Buffett Isn’t the Only Secret to Berkshire’s Success
It is sometimes easy to forget that there is more to the success of Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) than mad genius Warren Buffet, who serves as the company’s chairman and CEO. Buffett, a self-made billionaire who is widely respected for his patient, long-term view of markets and business, is both the face of the company and the mastermind behind its enormous success — but the operation is by no means a one-man show.
To begin, there’s Charlie Munger, who is vice chair of the corporation and a mad genius in his own right. Munger is Buffett’s right-hand man and has played no small part in the success of Berkshire Hathaway. Other notable members of the company’s board include former Coca-Cola (NYSE:KO) CEO and current chairman of Allen & Co. Inc. Donald Keogh, Microsoft (NASDAQ:MSFT) founder Bill Gates, and NBCUniversal CEO Steve Burke.
But there’s more to Berkshire than its board of directors. Buffett may compose the score and conduct the symphony, but he can’t play all the parts, nor would he want to. It is up to each musician — or, in this case, the management of Berkshire’s many subsidiaries — to perform well.
This may seem obvious given that Berkshire is a conglomerate holding company, but it is critical to keep in mind when considering the future of the firm. There has been a lot of speculation about who will take over the role of composer and conductor when Buffett and Munger are no longer able to lead the company, and while their replacements will be critical to the success of the company, so will the future leaders of Berkshire’s subsidiaries.
Take, for example, Geico, a wholly owned subsidiary of Berkshire Hathaway that accounted for about 10 percent of revenue and around 5 percent of profits in the second quarter – one of the largest single contributors to Berkshire’s overall performance.
Geico’s current boss, Tony Nicely, has long been part of Buffett’s brain trust and has been rumored to be on tap to join the team replacing Buffett when he steps down. The problem here is this: Who replaces Nicely at Geico? Whoever gets the job will be responsible for a significant portion of Berkshire’s bottom line, which means that shareholders of the holding company have to worry about not just turnover at the very top of the pyramid but executive turnover at the corporation’s various subsidiaries.
Possible problems with executive turnover at this level have cropped up at subsidiaries like Benjamin Moore, which recently named its third CEO in two years. Other infamous Berkshire companies like DairyQueen, Cort, and NetJets have also had some recent executive-level problems, according to Bloomberg.
At the end of the day, Berkshire’s bottom line is only as strong as the sum of its parts. As the autonomous subsidiaries change hands, Berkshire’s top brass will have to be diligent about identifying possible rough spots before they become serious problems.