Each group would have a president reporting to the CEO. Such a structure simplifies management while minimizing bureaucracy and maintaining autonomy. The result would resemble not only the Marmon model but those at McLane, MiTek, and Scott Fetzer. Scores of candidates stand out to head these business sectors and would assure a smooth transition for the successor CEO of Berkshire.
While most corporate succession plans address personnel, Berkshire’s also addresses ownership, as Buffett has been Berkshire’s controlling shareholder since 1965. Buffett most recently held 34 percent of Berkshire’s voting power and 21 percent of its economic interest, always representing 99 percent of his net worth.* He has been slowly reducing his stake by planned annual transfers to charitable foundations, a process that will continue for many years after his death.
Since 2006, for example, Buffett has been annually transferring Class B shares to the Bill and Melinda Gates Foundation in a pledge that will accumulate through 2026 to 500 million shares (about 45 percent of that class today), with the proviso that the Foundation’s giving increase in tandem. In effect, the Foundation is entitled to yearly share transfers only so long as it sells them and makes grants in roughly the same amount it receives. Buffett has been making similar but smaller transfers of Class B shares to foundations of his children and late wife, aggregating 102,500 million (about 9 percent), and those foundations likewise liquidate shares to make grants, though not as a condition of Buffett’s pledge.9
Buffett’s estate will succeed him as Berkshire’s controlling shareholder, while his executors gradually distribute his shares. During that time, which experts estimate could take up to twelve years, the executors will control a large, declining, block of Berkshire shares. As fiduciaries, the executors will act in accordance with Buffett’s instructions, which will address choosing and electing directors, overseeing managers, and voting as shareholders in accordance with prevailing Berkshire principles.
So for a decade or more after Buffett’s passing, his Berkshire shares will have a variety of owners he designates, some with sizable positions. He will no longer be Berkshire’s controlling shareholder, but rather than an abrupt switch to the absence of a controlling shareholder, there will be a lengthy transition.
Berkshire’s durability is reinforced by a shareholder body that generally agrees with the principles that Buffett injected into the company. Despite being a massive public corporation, Berkshire’s shareholder character is that of partnership. Buffett forged this conception by stating it repeatedly in his annual letters and acting like the managing partner of a partnership. He explains business decisions candidly, admits mistakes, and catalogues the events that have defined Berkshire culture.
Reciprocally, the owners of the company’s equity act more like partners in a private firm than shareholders of a public company. Many Berkshire shares are owned by people for whom Berkshire is among their largest holdings.10 In the past decade, share turnover has been less than 1 percent compared to 3, 4, or 5 percent for other conglomerates, large insurance companies, or Berkshire’s formerly public subsidiaries.11
Berkshire’s low share turnover ties in to another unusual feature: most Berkshire shares are owned by individuals and families, not firms and funds. Typically, large public companies see 70 to 80 percent of their shares controlled by institutional investors.12 Decisions are often made by committee and based on financial models and forecasts that can lead to trading the stock for reasons unrelated to the company. In contrast, at Berkshire a large portion of the voting power and economic interest are controlled by individuals and families, who focus on its specific economic and cultural characteristics.
Berkshire shareholders flock to its annual meetings. Attendance has risen from 7,500 in 1997 to 21,000 in 2004; 35,000 in 2008; and 40,000 in 2013.13 They study Berkshire’s annual report, Buffett’s shareholder letters, and other reference materials. At most large public companies, individual shareholders are rationally apathetic. They skip reading the reports and rarely attend meetings, which verge on formal ritual. In contrast, substantive business discussion takes place at Berkshire’s annual meeting, where the passion for the company is palpable.
Berkshire is not a family company in the same way that Ben Bridge Jeweler or RC Willey Home Furnishings are, but many families treat Berkshire shares as prized parts of their financial picture to be preserved by successive generations.14 They are led by the examples at the top. Howard Buffett’s Berkshire shares give him 0.12 percent of the voting power and 0.07 percent of the economic interest. (For perspective, each 0.01 percent of Berkshire’s economic interest, one “basis point”, is worth about $30 million.) Charlie Munger’s brood—eight children and dozens of grandchildren—owns more than 1.00 percent of the voting power and nearly 1.00 percent of the economic interest, with public instructions from the curmudgeonly patriarch “not to be so stupid as to sell.”15