Berkshire Hathaway 2013 Annual Meeting Audience Question # 54

Howard Buffett’s future role as non-executive chairman of Berkshire

Warren Buffett:

Doug?

Doug Kass:

Howard, like you, I have two sons that I love. Like you, I have a son in the audience today. This question is not meant to be disrespectful…

Warren Buffett:

Sounds like it’s going to be, but go ahead.

Doug Kass:

… but it’s a question I have to ask.

Warren Buffett:

OK.

Doug Kass:

Someday your son, Howard, will become Berkshire’s nonexecutive chairman. Berkshire is a very complex business, growing more complex as the years pass. Howard has never run a diversified business, nor is he an expert on enterprise risk management.

Best as we know, he hasn’t made material stock investments, nor has he ever been engaged in taking over a large company.

Away from the accident of birth, how is Howard the most qualified person to take on this role?

Warren Buffett:

Well, he’s not taking on the role that you described. He is taking on the role of being nonexecutive chairman in case a mistake is made in terms of who is picked as a CEO.

I don’t… I think the probabilities of a mistake being made are less than 1 in 100, but they’re not 0 in 100. And I’ve seen that mistake made in other businesses.

So it is not his job to run the business, to allocate capital, do anything else. If a mistake is made in picking a CEO, having a nonexecutive chairman who cares enormously about preserving the culture and taking care of the shareholders of Berkshire, not running the business at all, it will be far easier to then make another change.

And that… he is there as a protector of the culture, and he has got an enormous sense of responsibility about that, and he has no illusions about… at all… about running the business.

He would have no interest in running the business. He won’t get paid for running the business.

He won’t have to think about running the business.

He’ll only have to think about whether the board and himself… but as a member of the board… but whether the board may need to change the CEO.

And I have seen many times, really many times, over 60-plus years or… well, probably 55 years as a director… times when a mediocre CEO, likable, you know, not dishonest, but not the person who should run it, needs to be changed.

And it’s very, very hard to do when that person is in the chairman’s position. It’s not as… it’s a bit easier now that you have this procedure where the board meets at least once a year without the chairman present.

That’s a very big improvement, in my view, in corporate America. Because it… a board is a social institution, and it is not easy for people to come in, we’ll say, to Chicago or New York or

Los Angeles once every three months, have a few committee meetings, and maybe have some doubts about whether they’ve really got the right person running it.

They may have a very nice person running it, but they could do better. But who’s going to make a change?

And that’s the position that the nonexecutive chairman, in this case, Howard, will be in. And I know of nobody that will feel that responsibility more in terms of doing that job as it should be done than my son, Howard, you know.

Charlie Munger:

Yeah. I think the Mungers are much safer… with Howard there.

You’ve got to remember, the board owns a lot of stock, you know. We’re thinking about the shareholders. We’re not trying to gum it up for the shareholders.

Warren Buffett:

Yeah. After my death, whatever it may be in terms of value then, but it would be $50 billion worth of stock, will, over a period of time, go to help people around the world and it makes an enormous difference, you know, whether the company behind that stock is doing well or not.

And both Charlie and I have seen… we’ve seen some… more than one example… of where a CEO who might be a six on a scale of 10, and is perfectly likable and has, perhaps, helped select some of the directors that sit there, and continues to run the business year after year when somebody else could do it a whole lot better.

And it can be hard to make that… very hard… to make that change if that person controls the agenda and, you know, keeps everybody busy when they come into town for a little while.

Charlie Munger:

You can have a CEO that’s nine out of 10 on everything but with deep flaws, too.

Warren Buffett:

Yeah.

Charlie Munger:

It helps to have some objective person with a real incentive sitting in the position Howard will be in.

Warren Buffett:

The example I’ve used in the past, I mean, that… you know, that blessed are the meek for they shall inherit the earth, but after they inherit the earth, will they stay meek?

Well, that could be the problem, you know, if somebody got named CEO of Berkshire. It could be a position where people might want to throw their weight around in various ways.

You may have noticed that in the annual report, in terms of our newspapers, I said, you know, I am not going to be telling them who to endorse for president. Ten of them endorsed Romney and two endorsed Obama. I voted for Obama, but I’m not going to change that.

But when I write that sort of thing, I’m trying to box in my successor, to some degree, too, and we do not want somebody using Berkshire Hathaway as a power base in the future. We want them to be thinking about the shareholders. It’s that simple.

Charlie Munger:

Sometimes somebody becomes CEO who has the characteristic of a once- famous California CEO, and they used to say about him he’s the only man who could strut sitting down.

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