Warren Buffet criticises family businesses and points to his son as chairman: why?
Bernardo Bertoldi (Lecturer in Family Business Strategy - University of Turin*)
4' min read
4' min read
On 3 May at the end of five hours of questions from thousands of members attending his company's annual general meeting, a 94-year-old entrepreneur closed by saying: 'I think the time has come for Greg to take over as CEO at the end of the year'.
Warren Buffet is a great entrepreneur: 60 years ago, he bought a Massachusetts weaving mill on the brink of bankruptcy at a stock market price below its net worth, turning it into the world's largest 'investment company' with a return over the period of 5,000,000% (about 20% per annum) compared to the S&P of 39,000%.
For familyandtrends the succession is interesting, too, because Buffet has always criticised family capitalism, stating that its hallmark is monopoly and nepotism and labelling entrepreneurial families as 'the lucky sperm club'. Despite this, he has left the shares to his children, in trusts, and has proposed Howard, his son, as Berkshire's future chairman (while the CEO will be Greg Abel): his succession has some aspects from which we can learn.
Firstly, one must prepare in time but not be in a hurry to leave. Buffet for 30 years has been talking about his succession, during these years he even fired a top manager who had been indicated as the future CEO without any major corporate cataclysms. Abel, for his part, was raised in the company for 25 years and gradually took on more and more operational roles in the company until he was chosen as his successor in the role of CEO. Today, Abel has responsibility for all of Berkshire's operations and investments except insurance. These represent the heart of the business model by offering low-cost money (the float, i.e. customer advances) for Berkshire's investments and this is perhaps why the founder kept the delegation to himself the longest.
Secondly, stability must be ensured by preparing the company and its partners. How much a 94-year-old can still be considered a value to the company was demonstrated by the -5% fall in Berkshire shares the day after the announcement, and this even though Buffet took care to warn his partners that Abel will do better than him, that the Buffet family will not sell a single share and that he will remain chairman.
