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Recounting the Potential Buffett Successors

The question of who will be at the helm of Warren Buffett’s investment vehicle Berkshire Hathaway (BRK.A) has been impatiently awaited and debated for several years alongside fears the

The question of who will be at the helm of Warren Buffett’s investment vehicle Berkshire Hathaway (BRK.A) has been impatiently awaited and debated for several years alongside fears the 81-year-old billionaire may be nearing the end of his career. Finally, last week, it was announced that Buffett’s successor as chairman would be none other than his 56-year-old son, Howard, a corn and soybean farmer.

The announcement, which technically entails that “Howie” will be the guardian of the company, charged with protecting its values more than guiding its strategy, halted speculation surrounding who would be at the helm of the empire. Howard’s anointment, probably led to deeply disappointed sighs among the four potential successors Buffett had mentioned in earlier investor letters and public appearances.

So who lost out with Howard’s appointment?

David Sokol- considered by outsiders to be the most likely candidate to succeed Warren Buffett, Sokol resigned from his post at Berkshire Hathaway in March of this year. Sokol’s departure is thought to be tied to his decision to encourage Buffett and Berkshire Hathaway to purchase shares of  the lubricant maker Lubirzol, two months after he quietly purchased 2,300 shares on an independent basis. While Buffett said he did not deem the action “unlawful” and claimed Sokol’s sudden resignation both from his current job and the running for Chairman were unrelated, the media had a different understanding of events.

Prior to his exit, Mr. Sokol had been charged with running a number of Berkshire subsidiaries, including NetJets and MidAmerican Energy. In his resignation letter, Sokol said that he would begin working to secure long-term equity for his family, a plan that he had delayed during his tenure at Berkshire Hathaway.

Ajit Jain– Following Sokol’s drop from the race of Chairman, some media outlets speculated that Ajit Jain, head of the company’s reinsurance operations would be next in line for the helm of the empire. During his February investor letter, Jain was the recipient of considerable praise. Mr. Jain’s subsection generates billions in insurance premiums which Buffett, in turn uses to invest. The “float,” as it is called, can be used to reinvest in order to generate returns and help keep Berkshire Hathaway in the money. As a businessman, Jain has been celebrated for his willingness and success in taking on unusual and difficult-to-price risks. An insurance policy a PepsiCo. supporting a potential $1 buyout is often cited as an example of such attitudes. Prior to his work at Berkshire, where he began in 1986, Jain was employed by IBM (IBM) and McKinsey & co.

Tony Nicely-The CEO of the low-cost insurer Geico, a company founded by Nicely only two days after turning 18, is well respected in Buffett’s book. 67-years-old Nicely, is one of the more unlikely options discussed as a potential successor to Buffett’s throne. Much of the speculation seems to surrounding a single quote from Buffett: “Tony Nicely, Geico’s C.E.O., remains an owner’s dream. Everything he does makes sense.” Buffett has based much of his business on making sense, always suggesting that fledging and even advanced investors put their money behind products and companies they understand.

Matthew Rose- Matthew rose is one of the more recent managers to enter into Berkshire and currently labors as chief executive of Burlington Northern Santa Fe railroad. While his tenure has been short, Rose’s results have packed a punch. Formerly of AMR (AMR) and AT&T (T), he helped take revenue for the railroad up 20 percent last year, a statistic which surely impressed Buffett. In the same investor letter that he offered praise for Jain, Buffett mentioned Rose’s work at the railroad.

“It has the additional virtue of being run by Matt Rose, whom we trust and admire.”

The astronomer Carl Sagan said, “It was easy to predict mass car ownership but hard to predict Walmart.”