Earlier this year, Warren Buffett announced that he would step down as chief executive officer of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) after six decades at the helm of the company. If investors didn't think the times were changing then, they likely know now. Recently, Berkshire announced a major shake-up to its core management group. Todd Combs, who joined Berkshire in 2010 and managed a portion of Berkshire's enormous $312 billion equities portfolio, is leaving the company.
Berkshire also recently announced several other significant changes. Does this bode well for the stock?
A new Berkshire era is upon us
When Buffett, who is now 95 years old, announced that he would step down, he also appointed Greg Abel, vice chair of Berkshire's non-insurance operations and chair of Berkshire Hathaway Energy, as the new CEO.
Image source: Getty Images.
Nobody expects Abel to ever fill the large shoes left by Buffett, who will likely go down as the greatest investor of all time. However, there have been many questions about how Abel would lead the company, especially given Berkshire's relatively conservative approach in recent years, which included building a huge hoard of cash. Investors just got their first clue, with a slew of management changes:
- NetJets CEO Adam Johnson will become president of the consumer products, service, and retailing businesses of Berkshire Hathaway, effective immediately, while continuing in his role at NetJets.
- Nancy Pierce, the current chief operating officer of GEICO, will become CEO of GEICO.
- Berkshire's senior vice president and chief financial officer, Marc Hamburg, will retire from Berkshire on June 1, 2027, after 40 years of service. Charles Chang, the current CFO of Berkshire Hathaway Energy, will replace Hamburg upon retirement.
- Michael O'Sullivan will become senior vice president and general counsel, starting on Jan. 1. O'Sullivan comes to Berkshire from Snap, where he served as the general counsel. This is a new role at Berkshire.
However, arguably the most notable change is the departure of Combs, who, in addition to managing a portion of Berkshire's investment portfolio, was also the CEO of GEICO.
Combs, who previously served on JPMorgan Chase's board of directors, is leaving to join the U.S.'s largest bank. He will run JPMorgan's new $10 billion Strategic Investment Group, which will invest in companies to "enhance their growth, spur innovation and accelerate manufacturing, primarily in the United States." Over time, JPMorgan plans to commit a whopping $1.5 trillion to bolster economic growth.
NYSE: BRK.B
Key Data Points
Based on most media reports, Combs appears to have made the decision to leave Berkshire independently. A significant change in the CEO of a company can prompt people to reassess their positions within a company and in life. It is widely believed that Combs and Ted Weschler, another of Berkshire's investing lieutenants, managed about 10% of Berkshire's portfolio. The two are also believed to have been responsible in large Berkshire investments such as Sirius XM Holdings, DaVita, Kroger, Visa, VeriSign, and Amazon, according to Barrons.
In losing Combs, Berkshire loses one of its key utility players. Not only did Combs play a big role in Berkshire's investments, he also ran GEICO, the company's largest insurance brand. Combs is also only 54 years old, which, in the corporate world of executives, is relatively young.
How does this bode for the stock?
It's ultimately tough to say right now. Some turnover amid a CEO change is always normal, and Berkshire's CEO change is the ultimate regime change. In the near term, it is likely to raise questions, such as whether Weschler will remain with the company. Investors who bought the stock for Buffett are likely to be a little concerned, because the easiest transition would have been the minimal change possible.
These changes are also likely to place a greater spotlight on Abel, who will now bear more of the praise and blame for the decisions he makes. In the near term, Berkshire may need to prove itself a bit and may no longer be viewed as the haven investment it once was.
However, investors should still be confident in Abel as a capital allocator. After all, Buffett hand-picked him to run the company. In addition, Berkshire's businesses have built strong moats that are difficult to replicate at this point. Long term, I am not worried about the stock, but it may experience some transitional pain as investors adjust to living without Buffett's reassuring presence at the top.
