Tag Archives: Greg Abel

Greg Abel and Ajit Jain Join Berkshire Board

(BRK.A), (BRK.B)

In a move that clearly foreshadows the next generation of Berkshire Hathaway leadership, Berkshire’s Board of Directors voted to increase the number of directors comprising the entire Board of Directors from twelve to fourteen. After making that move, Gregory E. Abel and Ajit Jain were then elected to serve as Directors to fill the resulting vacancies on the Board of Directors.

In connection with their election to the Board of Directors, Warren Buffett, Berkshire Hathaway’s Chairman and CEO, appointed Mr. Abel to be Berkshire Hathaway’s Vice Chairman – Non-Insurance Business Operations and Mr. Jain to be its Vice Chairman – Insurance Operations.

Mr. Abel joined Berkshire Hathaway Energy Company in 1992 and currently serves as its Chairman and CEO. Mr. Jain joined the Berkshire Hathaway Insurance Group in 1986 and currently serves as Executive Vice President of National Indemnity Company with overall responsibility for leading Berkshire’s reinsurance operations.

In March 2016, Buffett appointed Abel to the Board of Kraft Heinz, a move that showed his confidence in the 55-year-old manager.

For the time being, Buffett and Munger will continue in their existing positions, including being responsible for significant capital allocation decisions and investment activities.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway’s Biggest Question

(BRK.A), (BRK.B)




Who will succeed Warren Buffett, who turns 85 in August, as the head of Berkshire Hathaway? This would seem to be the biggest question hanging over the shareholders of the massive conglomerate. Will it be Greg Abel, the head of Berkshire Hathaway Energy, or Ajit Jain, who heads up Berkshire’s reinsurance business? Both are frontrunners, especially since Vice-chairman Charlie Munger, who is himself 91 this year, specifically dropped their names in his shareholder letter included in the 2014 Berkshire Hathaway annual report. Yet while people speculate on Buffett’s successor, I would suggest there’s a far more important question. After all, CEOs come and go, and whoever follows Buffett and Munger will eventually be succeeded by others.

So, the biggest question is not who will succeed Buffett; it’s how will they be compensated. In other words, how will they participate in the growth of the company as compared to how has Buffett participated?

Can a unique situation be replicated?

Berkshire Hathaway may be unique in the sheer number of companies that operate under its umbrella. It’s not only a conglomerate; it’s a conglomerate of conglomerates. For example, Berkshire’s Marmon Group has 160 independent manufacturing and service businesses, and Berkshire’s Scott Fetzer Group oversees 21 diverse companies. But even this is not what is most unique about Berkshire. What’s most unique is that Warren Buffett is participating first and foremost just as you do, as a shareholder.

The most underpaid CEO in the Fortune 500

For a man overseeing a conglomerate with a market value of roughly $347 billion, you would think that Buffett receives sky high compensation, especially since that conglomerate’s share value has risen 1,826,163% (yes, that’s not a misprint) from 1966 to 2014. However, Buffett (and Charlie Munger) have annual salaries of only $100,000. What’s more, there are no stock options and no bonuses. Buffett and Munger’s rock bottom salaries mean that they are participating in Berkshire just like you are, as long-term shareholders that care more about increasing the underlying intrinsic value of the company than any short-term trick to boost the stock price.

Think that doesn’t matter?

“The more CEOs are paid, the worse the firm does over the next three years, as far as stock performance and even accounting performance,” notes Michael Cooper of the University of Utah’s David Eccles School of Business. Prof. Cooper co-authored a paper that proved just that.

Just look at David Zaslav, CEO of pay-TV channel Discovery Communications. Zaslav had a total compensation package of $156.1 million in 2014, yet the same year the stock lost a quarter of its value, even as the broader market boomed. The shareholders felt the pain, while Zaslav got the gain. That’s not exactly participating on the same basis.

At the 2015 Berkshire annual meeting, Buffett acknowledged that when CEO incentives get out of line with a company’s goals bad things can happen.

“Charlie and I believe in incentives, Buffett said. “But we have seen decent people get into trouble with incentives. The CEO promises a certain number, and his executives don’t want to make the CEO look bad. Egos get involved. You have to be careful in the messages you send as CEO. If you don’t want to disappoint Wall Street, your managers will react.”

A Hedge without the 2 and 20

Hedge fund managers built their fortunes on the 2% annual management fee and a 20% of the profits, but that’s not necessarily the same for the hedge fund’s investors, who don’t get that management fee to cushion any tumble in profits. Remember in 2008 when Buffett bet hedge fund manager Ted Seides that a low-priced index fund tracking the S&P 500 would beat the average of any 5 hedge funds over a 10-year period that Seides picked? Well, the “Million-Dollar Bet” is looking more and more like a sure bet for Buffett, because he knew the high friction costs would hurt the hedge funds’ returns.

In fact, Berkshire’s a conglomerate that operates as hedge fund without the management fee structure. Like a hedge fund, it can buy 100% of a company (unlike a mutual fund), it uses derivatives to increase its leverage and hedge its risk, and because its leadership is in lock step with its investors, all that benefit goes right to each shareholder.

Whose side will they be on?

In 2011, David Sokol, who once looked like the heir apparent to Buffett, abruptly resigned after it turned out that he had accumulated over 96,000 shares of Lubrizol before bringing the company to Buffett’s attention as a potential acquisition. Buffett later called Sokol’s actions “inexplicable” and “inexcusable,” and while the SEC dropped its probe, the Sokol fiasco showed that’s it’s not automatic that Berkshire’s leadership will align with its shareholders interests.

Or, as Charlie Munger has said, “Trustworthiness is more important than brains.”

Berkshire’s Future Leadership

Berkshire’s future generations of leadership may be great stock pickers, able to build portfolios that equal the $100 billion portfolio that Buffett built. They may be great capital allocators like Buffett, able to use the profits from one company to by other companies with even greater growth potential. They might even be as savvy opportunists, unleashing Berkshire’s mountains of cash just when others credit has dried up. However, the big question is whether they do it on the same basis as Buffett and Munger, on behalf of all the shareholders.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Are Ajit Jain and Greg Abel the Successors to Warren Buffett and Charlie Munger?

(BRK.A), (BRK.B)

Despite Warren Buffett being a spry age 84, and Charlie Munger a youthful 91, the question of the successor or successors that will lead Berkshire Hathaway continues to be on analysts’ and commentators’ minds.

“Both the board and I believe we now have the right person to succeed me as CEO — a successor ready to assume the job the day after I die or step down,” Buffett has said.

Now, in his letter published in the 2014 Annual Report, Charlie Munger seems to hint that Ajit Jain or Greg Abel could be in line to provide the leadership that will carry Berkshire forward.

“For instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.” “World-leading” would be the description I would choose. In some important ways, each is a better business executive than Buffett.

And I believe neither Jain nor Abel would (1) leave Berkshire, no matter what someone else offered or (2) desire much change in the Berkshire system.”

While neither Buffett nor Munger has officially revealed the next leader or leaders of Berkshire Hathaway, both Jain and Abel would seem to fit the bill.

First, they would be promoted from inside the company, and thus are steeped in Berkshire’s unique corporate culture.

Secondly, they are both young enough to have long reigns at a company that certainly has no interest in a mandatory retirement age, and each of them would bring essential skill sets to the job.

Both have played important leadership roles heading two of Berkshire’s largest units.

Ajit Jain, as the man who has built Berkshire’s insurance and reinsurance empire, is better equipped than almost anyone in the world to take on the important task of making sure Berkshire’s insurance companies don’t try to grow by taking on undue risk.

Greg Abel, as the head of Berkshire Hathaway Energy, certainly knows about capital allocation. Under his leadership, BHE has grown into one of the world’s largest energy providers and a leader in renewable energy generation. He also sits on the Board of Heinz, and BHE includes Berkshire Hathaway Home Services, Berkshire’s rapidly expanding real estate sales unit. Both of these companies give him additional insight into consumer markets.

As for their ages, Jain is age 63, and Abel is only 52, so they hopefully would have many years to put their stamps on Berkshire.

So which one is it?

Why not both of them?

Well, while Buffett spoke in the singular, he has already stated that his replacement would probably see his various roles filled by several people.

The job of managing Berkshire’s $125 billion and growing stock portfolio will almost certainly fall to Ted Weschler and Todd Combs, who Buffett has been grooming by giving each a multi-billion dollar stock portfolio to manage.

Together, Jain and Abel would also be sounding boards and counter balances for each other in much the same way that Buffett has used Munger.

While Warren Buffett rightly gets the lion’s share of credit for Berkshire’s phenomenal growth, Charlie Munger’s sage advice has often been overlooked by the press.

It certainly hasn’t been overlooked by Buffett.

While the latest buzz comes from Munger, Buffett has repeatedly praised both Jain and Abel.

On Jain, Buffett said “It is impossible to overstate how valuable Ajit [Jain] is to Berkshire. Don’t worry about my health; worry about his.”

On Abel, Buffett has highlighted the impact that he and Mathew Rose (CEO of BNSF) have had on Berkshire, stating “I am also both proud and grateful for what they have accomplished for Berkshire shareholders.”

So, if Ajit Jain and Greg Abel are indeed the future leaders of Berkshire, shareholders can look forward to continued smart and capable leadership.

And we shouldn’t forget BNSF’s executive chairman Mathew Rose, who is only in his mid-fifties. He is certainly a prime contender as well.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway Makes Aggressive Move into Canadian Energy Market

(BRK.A), (BRK.B)

With the recently announced acquisition of AltaLink, Berkshire Hathaway’s newly christened Berkshire Hathaway Energy has made an aggressive move into the Canadian energy market.

New Canadian Beachhead Strategy

Under the moniker MidAmerican Energy, the company’s previous Canadian energy plays consisted of joint ventures where the other partners took the lead. Now, as Berkshire Hathaway Energy, the company is going out on its own to become a leader in the growing markets of Calgary and Edmonton, Alberta. It’s a move that will have BHE serving 85% of the population.

In acquiring AltaLink from SNC-Lavalin Group Inc. (TSX:SNC), BHE will take possession of 12,000 kilometers of transmission lines and 280 substations that bring electricity to 3 million Albertans. The total cost of the acquisition is C$3.2 billion, approximately US$2.9 billion.

Warren Buffett has long been known for a buy-and-hold acquisition strategy that places an emphasis on finding companies with top-flight management that is kept in place. Similarly, Berkshire Hathaway Energy, under the direction of chairman, president, and CEO Greg Abel, has the same philosophy. AltaLink’s management will remain headquartered in Calgary, and it will continue to operate as a local, independent company.

Employing the Berkshire Strategy

Also in keeping with another of Buffett’s strategies, Abel’s goal is to buy assets that will be owned forever.

It’s a sizeable acquisition as AltaLink had assets of C$5.9 billion as of December 31, 2013, and generated revenues of C$534.1 million in 2013.

Is this just another acquisition in BHE’s portfolio, or does it represent additional focus on the Canadian energy market?

Apparently, both.

On one hand, it’s a natural move for BHE’s combination of regulated utilities and infrastructure companies that span the U.S. and reach as far as the U.K. and the Philippines. But there’s reason to expect more. Greg Abel hails from Edmonton,  he knows Alberta’s power demands are only going to grow, and he sees AltaLink as a beachhead acquisition.

Alberta’s Growing Power Needs

Industry leaders are already calling for more than 9,400 MW of new thermal power and more than 3,000 MW of new renewable power to fuel future development in Alberta.

Under Abel’s direction, BHE has been growing dramatically, including last year’s purchase of NV Energy that brought 1.3 million customers in Nevada under its wing. In total, BHE has amassed a $70 billion portfolio of energy companies that produced $12.6 billion in revenues in 2013.

A Future Berkshire Leader?

At the youthful age of 51, Greg Abel is often mentioned on the short-list of Buffett successors. He also sits on the board of directors of H.J. Heinz Company board of directors–Berkshire Hathaway’s biggest acquisition since BNSF Railway was acquired in 2010. It’s no surprise his name is on people’s lips, considering BHE’s high-powered growth strategy that has no end in sight. And the Canadian energy market may just be where that strategy leads.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.