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There's no doubt that Warren Buffett has been the single most important force behind the incomparable success of Berkshire Hathaway Inc. (NYSE:BRK-B) (NYSE:BRK-A) over the past 50 years, though I think vice chairman and longtime business partner Charlie Munger -- whom Buffett called the "architect" of Berkshire's business model -- doesn't get enough credit.
Either way, the reality is that with Buffett and Munger aged 84 and 91 years, respectively, investors for the next 50 years won't get the good fortune of having these two men at the reins of this great company. But the future looks bright in no small part because Buffett has always surrounded himself with smart, capable people and given them the trust and autonomy to accomplish great things.
Let's take a closer look at a half-dozen of Buffett's most trusted insiders and why they may matter more than even Buffett going forward.
The old warhorses
Munger may have said it best when describing two Berkshire executives in his latest contribution to Berkshire's annual letter to shareholders:
But under this Buffett-soon-leaves assumption, his successors would not be "of only moderate ability." For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as "world-class." "World-leading" would be the description I would choose. In some important ways, each is a better business executive than Buffett.
Ajit Jain has been at Berkshire for more than 30 years, having been hired by Buffett himself to build Berkshire Hathaway Reinsurance Group from the ground up into a world-class operation. Over the past two years, Berkshire Re produced almost $2 billion in profits, and its $43 billion float is more than half of Berkshire's total.
Meanwhile, Greg Abel came to Berkshire in 2000 as part of the MidAmerican Energy acquisition and has been CEO there since 2008. He's the CEO of Berkshire Hathaway Energy, or BHE, which contains MidAmerican, as well as another nine energy and utility-related subsidiaries. BHE is a major energy supplier for the country, generating 6% of total wind power and 7% of total solar power and transporting 8% of the country's total natural gas consumption last year. For Berkshire directly, BHE contributed more than $3 billion in profits over the past two years, and its long-lived utility and gas assets will likely still be contributing in a century.
At 63 and 52 years old, respectively, Jain and Abel are both young enough to take on the CEO role for years, and they're also tenured enough to understand the culture of Berkshire and the role that the CEO would play. Both have also demonstrated their ability to make acquisitions, as they each have managed numerous "bolt-on" purchases that have been rolled into the subsidiaries they run for Berkshire.
Next up: The money guys
Todd Combs, 44, and Ted Weschler, 55, are both examples of how Buffett tends to think in much longer terms than most of us. Buffett brought the two men on board in 2010 and 2011 to help manage Berkshire's massive $109 billion portfolio. It's also a reminder that no single person will be able to replace the Oracle of Omaha when he does step aside, as these two will probably become the investment officers for the company, while the new CEO is unlikely to also carry the title of chief investment officer, as Buffett does.
But that's not all these two will do; they've already begun taking on more business-related responsibilities. Last year, both were tapped as the chairmen of two small companies Berkshire acquired, taking on a role that Buffett often filled. Not only will it help make these two men better investors by getting them involved in some capital-allocation decisions and advising the management of those subsidiaries, but it will also make them better able to advise Buffett's eventual replacement when evaluating acquisitions.
Both are likely to spend many more years at Berkshire, and while they'll never replace Buffett, they'll take on one of the most public roles in managing the company's stock portfolio. Shareholders can almost certainly count on these two for years to come. According to Buffett, both have outperformed the Oracle as investors since coming aboard, and that should give you reason to be hopeful.
The likely successor?
Matt Rose, 56, came to Berkshire with the 2010 acquisition of BNSF Railways, but don't think his shorter tenure means he's unlikely to replace Buffett as CEO. In fact, shareholders have plenty of reasons to think he's the most likely candidate. To start, his surprise exit as CEO of BNSF in 2013, when he stepped into the role of BNSF's executive chairman, looks a lot like a move to get him involved in more than one part of Berkshire while also making sure that BNSF, which Buffett has called "Berkshire's most important non-insurance subsidiary," has the right leader in place.
BNSF has other impressive leaders, too. Take 59-year old Carl Ice, who has been at BNSF for more than 30 years. Ice has demonstrated his keen business acumen throughout his career and has proven his leadership skills since taking charge as BNSF's CEO early last year.
While he's been a railroad man much of his career, Rose's business acumen is said to be top-notch, and he's known for having made himself an expert on the industries BNSF serves in order to better position the railroad to serve customers profitably and to grow. This business acumen will be critically important to the two most important jobs of the Berkshire CEO: evaluating acquisitions and allocating capital.
Furthermore, Rose is the only person on this list who's not in a critical functional role already, meaning he's probably the best positioned to replace Buffett if something were to happen quickly. You can guarantee that Buffett, Munger, and the board of directors have considered that.
The "next next" CEO
At 31, Tracy Britt Cool may not be a likely candidate to be Buffett's successor, but over the past five years she has proven her mettle and become increasingly important to Buffett. Starting as a financial analyst assisting him directly, Cool has served as chairwoman of several Berkshire subsidiaries over the past few years and holds a spot on the Heinz board of directors.
Recently she was named CEO of Pampered Chef, one of Berkshire's smaller subsidiaries, taking over from the company's founder. Although she's not running one of Berkshire's "powerhouse five" or insurance operations, she has a lot of years ahead of her to grow and develop, all while keeping Berkshire's all-important culture alive and thriving -- not to mention those fantastic operating results.
There's little chance she will be Buffett's successor, but I wouldn't rule her out to as a candidate to take the reins years down the line. Either way, she will likely be one of Berkshire's most important executives for years to come.
An embarrassment of riches
If you're picking from this list, it almost doesn't matter who the next CEO is. And this is not even a complete list; GEICO CEO Tony Nicely and Tad Montross, CEO of Gen Re, have shown themselves to be incredibly capable leaders, too. But given that Nicely is 71 years old and Montross is in a position of similar functional importance to those of his peers' on this list, these two are not likely in the running for the top job at Berkshire.
One of the great and often overlooked byproducts of the way Berkshire operates is that it attracts and retains "world-leading" business leaders like the people discussed here. That's partly by design, as Buffett looks for great managers who will stay around when he acquires a company. But it's also a product of the culture itself, which draws executives who want to be part of something great while being given the autonomy to do great things.
Personally, I think Rose has the inside track. Why? Neither Buffett nor Munger mentioned his name in their letter to shareholders this year, while Weschler, Combs, Abel, and Jain were all named at least once each. Just sayin' -- seems suspicious to me.
Let the rampant speculation begin!