I think he has proven to be a really effective leader,” Edward Jones analyst Jim Shanahan told Reuters.
However, Ives stressed the position wouldn’t be an easy one to step into.
“Filling the shoes of a global icon and investing genius is a tough task and will have its share of challenges ahead.”