Berkshire Beyond Buffett(90)

Likewise, Berkshire does not need the currency of a publicly traded stock to pay managers or use in acquisitions as many companies do. Berkshire avoids using its stock to compensate anyone—even its directors; Buffett has signaled willingness to do so only in narrow circumstances, such as to compensate his successor as chief executive or when acquiring a company whose managers own stock options in it. (Berkshire’s acquisition of Burlington Northern Santa Fe is an example.) Berkshire rarely uses its stock in acquisitions.

Benefits of being public are for shareholders rather than Berkshire as an institution, the biggest being the presence of a liquid market for transferring shares cheaply; this matters less to a small group of very rich owners than a going-private transaction would yield. It also matters to foundations needing to liquidate the Berkshire shares Buffett pledges to them, but private placements can be arranged, which some buyers may prefer. If the costs of short-term pressures prove too great, going private would be a small price to pay to avoid them.

On the other hand, inimitable as it is, Berkshire’s vaunted values are a beacon worthy of emulation. They are a role model for corporate America and offer an aspiration for others. Were Berkshire private, these values would be hidden from public view. In the end, therefore, staying public may be part of Berkshire’s commitment—as well as its identity. Given the long-term nature of Buffett’s estate, the presence of so many stalwarts, and the melded quality of Berkshire culture, the logical prediction is that Berkshire will indefinitely remain a public company conglomerate after Buffett.




As a public company, Berkshire’s board will play a role in its future beyond Buffett, particularly in setting dividend policy and resolving strategic disagreements among shareholders. While Berkshire shareholders will continue to elect the board and choose directors according to their fidelity to Berkshire culture, the succession plan contemplates one action entrusted to the board itself: designating a chairman. Buffett, who has served this role as well as being chief executive, recommends that a member of the Buffett family serve as non-executive chairman of the board.22

Berkshire would thus join the growing number of large corporations that have different people in the two top roles of chairman and chief executive. To fill the outsized shoes at Berkshire after Buffett, splitting the roles may be desirable to share the burden.

While one could imagine promoting other directors to the chairmanship, particularly one with the gravitas of Bill Gates, it is logical to ask Howard Buffett to serve in that role. Half of Berkshire’s other directors are in their seventies or older, and among those of his generation, Howard is the longest-serving Berkshire director (see table 14.1). As a Buffett family member and loyal son, he has a unique perspective on Buffett’s values and sense of Berkshire culture. For a succession plan, it is hard to see a better choice. As Howard Buffett expressed it in correspondence for this book, “Berkshire has been my father’s lifetime work, and it means a lot to me to preserve it.”23




Berkshire’s succession plan is intended to secure the company’s permanence. By installing exceptional managers in a variety of roles historically handled by a single person, succession is calculated to succeed. Buffett’s estate planning envisions a lengthy transition in which his influence as Berkshire’s controlling shareholder gradually abates. During and after that extended process, a stalwart group of Berkshire owners who share the partnership attitude at Berkshire will contribute to its longevity. Berkshire is Buffett’s lifetime achievement, and one destined to have a lifetime of its own. But there will be additional challenges, as anticipated in the next chapter.




*Berkshire has two classes of stock, A and B, with different voting and economic rights. Class A shares have one vote per share and the equivalent claim to the economic interest such as dividends, while the Class B shares have 1/10,000 of that voting power and 1/1,500 of that economic interest.





15


Challenges

In 2001, Julian Robertson, founder of the pre-eminent Tiger Fund, signaled to Buffett his willingness to sell a large stake in XTRA Corporation, the truck leasing company.1 Upping the ante, Berkshire proposed to XTRA’s board a tender offer to the public company’s shareholders, which it endorsed, and Berkshire soon closed.

XTRA is the industry leader in renting and leasing trailers for trucks to commercial organizations. Founded in 1957, it went public in 1961, listing on the New York Stock Exchange and joining the Dow Jones index of twenty transportation stocks. Today it manages vast fleets for large corporate customers such as FedEx and UPS in package shipping; Home Depot, Kroger, and Walmart in retailing; Kraft and Pepsi in merchandising; and J.B. Hunt, Penske, and YRC in freight hauling.2 The company’s fleet of 80,000 trailers includes chassis, flatbeds, dry vans, refrigerated vans, storage vans, and specialty equipment.