While reading about portfolio companies today, I ended up reading this piece about Berkshire Hathaway. ?Not that great of an article, and it got worse when I read this:

Then there is the big question, “Who will replace Warren Buffett (Trades, Portfolio)?” He is now 83 years old. There is no official word on who will take over, but in his letters to shareholders he takes time to praise many of the investment managers working for him. The current consensus seems to be that Berkshire will be run by committee. The company has plenty of assets and superior management, so it should continue to operate efficiently. [emphasis mine]

That’s not the way BRK works. ?BRK is a group of businesses, run by men (male & female) who love their businesses, and would rather be running their businesses than taking a vacation. ?When Buffett dies, and he *will* die one day, much as shareholders might like to hope otherwise, BRK will likely be managed much as it is today. ?BRK relies on self-motivated managers that do their part to ?make the company work. ?Given the level of independence, it is the only way it can work, absent the possibility of considerable centralization after Buffett’s death.

The same applies to the management of the small central office. ?Public stock portfolio management is separate from the purchase of private companies (with some informal overlap). ?Operational management is limited, aside from efforts to fix lagging subsidiaries (think of Tracy Britt Cool). ?The next CEO of BRK will have to have multiple skills, but he won’t have to “do it all” as Buffett does. ?He will have to delegate yet further.

Think: how many people can understand all of the following:

• The economics of a wide number of industrial businesses
• The economics of one of the biggest insurers & reinsurers of the world
• The quantitative aspects of Buffett’s derivative bets
• Clever investing in public equities
• Ability to acquire attractive public and private companies and on attractive terms
• Minimizing tax impacts in the process
• How to continually motivate the managers of a spread-out empire of companies

The successor to Buffett will likely be little different than Buffett — a capital allocator who motivates his many managers. ?At the size of BRK, private equity skills may be more valuable than public equity skills. ?BRK is a conglomerate, with considerable diversification. ?Even a passing look at the corporate org chart screams “Big!”

You want a sharp delegator/decision-maker at the head of BRK. ?He will hand off many responsibilities to others, but hold onto the core jobs of allocating capital, and evaluating/rewarding managers.

Anything else is suicide for BRK. ?That said, it’s not impossible that a future CEO would radically streamline BRK, and turn it into something more like GE. ?That would be a big mistake, but it would look like low hanging fruit, because of the many similar businesses that could be combined. ?Purchasing and central office services could be combined as well. ?That might improve profits in the short-run, but it would destroy the unique corporate culture that Buffett has created.

Far better to have a “fixer” correcting the edges of the corporation like Tracy Britt Cool, or David Sokol, than to wholly change the healthy culture of a corporation, with uncertain rewards.

Full Disclosure: Long BRK/B for myself and clients