I walked out of BRK’s annual meeting last year and thought Greg Abel was not the right person to be president. Berkshire Hathaway. Abel lacked Buffett’s charisma, warmth and humor. I remember telling a friend that listening to him at the annual meeting was like listening to another consultant-turned-executive: convenient, boring, and with a very narrow vocabulary of corporate speak. Greg Abel wasn’t Buffett, and he certainly wasn’t Munger.
I was wrong.
Greg Abel is the right CEO for today’s BRK; in fact, he’s a better fit for BRK today than Buffett. My thoughts changed when I started thinking about Tim Cook, who recently announced he was stepping down as CEO. Apple.
Tim Cook is not Steve Jobs. But there is no other Steve Jobs. The chances of Steve Jobs being replaced by another Steve Jobs are almost zero. When I look at Tim Cook’s tenure, I can see that if he and Steve had run Apple together, the company would have been much more successful. Tim is, as Jobs himself described, “not a product guy” and that’s why he has failed to deliver another product the size of the iPhone. The Apple Car that would have been this product was a massive failure due to many changes in direction and eventual disbandment. Apple Vision Pro felt half-baked; I’m not sure Steve Jobs would publish it. Siri, which was revolutionary when it launched on the iPhone, today has the IQ of a toaster compared to other AI models. Apple has filed a class-action lawsuit for overstating the AI capabilities of its newest iPhones.
Still, Tim Cook has done an incredible job running Apple. Small, incremental improvements made the iPhone an indispensable device. During Jobs’ era, the Apple ecosystem was the biggest competitive advantage; Cook doubled down on this advantage, with all devices working together seamlessly. It extended Apple’s software advantage to hardware and Intel For in-house M chips that power MacBooks with multiples of the battery life of the Intel processors they replace, without sacrificing performance. Apple is no longer the most creative company in Silicon Valley, but things are going well. Apple’s revenues have nearly quadrupled since Jobs’ death.
I remember reading in Walter Isaacson’s biography of Steve Jobs that Jobs’ advice to Cook was (paraphrased): Don’t ask what Steve will do, will you do it? That’s exactly what people are running for Disney They didn’t do this after Walt Disney died and almost destroyed the company.
If we had to choose between Jobs’ creativity and vision and Cook’s ability to run an extremely complex supply chain and manufacturing operation, I would argue that Cook was more important to Apple than Jobs at the time of Jobs’s passing. And again, while talents like Jobs’ are virtually unrepeatable, Cook’s talent is much easier to copy.
Companies need different CEOs at different stages of their lives because they solve different problems. This brings me to BRK.
BRK today includes GEICO, a consumer auto insurer; reinsurance operations have been run excellently for decades by Ajit Jain, who has now chosen Gen Re’s Charlie Shamieh as his successor; BNSF, one of the country’s largest railways; a collection of other operating businesses; a portfolio of marketable securities (Apple, Coke, Amex, etc.); and approximately $400 billion in cash.
BRK today requires three skill sets. The first of these will replace Ajit Jain, who will be very difficult to replace – but the succession has now been determined. The new CEO’s job is to make sure the right people are running the business. The second is to manage the remainder of BRK’s portfolio of private companies, and this is where BRK needs the most help. Buffett has never been a traditional CEO. He liked investing (capital allocation), not managing people, and avoided conflicts at all costs. He bought businesses, let managers run them, collected the cash flows, and reinvested them. Today BRK has a collection of more than 100 operating businesses. BNSF and GEICO are the most important, and both have become hallmarks of mediocrity.
GEICO is getting hammered GradualHe eats breakfast, lunch and dinner. Progressive has surpassed GEICO as the second-largest auto insurer in the United States; While GEICO was investing in marketing, Progressive was investing in technology, and GEICO is now stuck with hundreds of legacy IT systems that Progressive can reprice almost daily. BNSF is one of the least managed and least profitable Class I railroads in the United States
Buffett’s famous quote said that you want to own businesses that a fool can run because one day someone will. Both GEICO and BNSF have significant moats and have managed to survive under management, but Buffett’s statement is less accurate today than it was decades ago. In the age of artificial intelligence, the half-life of moats is shrinking much faster.
As an analyst, I can look at BNSF and GEICO numbers and see that they are poorly managed. As a consumer, I observe that the company called Dairy Queen, which BRK acquired in the late 90s, was grossly mismanaged. DQ is a nice business: Most of their stores are franchised, so they don’t need capital. Under proper management it could have tripled in size. The quality of the ice cream has not changed but the innovation in food and the appearance of the restaurants has diminished under BRK’s ownership. Every store I visit seems to be run by a mom and dad. But instead of micromanaging DQ, Buffett needed to make more important decisions, like buying Apple or Japanese trading conglomerates.
BRK has reached a size where, in the absence of real financial disruption, capital allocation is unlikely to be a source of returns going forward. Low-hanging fruit boosts performance of BRK’s core assets, and perhaps we may even lose companies that should not be in the BRK portfolio. A billionaire and a major shareholder of BRK, Greg has proven to be a shrewd operator in BRK’s energy business. Choosing Greg was one of the most important decisions Buffett has made in decades. At its first annual meeting, we could see why. Corporate Mr. Handyman examines each job, determines key performance indicators, sets up the right incentives, brings technology to them, and replaces managers who need to be replaced; He does things that Buffett cannot and will not do, but has to be done.
Abel is not Buffett, and that’s okay. Actually, this is a good thing. Greg Abel may not be able to draw 40,000 people to Omaha for the annual meeting. But he will make difficult decisions that Buffett does not want to make. It will ensure that trains run on time, literally and figuratively.
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This story first appeared on: Fortune.com
