Let’s Talk About Berkshire: New Board?!

My posts come in bursts, sometimes, I guess because when I have some thoughts and a moment to post something, that leads to other thoughts and more to post. This is another one of those. I talked about BRK a little in my last post and then realized I had this post in the queue that I started to write last year and never finished. So I am finishing it now. Also, in my last post, I said I haven’t done a sanity check in a while, but realized I just did one just a few months before. Oops. I should look back at my other posts now and then. But, OK, not so important.

OK, so Warren Buffett is no longer the CEO so will no longer be writing the annual letter to shareholders but instead will be writing an update every year around Thanksgiving.

It is natural to wonder what will happen to BRK going forward. We have been expecting this day to come for some time now so I think we were all ready for this. Especially after the passing of Munger, I thought this day would come really soon. I just hope his health will allow him to stay with us for a while longer, even if not as CEO.

This is probably a good time to review the special letters from both Buffett and Munger in 2014; about the past, present and future of BRK. This was published in the 2014 Annual report, and there is a link to them at the BRK website.

First of all, I was a latecomer so never had a substantial portion of my net worth in BRK like many of the old-timers who have been in since the 80s and 90s. So this is not as big an issue for me as it is for many others. But I was certainly aware of and even a fan of Buffett back when the A-shares were trading at $5,000, so it’s not like I didn’t have the opportunity.

If You Own it Now, You Can Own it Going Forward

I know there must be a lot written about this, the post-Buffett BRK, but I haven’t been reading much about it except in major publications.

But for me, here’s the thing. Whatever gave BRK their huge performance in the past has not been there for a long time now. What do I mean? Well, BRK was so big that it was already very, very hard for Buffett to be able to exploit his skills for our benefit. For example, stocks? He has said for many years that he can only choose from a smaller and smaller group of stocks as BRK gets bigger and bigger. Finding great ideas where he can’t deploy billions at a time wouldn’t move the needle for BRK. Yes, he found AAPL and that was an insanely good investment. This is also true for private investments. Increasingly, he needs big ideas. Small ideas like See’s Candy or Nebraska Furniture Mart is not going to move the needle today. Plus, when you start to get into large businesses, then you start to butt heads with private equity, who seem to have an infinite pool of ‘dry powder’. This has been true for quite a while now.

So Buffett was already losing his edge, just from sheer size of BRK, nothing to do with his stock-picking skills. So my point is this: Buffett has been unable to do much with his skill in recent years anyway, so post-Buffett, how much difference is it going to make?!

Ted and Todd

Looks like Todd Combs went to JPM. I sort of suspected that this is not really going to work out as planned. Both of these guys are really smart, and can probably shoot the lights out and out-invest anyone with $100 million, but once given $7 billion, that was already a big challenge. If Buffett can’t outperform with $250-300 billion, we can’t really expect anyone to. So it was not really that Buffett / Munger made a mistake in picking stock-pickers, or it wasn’t that Ted and Todd suddenly, upon joining BRK, became dumb. It’s just simple math. So I don’t really blame anyone here for this. They tried, it didn’t work out, so they move on. Good thing it was done while Buffett is still around and in good shape.

Could Things Get Better?!

This is sort of repeating what I said in my last post, but I will leave it mostly as written.

The consensus, or analyst views seems to be that without Buffett, the Buffett premium would disappear, so BRK is no longer a buy. There was a downgrade on the stock the other day (late 2025). Fair point. Yes, Buffett is the ‘key man’ that was a factor in the success of high returns of BRK over the years. But as I said above, it has been less so in recent years.

So could things actually get better post-Buffett? This is certainly possible. I don’t want to sound too Pollyannaish, but hear me out.

First, check out this snip from the 2014 special letter:

And guess what, 2024 is ten years from 2014, so we are in the window of “probably between ten and twenty years from now…” where the directors “…will need to need to determine whether the best method to distribute the excess earnings is through dividends, share repurchases or both.”

As I said in my last post, I think there may be things done at BRK that Buffett would never do and would never have done. But the fact is BRK has been run the same way for decades, but the world has changed dramatically. Yes, most of the key principles are valid in any era, but other things may not be. You can’t run a business the same way as when it was much smaller and nimbler when it is a massive conglomerate with 400,000 employees! And as “forever” is Buffett’s favorite holding period, things just keep getting bigger and more complex.

OK, so let’s say Buffett can manage this the same way and get away with it. It is unlikely that anyone else could step in and do the same. Keep in mind, it wasn’t just Buffett. It was Buffett and Munger. You had the two greatest minds in the business managing this beast. Things can’t go on the same way, I don’t think.

So, as in my previous post, I think we can take some lesson from John Malone in selectively creating tax-efficient value for BRK shareholders. I admit this will take time as BRK does not like financial engineering or anything that smells remotely like it. Some centralization and increased efficiencies might be in order. Cleaning up some bad businesses that don’t earn their cost of capital etc. All of us can benefit from going through our portfolio and dumping things that don’t make sense. We can move away, even slightly, from the “Buffett abdication.” This is not necessarily a bad thing. It could be bad, of course. As I said in the other post, more and more, it is unlikely that this “hands off” approach will be a factor in attracting family businesses that want to sell as BRK is just getting so big that those deals may not move the needle all that much anymore. If you want to argue size doesn’t matter, that BRK can buy a lot of small ones, that just increases the complexity of BRK and harder to manage.

So, as I summarized in my last post, as BRK gets bigger and Buffett’s skill gets less relevant (stock picking skill, private business acquisitions), Abel may actually find ways to add value in other ways.

The ability to make very quick, big bets will go away, and this would affect the insurance business too. Some of the big deals they were able to do were based on the confidence of Jain and Buffett; they can take massive (calculated) risk that others would not. We will lose this. But even this, arguably, as BRK gets bigger, is just less of a factor in moving the needle.

Board

When thinking of all this, one thing keeps nagging at me and it’s BRK’s board. Of course, all the board members are highly qualified and highly respected people; I have no issue with anyone in particular. But when thinking of the future of BRK, and even the recent past, I get this sense that this board is kind of out of date and maybe not best equipped to oversee BRK. Yes, it is great, if not perfect, in maintaining the culture at BRK.

But first, here is the list from the 2025 Proxy.

BRK Board of Directors

To me, what seems stunningly lacking is financial and tech expertise. Sure, there are some financial professionals here, and some fund managers. With BRK becoming less and less of a stock-picker entity, I am not convinced we need so many fund managers on the board. I am not saying none of these people have any financial or technical expertise.

For example, as a dream candidate for the board, for financial expertise, imagine Jamie Dimon on this board. I have no idea if he was ever invited, or if there is some conflict somewhere or other reason he is not on the board, but that would be amazing. He is the kind of level of risk manager that BRK can really benefit from. Buffett / Munger / Jain just had this natural risk-detector that risk management is not something any shareholder would have worried about in the past. Yes, plenty worried about his stock market index put shorts and other things. But most of us never really questioned risk management at BRK.

Also, tech seems severely under-represented too. Bill Gates used to be on the board but is no longer there. I sometimes wonder if GEICO lost out to PGR partly due to not enough awareness / knowledge about tech within BRK, including the board. Maybe this contributed to Buffett missing out on GOOG and AMZN from the early days (when they knew how great those businesses are). I still remember clearly having drinks with a programmer friend of mine a long time ago when most of us only had a vague sense of what AWS was, and he said he is invested in AMZN just because of AWS, that he didn’t care about the online retailing business. He told me this when I was still making spreadsheets trying to figure out the online segment (if it will ever be worth anything). I bought AMZN soon after, and also stopped tracking AMZN’s retail business! So we need exposure to younger people with different experiences to open our eyes to interesting opportunities. Oh yeah, and I think I mentioned that I bought MSFT for the same reason years ago when people thought MSFT was dead, but a programmer told me they really love what MSFT is doing with Azure. So I bought MSFT based on Azure, and didn’t care at all about Windows or Xbox.

So, some diversity on the board would be great, I think. Not race and gender, but just more different areas of experience. Sometimes it feels like some on the board are there based on being huge fans of or friends of Buffett, not so much on what they might be able to contribute. Of course, family members are keepers of the culture so they are the inevitables, and I have no problem with that (I know others do, but I don’t mind that).

I mentioned Dimon as a great addition for financial expertise and risk management, even just overall management experience and skill of running a large business, not to mention his experience dealing with Washington D.C and various alphabet soup of regulators.

But for tech, I have no idea who would work. Of course, Jeff Bezos come to mind, but that can be a divisive name, I don’t know. Eric Schmidt? Probably not Mark Zuckerberg or Elon Musk. BRK doesn’t need DOJE, even though some may argue they might need a mini-DOJE. Satya Nadella and Sundar Pichai, too, are very interesting. But I understand there may be various issues with some of these names if they are current CEO’s (they may try to get BRK to move to AWS, Azure or GCP etc..)

How about Washington D.C.? Did we not get blindsided by some decisions out of D.C. that hurt some of our businesses? Do we need someone who has experience in D.C.? Not a lobbyist, necessarily, even just someone on the ground there that may provide important input.

I know that these ideas are really not what BRK is all about. Buffett would not be interested in such things as the above, I know. But we are talking about a post-Buffett BRK, and to me, these seem like reasonable additions to the board. Is it crazy? Is it wrong? I don’t know. These are just some thoughts that are popping up in my head at the moment, trying to get my arms around a post-Buffett BRK.