Yahoo Finance Greg Abel 'will keep the culture': Munger explains why Berkshire's business model will endure after Buffett
Famed investors Warren Buffett and Charlie Munger believe that Berkshire Hathaway (BRK-A, BRK-B), the sprawling investment conglomerate that ranks No. 6 on the Fortune 500, isn't too big to manage because of its decentralized culture and it will endure after they're gone.
"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," Munger, 97, said at Berkshire Hathaway's annual meeting on Saturday.
Berkshire Hathaway today looks vastly different from the New England textile company Buffett took over in May 1965. In fact, Berkshire Hathaway (BRK-B, BRK-A) was built on Munger's blueprint of moving beyond so-called "cigar-butt" investing to buying "wonderful businesses" at fair prices, both controlling and non-controlling stakes.
In addition to the equity portfolio, which includes Apple (AAPL), Bank of America (BAC), Coca-Cola (KO), American Express (AXP), Kraft-Heinz (KHC), Verizon (VZ), among its investments, Berkshire Hathaway owns businesses across industries and sectors, including railroads, insurance, energy, services, retail, food, and manufacturing. Among the companies Berkshire owns are See's Candies, BNSF Railway, Duracell, NetJets, Clayton Homes, Brooks, Shaw Industries, Fruit of The Loom, GEICO, and Benjamin Moore Paints, to name a few.
Buffett is known for taking a hands-off approach with Berkshire's subsidiaries, pointing out that the conglomerate owns businesses like recreational vehicle maker Forest River in Elkhart, Indiana, that he's never personally visited.
"Maybe there's some guy in a closet just making up numbers to send to me every month. But I feel I understand the business pretty well. I remember seeing it, and the fellow that runs it likes running it. And he likes me keeping my nose out of it," he said.
According to Buffett, "decentralization won't work unless you have the right kind of culture accompanying it."
To that, Munger replied, "But we do," adding, "And Greg will keep the culture," a reference to vice-chair Greg Abel and a strong hint at the future of Berkshire Hathaway's leadership.
On Monday, CNBC's Becky Quick reported that when Buffett is no longer able to lead Berkshire Hathaway, Abel, the 59-year-old vice chairman of non-insurance operations, will succeed him. Abel, who came to Berkshire Hathaway in 1992, joined its board in January 2018, stepping into a vice-chairman role responsible for Berkshire's non-insurance business operations. Abel joined Buffett at last year's annual meeting in Omaha, where the storied investor took questions without his long-time business partner, Munger, because of the coronavirus pandemic. Abel also fielded questions on Saturday alongside fellow vice-chair Ajit Jain, who looks after the insurance businesses.
On Saturday, Munger added, "assuming we keep the culture, [Berkshire Hathaway's decentralizatiton] can go on quite a ways."
"For a long, long time," Buffett added.
"Long, long time. I think it may amaze everybody. And by the way, the Roman Empire worked as long as it did because it was so decentralized," Munger said.
"As Charlie says to me, you won't know," the 90-year-old Buffett added.
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.
