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June 05, 2020 at 12:09 PM
Just because several stocks in Berkshire Hathaway’s portfolio have seen steep declines over the last few years, don’t infer that Warren Buffett, 89, has lost his mojo, insists Lawrence A. Cunningham, Buffett friend and research law professor at George Washington University, in an interview with Think Advisor.
Cunningham, who edited the international bestseller “The Essays of Warren Buffett: Lessons for Corporate America” (3rd edition-2013) and is business friends with the Oracle of Omaha, phones the legendary investor from time to time to pass along acquisition opportunities. He has attended every Berkshire shareholder meeting for the last 25 years.
In the interview, noting that Buffett is innately “picky” plus cautious about whom he trusts, Cunningham details why Greg Abel, who runs Berkshire’s energy business, is his likely successor. He then goes on to explain the firm’s overall succession plan.
Cunningham’s new book is “Dear Shareholder: The Best Executive Letters from Warren Buffett, Prem Watson and Other Great CEOs” (Harriman House-April 2020).
In our conversation, Cunningham discusses four of the 20 CEOs whose shareholder letters compose the book. He explains why, for example, Buffett wrote: “A hyperactive stock market is the pickpocket of enterprise”; opines that Amazon founder Jeff Bezos could be overzealous in his pursuit of a “lean” company and that Morningstar “may be at an inflection point.”
The professor’s most recent research article (March 3, 2020) is “The Case for Empowering Quality Shareholders” — that diminishing cohort who “load[s] up and stick[s] around,” as Cunningham, quoting Buffett, writes.
Prior to entering academia, Cunningham practiced corporate law in New York City. He is the founding faculty director of GWinNY, a business law program for Wall Street attorneys-to-be.
ThinkAdvisor recently held an interview with Cunningham, speaking by phone from Amagansett, Long Island, New York. Discussing letters written by former IBM CEO and visionary Virginia Rometty, he argued that the business tech firm, “a bit of a laggard” in recent years, is in no need of “revolutionary leadership, just new stewardship.”
Here are highlights:
In an essay you wrote published on May 29, you noted the current debate about whether Warren Buffett, 89, has “lost his touch” based on “big declines” in many Berkshire Hathaway stocks. For the last few years, the portfolio has underperformed the S&P 500. Your thoughts?
I don’t think he’s losing his mojo or his sense for quality businesses or quality people. Yes, Berkshire has lagged for two, three, four years. And I’m sure that will happen again. I’ve seen this debate many times over 25 years when Berkshire has lagged and people said, “The old guy has lost it!” only to see him turn around and prevail. This is a tough time, and he’s not immune.
At Berkshire’s shareholders’ meeting last month — held virtually — Buffett reportedly expressed deep concern and caution. What’s your take?
He was the most somber I’ve ever seen him in the 25 years I know him. He reflected the mood of the moment because of the pandemic. Every business has been hit. Berkshire is invested in every artery of commerce, so I wasn’t terribly surprised that he was blue.
I imagine he was also unhappy that the meeting couldn’t be held in the traditional festive way, correct?
It was just heartbreaking and a psychic blow for him. He was crushed. That meeting is almost a rite of spring.
The word is that Greg Abel, vice chair of non-insurance operations and executive chair of Berkshire Hathaway Energy, 58, likely will be Buffett’s successor. Do you agree?
He’s the most logical person. More than anybody, I think he has the sense of Berkshire and the track record. He’s got the skill set that’s closest to what’s needed. He understands Berkshire’s culture. He’s very smart in an acquisition, and the division he runs is a large, profitable capital-intensive business. He’s done a good job year-in and year-out allocating its capital [by] reinvesting in plants and products as well as making acquisitions.
How do you think Buffett feels about Abel on a gut level?
He’s got Warren’s trust. Warren’s a picky guy. He doesn’t trust a lot of people. But when he does find someone he trusts, he trusts them with his life. Greg is a very sensible, rational person — very much like Buffett. I think he’ll do a great job.
Does the succession plan call for the firm’s leadership structure to remain the same?
No. Warren’s job will be split into basically four pieces: Greg will be making acquisitions. Warren’s role as chief investor will go to an investment manager; he’s been grooming two for a couple of years. The chairman-of-the-board job — high-level decisions and strategies — is going to Warren’s son, Howard.
What about the shareholder role?
Warren has been a controlling shareholder for a long time. His estate will slowly allocate his ownership [to charities] for about 12 years through the Gates Foundation. So, in effect, he’ll continue to be an influential shareholder. Then, gradually [the estate] will sell [the stock on] the market.
Does Charlie Munger, Berkshire’s vice chair and Buffett’s partner for decades, have a role in the succession?
He’s 96. Everyone agrees his brain is sharp as can be, though his body isn’t. He’s on Berkshire’s board and is probably the third or fourth largest shareholder after Warren. If Warren went nuts tonight or died tomorrow, although Charlie might be able to help a bit in a transition-caretaking operation, he can’t possibly begin making capital allocation decisions and evaluations. That will go to Greg.
Will there be a place at all for Munger?
Greg would call him maybe every day or every week, as Warren does. One of Warren’s sources of success was having Charlie as a sanity check. When he had an idea about making an acquisition or investment, he’d run it by Munger. Many times he would say, “That’s a terrible idea. Don’t do it!” In fact, Munger’s nickname is “the Abominable No-Man.”
Is Munger’s function applicable only to his and Buffett’s special relationship?
Greg needs someone like Munger. Maybe it will be the investment people. As the years roll along, one of the most interesting things will be finding that person who’ll play the Munger [role] to Greg.
