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End of ‘The Berkshire Way’? Combs’ departure isn’t only big change as Buffett transition nears

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Todd Combs’ surprise departure from Berkshire Hathaway attracted the most attention when it was announced this week.

But Monday’s meeting saw a few additional personnel changes. three page newsletter As Warren Buffett prepares to hand over the CEO title to Greg Abel in less than three weeks, it signals that the company is moving toward a more traditional structure.

Todd Combs in a 2014 CNBC interview

Coombs is leaving JPMorgan Chase Next month, he will head the $10 billion “Strategic Investment Group” for the company’s new $1.5 trillion investment.Security and Resilience Initiative“Helping companies, primarily in the United States, increase growth, foster innovation, and accelerate production.”

Coombs has been on JPM’s board since 2016, but is stepping down as he takes a new position.

in it newsletterJamie Dimon, JPM’s Chairman and CEO, called Combs “one of the greatest investors and leaders I have ever known.”

Berkshire’s announcement quotes Warren Buffett as saying, “JPMorgan, as is usually the case, made a good decision” and praising Combs for making “so many great hires at GEICO.”

Combs, 54, joined Berkshire in 2010 as a portfolio manager.

In 2020, he took on an additional role as CEO of Berkshire’s auto insurer Geico, fueling speculation that he could be Buffett’s future successor.

At the annual meeting in May, insurance chief Ajit Jain Combs said:He did a great job for us in terms of returnGeico’s operations, citing advances in “matching rate with risk” and telematics, Electronic monitoring of policyholders’ driving when determining rates.

But Jain added: “I still think we need to do more in technology.”

The task of doing more in technology at Geico now falls to new CEO Nancy Pierce, who is stepping down as chief operating officer. He has been working at the insurance company since 1986, when he started as a claims partner.

But the question of who will assume Combs’ duties as portfolio manager remains open.

Changing the ‘Berkshire Way’

Buffett says Abel will take overall responsibility for the portfolio, but it’s unclear how much of that responsibility will be handed over to fellow portfolio manager Ted Weschler.

Berkshire could also hire one or more portfolio managers and Buffett himself as chairman to help fill the void left by Combs.

Traditionally, Berkshire has not been transparent about who is responsible for the smaller holdings in its portfolio and has not said much about the track record of portfolio managers.

In an email watch buffet, Christopher Davis of Hudson Value Partners is calling on Berkshire “to be more transparent about Abel and Wechsler’s roles and responsibilities in managing the public equity portfolio.”

“We all love the ‘Berkshire way,’ but some compromises have to be made on the fact that this is a trillion-dollar organization currently going through its first leadership transition.”

Todd Combs at the annual Allen and Co. ceremony held in Sun Valley, Idaho, USA, on July 7, 2021. He’s heading to the morning session of the Sun Valley media conference.

Brian Lost | Reuters

Several aspects of this transition are moving the company away from its famously decentralized “Berkshire way.”

Greg Abel currently exercises more management control over non-insurance operating companies than Buffett ever did.

Some now have an additional layer of management.

Adam JohnsonNetJets’ chairman and CEO has been appointed to the newly created role of “President of Berkshire Hathaway Consumer Products, Services and Retail Businesses.”

Describing himself as “an accomplished leader with a proven ability to deliver long-term shareholder value,” Abel said in Monday’s press release that Johnson “will support the outstanding CEOs of our 32 consumer products, services and retail businesses and uphold Berkshire’s culture and values.”

The remaining non-insurance subsidiaries, including BNSF, Berkshire Hathaway Energy and Pilot, will continue to report directly to Abel.

Adam Johnson, CEO of NetJets. (NetJets.com)

Berkshire is also hiring its first general counsel.

Michael O’Sullivan had served in this role at Snap Inc. since 2017, after more than two decades as an attorney at Munger, Tolles & Olson.

So far, Berkshire has relied on outside law firms to handle its legal matters.

(I wouldn’t be surprised to see Berkshire add investor, media and government relations departments to its Omaha Headquarters, which is known to have low overhead, at some point next year.

On the other hand, I don’t think Berkshire will pay dividends as long as Buffett keeps coming into office.)

Finally, in a more traditional transition, Chief Financial Officer Marc Hamburg will retire next June after 40 years at Berkshire.

In the news release, Buffett said Hamburg was “indispensable” and “has done more for this company than most of our shareholders will ever know.”

His successor will be Berkshire Hathaway Energy CFO Charles Chang.

That’s a lot of change for a company that hasn’t changed much over the years.

Keefe, Bruyette & Woods analyst Meyer Shields told Wall Street Magazine, “There’s so much emotional investment in the longevity of Berkshire as a culture that when you make any decent-sized changes, it’s going to cause more concern than joy about the dynamism of the company. That’s not why people own Berkshire Hathaway.”

KBW downgraded Berkshire shares to “underperform” earlier this year, in part due to Buffett’s impending departure.

Both A and B stocks have weathered the storm fairly well this week, falling almost 1%, but they’re still down more than 7% from their all-time highs in May, just before Buffett announced he would step down as CEO at the end of the year.

BUFFET ON THE INTERNET

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HIGHLIGHTS FROM THE ARCHIVE

What was your best investment? (2005)

AUDIENCE MEMBER: What was the best investment of your career?

WARREN BUFFET: Probably the best investment in terms of what’s been done so far and where it’s going over time was probably the first half of GEICO, which we bought for $40 million. Now the second half has cost us $2 billion. I’m glad I didn’t buy a third. (Laughter)

But you know, 40 million for half the company will do very well.

But GEICO — some of our businesses have growth potential and some don’t. And we don’t need growth potential as part of a business.

If a business is making good money and we can use that to buy other businesses, one of the advantages of the Berkshire system is that we have a tax-efficient and frictionless way to move the money to the best opportunities. And GEICO still has tremendous growth opportunities internally.

Charlie Munger: Okay, but GEICO ultimately cost $2 billion in the second half and —

WARREN BUFFET: Right.

Charlie Munger:- a significant number of tens of millions for the first half.

Now the search expenses that brought us Ajit Jain, now there was an investment that actually paid dividends.

I can’t think of a better, higher-yielding investment we’ve ever made. (Applause)

And I think that’s a good life lesson. In other words, getting the right people involved in your system can often be more important than anything else.