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Here’s Why Warren Buffett’s Designating 2 Possible Successors Is a Smart Move

Gregory Abel and Ajit Jain are promoted to vice chairmen of Berkshire Hathaway.

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BY Minda Zetlin - 12 Jan 2018

Here's Why Warren Buffett's Designating 2 Possible Successors Is a Smart Move

PHOTO CREDIT: Getty Images

They call Warren Buffett the "Oracle of Omaha" for reasons that go way beyond his legendary investing smarts. He's also wise, has loads of common sense, and is good at putting that wisdom into words. That wisdom is on display again this week, as Buffett elevated two Berkshire Hathaway executives, Gregory E. Abel and Ajit Jain to vice chairmen of the company, signaling that one or both is likely to succeed Buffett as CEO.

It was just the kind of smart move you could expect from sensible, methodical, no-drama Buffett. Here's why the choice shows emotional intelligence:

1. It increases transparency.

It's almost always better to be upfront and open with your investors, employees, customers, and other constituents than it is to keep people guessing. People have been wondering for quite a while who the 87-year-old Buffett would choose as a successor, since his existing vice chairman, Charlie Munger is 94. Buffett and Munger have been signaling for years that Abel and Jain were serious contenders, inviting them to answer questions at shareholders' meetings, and praising them in the company's annual letter. These promotions end speculation and makes it official.

2. It makes logical sense.

Both executives have been with Berkshire for decades. Abel running its energy properties and Jain in the insurance industry. Buffett calls Abel a "dealmaker" and praised him for innovative thinking. Jain, through his insurance work, has reportedly increased the company's value by $100 billion.

Buffett has also always indicated that he means to choose his successor from within, an excellent idea and further proof of his preference for substance over flash. (He could have conducted a highly public search among the nation's best-known CEOs, as Uber did when it replaced Travis Kalanick.)

3. It will make for a smoother transition.

Observers have long been concerned that the high-flying Berkshire Hathaway would see its profits and/or share price take a hit when Buffett finally leaves. That's one reason people have been prodding him for years to make his succession choice known. Buffett admitted on CNBC that the same move would have made just as much sense five years ago, and also noted his board's enthusiastic support for the move. Investors seem pleased as well, with the company's Class A shares rising in price from $304,625 to $309,950 in the two days since the announcement.

4. No one person replaces Buffett.

There's only one Warren Buffett. As if to acknowledge that fact, Buffett has made it known he intends to divide his current role into three separate roles when he leaves his current post. His role as stock-picker will go to Todd Combs and Ted Weschler, the company's investment managers, and his son Howard Buffett will be non-executive chairman, "to further ensure continuation of our culture" as Warren wrote in one of his shareholder letters. He went on to say that it was useful for the chairman and CEO to be two different people, making it easier to remove a mediocre CEO in the unlikely event that Berkshire Hathaway should ever have one.

Warren Buffett has also said that elevating both Abel and Jain to the vice chairman role does not indicate that there's a "horse race" between them. Some observers speculate that he intends the two to run the company jointly someday, as Buffett does now with Munger. However the final configuration turns out, it looks like Berkshire Hathaway after Buffett will still be in very good hands.