Warren Buffett, legendary investor and Chief Executive of Berkshire Hathaway, has published his annual letter to shareholders in which he discusses the future of Berkshire Hathaway and succession planning.
Warren Buffett, legendary investor and Chief Executive of Berkshire Hathaway has published his annual letter to Shareholders. In it, Warren again discusses Berkshire’s succession plan (he is 84) and states that they have found their CEO.
Warren says that he expects remarkable things from the next CEO: “In certain important respects, this person will do a better job than I am doing.” In Buffett’s words: “Future CEOs should come from internal candidates whom the Berkshire board has grown to know well. Our directors also believe that an incoming CEO should be relatively young, so that he or she can have a long run in the job. Berkshire will operate best if its CEOs average well over ten years at the helm. (It’s hard to teach a new dog old tricks.) And they are not likely to retire at 65 either (or have you noticed?).”
Most of our clients echo Warren’s desire to grow from within, to recruit great people and develop and grow them. One of the discussions we often have with clients is about potential, where a hire can get to, what they can learn and how they can develop.
Hiring someone for a top job is hard and fraught with danger. Most of the accountancy firms have 4 year terms for their CEOs and allow them 2 terms at most. This makes a good balance between longevity in role but avoids the problems of dynasty.
Harvard Business Review provides some thoughts on how to make leadership succession a more relevant process and a way of increasing bench strength. These are summarised below:
- Change the name of the process from Succession Planning to Succession Development. By doing this firms recognise that they need to invest in people and provide them with new experiences
- Measure outcomes, not process. Change the emphasis from form filling to finding, nurturing and developing great people. This will help firms establish goals, track progress, and engage with senior executives to build support for succession planning and leadership development
- Keep it simple. HBR suggests firms should avoid adding complex assessment criteria. We sometimes see assessments that no one could ever pass!
- Stay realistic and be careful what you promise. Development plans and succession charts aren’t promises, but at times they are communicated as promises which can lead to frustration when they don’t materialise. “Bottom line, don’t jerk around high performing leaders with unrealistic development expectations. Only give the promise of succession if there is a realistic chance of its happening!”
In a letter released alongside Buffett’s, Berkshire vice-chairman Charlie Munger makes it clear that Berkshire has two obvious candidates. Both are “proven performers who would probably be under-described as world-class,” says Munger.
Developing sufficient executive strength that you and your firm has a real and difficult choice is impressive. Something we should all aim for, but which few will achieve.