Warren Buffett lays out a succession plan—for his Berkshire shares

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Warren Buffett, chairman and chief executive of Berkshire Hathaway, has long joked that he plans to run the company from his grave. 

Shareholders, accustomed to his dry wit, will be hearing such cracks from Buffett for the foreseeable future, as the soon-to-be 90-year-old said on Saturday he’s staying on the job. 

The Oracle of Omaha did, however, lay out in his annual letter to shareholders a kind of succession plan—one for his considerable fortune—after his death. He’s ordered the executors of his will and the trustees to his estate “not to sell any Berkshire shares.”

As of March 2019, Buffett held 270,644 Class A shares in Berkshire Hathaway and another 91,189 Class B shares, making him far and away the largest shareholder with a net worth of roughly $90 billion, according to Forbes. Anything but an orderly sell-off of his stake would likely be a jolt to the share price.

Such reassurance to longtime shareholders comes after a difficult year. Berkshire Hathaway’s shares undershot the S&P 500 in 2019 by a long way. Shares were up just 11% for the year, versus 31.5% for the broader market, its worst performance relative to that benchmark since 2009.

The company’s groaning cash pile (north of $128 billion as of the end of 2019), and its avoidance of making a big acquisition, haven’t helped its share price. The perceived inactivity has turned away more aggressive investors seeking big returns amid a record bull run.

Berkshire Hathaway stayed largely on the sideline last year during a banner year for mergers, during which private equity funds drove up target prices across most sectors. Buffett has long said he would never overpay for an asset—be it a privately held company or a stock.

Meanwhile, there were few clues in today’s shareholder letter that would suggest the company plans to put that sizable cash hoard to work on acquisitions any time soon.

As for succession plans for Buffett himself, he told shareholders that he has no intentions of leaving, but that he will give greater say, at least for the company’s annual shareholder meeting in May, to his top lieutenants, Ajit Jain and Greg Abel. Jain oversees Berkshire’s cash-flow generating insurance businesses, and Abel is the CEO of Berkshire Hathaway Energy. Both are pegged as top contenders to someday replace Buffett. “They are outstanding individuals, both as managers and as human beings, and you should hear more from them,” Buffett wrote.

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With few bargains to be found in 2019, Berkshire Hathaway instead poured money into buybacks. It did so at what is, for this company, a record clip.

That’s not to say Buffett has changed his tune on “the sense and nonsense,” as he puts it, of share-repurchases. But in 2019, thanks to a relatively cheap share price (at least compared to the booming S&P 500), he saw “modestly favorable” conditions to pull the trigger. And he fired repeatedly. “We spent $5 billion in repurchasing about 1% of the company,” he explained in his shareholder’s letter.

And he’s not done there. In a highly unusual move, Buffett invited big shareholders eyeing the exits to give the company a call.

“Shareholders having at least $20 million in value of A or B shares and an inclination to sell shares to Berkshire may wish to have their broker contact Berkshire’s Mark Millard,” Buffett wrote. “We request that you phone Mark between 8:00-8:30 a.m. or 3:00-3:30 p.m. Central Time, calling only if you are ready to sell.” (Millard is Berkshire’s director of financial assets.)

Where else did Berkshire Hathaway spend its money in 2019? It increased its stakes in JP Morgan Chase, Bank of America and Delta Air Lines while reducing its positions in Goldman Sachs by one-third and in Wells Fargo by roughly 23%.

One new addition to Berkshire Hathaway’s holding last year was Visa; it acquired 10.2 million shares, a stake worth a bit under $2 billion at year-end.

As for dividends, the company’s 52-year run of not paying one remained intact in 2019.

Bequeathing shares

Buffett gave plenty of ink in the annual letter to reassuring shareholders about their Berkshire Hathaway holdings once he dies. In an unusually detailed note, he explained how he has arranged for executors of his will to gradually convert his A shares into B shares and distribute those to certain unnamed foundations over time. 

There was no detail in today’s letter about which foundations would be bequeathed the shares. Since 2006, Buffett has been supporting various philanthropic causes and foundations, including the Bill & Melinda Gates Foundation and the Sherwood Foundation, formerly the Susan A. Buffett Foundation. (For more, see the Fortune article, Warren Buffett Gives It Away.”)

“Those foundations will be required to deploy their grants promptly. In all, I estimate that it will take 12 to 15 years for the entirety of the Berkshire shares I hold at my death to move into the market,” Buffett wrote.

Buffett didn’t dwell too long on his eventual decline. He gave five reasons why he and vice chairman Charlie Munger remain optimistic about the future of the firm. For starters, he said, the company’s various businesses—from insurance to energy to rail transport—are set up to “earn attractive returns on the capital they use.” He also singled out the management team they’ve put in place, the conglomerate’s value-oriented business ethos and its culture of looking out for shareholders first.

“Berkshire shareholders need not worry: Your company is 100% prepared for our departure.”

If you don’t believe him, you can always have your broker call Mark Millard. He’ll be at his desk Monday morning between 8:00-8:30 a.m.

Correction: An earlier version of this article erroneously stated that Berkshire Hathaway vice chairman Charlie Munger made the same stipulations in his will about the disposition of Berkshire shares after his death as Warren Buffett had made in his will.

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A new coronavirus red flag on the horizon—a stronger dollar
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