Buffett retires, who is the designated successor Abel?

01 About Tariffs and Global Trade

"Warren, who is your CEO successor?"

This question may be the most frequently asked and yet long-unresolved mystery in corporate history.

At the Berkshire Hathaway annual shareholder meeting, every year, during the live Q&A session hosted by Warren Buffett and Charlie Munger, a shareholder will throw out this classic question. The usual response from the two leaders is, "The board has designated a successor, but we will not disclose the name." This has become an indispensable part of the weekend activities at the shareholder meeting, akin to a 5-kilometer race or a display of coconut bonbons from See's Candies.

It wasn't until the afternoon of May 1, 2021 (when the shareholder meeting was held online due to the COVID-19 pandemic) that the situation finally changed. At that time, 97-year-old Munger, in answering a question about the company's future culture, unexpectedly blurted out, "Greg will continue this culture."

This "slip of the tongue" ended the most closely watched and longest-standing CEO succession mystery in business history.

Berkshire's investors and observers immediately realized that "Greg" referred to Greg Abel. Two days later, Buffett officially confirmed in an interview with CNBC that Abel would take over the helm of Berkshire after he stepped down.

This reign, which began in 1970, accompanied by the anti-Vietnam War wave sweeping university campuses, Elvis Presley's dominance on the music charts, and Nixon's first term as president, will welcome a new successor. This revelation sets an important milestone for Berkshire's future development path.

Now 62, Abel has been a leading candidate for succession since early 2018. At that time, Buffett and Munger jointly appointed him and another competitor, Ajit Jain, to serve as vice chairmen and directors.

Since then, Abel has been fully responsible for all non-insurance businesses under Berkshire—covering two major sectors: railroads, aerospace, and the leading companies in the energy industry from which Abel hails, as well as a series of well-known consumer brands including Dairy Queen (DQ), Brooks Running, and Benjamin Moore paints.

This dazzling array of diversified businesses constitutes the largest non-financial balance sheet in the United States and contributes two-thirds of Berkshire's non-investment income. Meanwhile, the 73-year-old Jain continues to oversee the insurance business sector.

At the same time, Buffett himself is still personally managing a massive investment portfolio—this portfolio, valued at about $600 billion, has seen frequent changes in recent years—and his two long-term assistants, Ted Weschler and Todd Combs, are also assisting in management. Notably, these two assistants have also been viewed as "dark horse" candidates for the CEO position.

02 About Investments in Japan

Abel's connection with Buffett began a quarter-century ago when Berkshire entered the energy sector. Since becoming CEO of Berkshire Hathaway Energy (BHE) in 2008, he has gradually built an energy empire covering utilities, oil pipelines, natural gas plants, wind and solar power stations, and a vast transmission network, which has now become an important pillar of Buffett's business kingdom.

Today, the businesses under Abel generate annual revenues of about $270 billion—if calculated separately, BHE could rank in the top ten of the Fortune 500, surpassing Microsoft and Chevron (Berkshire itself ranks fifth).

In the process of gradually gaining Buffett's trust, Abel has exhibited three key traits similar to the "Oracle of Omaha": the gift of building trust, the insight to discover opportunities, and the wisdom to avoid risks.

As Buffett said in 2021, "There are many smart people in this world, but some smart people do many foolish things. Greg is a smart person, but he would never do foolish things."

Of course, the 94-year-old Buffett has not announced retirement plans, and his brilliant performance at the 2024 May shareholder meeting proves that his thinking remains sharp.

However, it cannot be ignored that Berkshire's overall performance is no longer as brilliant as it once was. From 1965 to 2003, Berkshire's average annual return was as high as 19.8%, exceeding the S&P 500 index by nearly 10 percentage points each year. However, in the past decade, Berkshire's average annual return has been 11.6%, lower than the S&P 500 index's 13.2%.

"The only reason for the existence of a diversified conglomerate is to outperform the S&P index," said Dave Cote, who led the diversified manufacturing giant Honeywell from 2002 to 2017.

For a long time, Buffett has successfully resisted the onslaught of activist investors attempting to "unlock value." Even after he steps down, Berkshire will still maintain a strong defensive system.

Although since 2006, Buffett has donated more than half of his Berkshire shares to charity (primarily to the Bill and Melinda Gates Foundation), he still controls over 30% of the voting rights.

Additionally, he modified his will (last Thanksgiving) to decide to donate nearly all of his estate to a charitable trust managed by his three children, Howard, Peter, and Susan.

According to the will, this wealth will be distributed in batches to various charitable causes over ten years after Buffett's death (including their own managed foundations).

Thus, the large number of Berkshire shares held by this trust will effectively prevent potential threats from activist investors for many years to come. Meanwhile, Buffett has designated Howard to succeed him as chairman, further solidifying Berkshire's defensive system.

However, as the trust's Class A shares convert to Class B shares for charity, external investors, including fund managers, ETFs, and individual shareholders, will gain increasing voting rights.

This transfer of power is likely to occur during Abel's tenure.

Although Berkshire's nearly trillion-dollar market value makes it difficult for private equity firms or industrial giants to orchestrate a complete takeover, the dilution of voting rights may invite disturbances from activist investors.

03 About Cash on Hand

In stark contrast to the globally renowned Buffett, little is known about Abel's background, personal style, and management philosophy.

Apart from one or two events he attended with Buffett, he has never given interviews to business media, and his public appearances have mainly been limited to the last three Berkshire shareholder meetings—last year he took over the podium from the late Munger (who passed away at the end of 2023).

Berkshire Hathaway Energy declined Fortune magazine's request for an interview with Abel, but Buffett replied via email, stating, "I am extremely satisfied with Greg's performance. However, I no longer accept interviews. At 94, not only has my speed in playing bridge slowed, but many other activities have also gradually decreased or been completely canceled. However, I still enjoy it and can still do a few things well."

However, through interviews with those familiar with Abel, reviewing his past personal experiences and management philosophies shared in public, as well as his actual performance at Berkshire, a clear image gradually emerges: he is a leader whose spirit and temperament closely resemble Buffett's, but who is likely to carve out his own path.

Ultimately, for all those concerned about Berkshire, the real question is singular: Warren Buffett has built the greatest wealth creation machine in Wall Street history. But after him, can even the successor he personally appointed manage this behemoth?

If it is said that the successor chosen by Buffett possesses a simple and approachable quality, no one would be surprised. Those who know Abel say he has much of Warren's style, just lacking the boss's signature performance talent.

Abel grew up in Edmonton, a prairie city in Canada, known as the "oil capital" of the country, famous for its cycles of economic boom and bust. His mother was a homemaker who also worked as a legal assistant, while his father sold fire extinguishers.

"People sometimes had jobs and sometimes were unemployed back then," Abel recalled in an interview with the Horatio Alger Association (an organization that provides scholarships to extremely poor students, of which Abel is a long-time supporter), "but family and close friends always had the power to build dreams for you."

His first business venture was riding his bike door-to-door delivering advertising flyers, earning 0.25 cents per flyer.

The young Abel—who can be seen in photos with a messy Beatles-style haircut—later began collecting discarded soda bottles. He constantly sought better routes home to discover more discarded bottles along the way. After school, he could pick up as many as five bottles, and by the weekend, his room would be filled with 20 bottles, worth about $1.

In high school, he helped out at his father's company, filling fire extinguishers.

Young Abel's lifelong passion for hockey began in his hometown of Edmonton, a city famous worldwide for Oilers legend Wayne Gretzky.

His hockey enlightenment came from his uncle Sid Abel, a Hockey Hall of Famer who played for the Detroit Red Wings and Chicago Blackhawks for 14 seasons.

Little Greg trained on the ice every day until his parents urged him to come home for dinner; this rough sport taught him the true meaning of teamwork. "Playing hockey makes you understand that fighting for the team is far easier to succeed than going solo," Abel said.

Until his mother Bev passed away at the end of 2022, he would call her every July 1 to deeply analyze the Oilers' offseason acquisitions and mistakes.

Abel's simple Midwestern values perfectly align with the urban temperament of his current residence, Des Moines (the headquarters of Berkshire Energy). He coaches his son's youth hockey team at the Abel Ice Arena, which he built at his own expense, located within the Des Moines sports complex RecPlex. This year, he stepped down from the head coach position to become an assistant coach to alleviate some pressure.

According to his friends in Des Moines, if you encounter Abel at the Iowa State Fair or Calgary Stampede, you might think he is a local teacher or bank employee rather than someone about to take on the most important position in American business.

"His approachability fits in any setting," said former Wells Fargo executive Mark Oman. "As a neighbor, he is the kind of down-to-earth person who is best suited to watch Oilers games or NFL football games with."

Oman added that Abel has a great sense of humor. Last year, while they were watching the Olympics together, Abel joked that he finally found a competition he could win: "I could go compete in the Iowa State Curling Championship." He quipped, as curling has almost no competition in the Hawkeye State.

04 About Insurance and AI

Those familiar with Abel say he excels at building deep interpersonal relationships. "He can become friends with people right from the start," Oman described, "though not the extroverted type, he is 100% friendly. No one creates a party atmosphere better than Greg—not through exaggerated means, but by personal care that ensures every guest has a great time."

Even when busy, Abel is happy to offer selfless advice.

Larry Cunningham, a professor at the University of Delaware (author of several books on Buffett), remarked, "He possesses extraordinary wisdom, but the wonderful thing is that you never feel stupid or irrational in front of him. He always makes people feel refreshed."

Dawn Farrell, the current chair of Trans Mountain, a pipeline giant, formed a friendship with Abel through business cooperation and often seeks his advice: "If I need strong advice on certain business issues unrelated to him, he always takes the time to help me clarify my thoughts."

In the eyes of former Honeywell CEO Dave Cote, Abel's commitment to the Horatio Alger Association is particularly impressive. This organization provides scholarships to extremely poor students, many of whom have suffered abuse, lived in cars with their mothers, or witnessed family members lose everything due to drugs.

Abel served as the chair of the organization in 2018 and continues to play an important role on the executive committee.

"He has done a lot for these kids," Cote stated. Additionally, he believes Abel is not only passionate about philanthropy but also humble and sincere. "With his status, he could choose to be indifferent and keep his distance to protect himself. I've seen many people far less positioned than him act more high and mighty."

Abel's success in the competition for succession may stem from his gentle yet outgoing personality, which closely resembles Buffett's—this similarity carries significant business advantages.

Of course, you won't see Abel dancing with the University of Nebraska cheerleaders, riding bulls through Omaha streets, or strumming "My Way" on the ukulele on The Today Show—these classic moments have forged Buffett's legendary image.

But Abel showcases "big personality charm" in his unique way: he confidently holds the microphone while weaving through the audience at the Berkshire annual meeting, explaining utility technical details in layman's terms; he inherits Buffett's genuine charm, which has helped the latter win the trust of everyone from regulators to stubborn founders—those founders who only wish to entrust their life's work to someone trustworthy.

Oman pointed out that Abel possesses a "massive information digestion ability." Business partners reveal that he can even "speed-read" balance sheets and income statements, quickly grasping key data.

Buffett has praised his work enthusiasm, joking that "Greg discovered a time-space rift in Des Moines that gives him more than 48 hours a day."

Abel's profound understanding of business operations, especially regarding the flow of every dollar, began during his studies at the University of Alberta. He initially focused on finance but later switched to accounting to better understand the relationship between balance sheets and cash flow statements.

After graduating in 1984, he worked at PwC's Edmonton office. A few years later, he was sent to the San Francisco office for a short-term assignment.

In 1991, Abel became an auditor for CalEnergy, the second-largest geothermal power company in the U.S. This experience shaped his management philosophy and introduced him to a key mentor in his career.

05 About Patient Investing and Decisive Action

At that time, Buffett's childhood friend and Berkshire board member Walter Scott hoped to diversify his engineering company, Peter Kiewit Sons', by acquiring the debt-laden CalEnergy. He already had a suitable candidate in mind to lead the company—David Sokol.

Sokol, a 35-year-old business prodigy, had just founded a waste-to-energy company in Omaha, successfully taking it public and making a fortune.

Kiewit acquired a controlling stake in CalEnergy for $28 million, and Sokol immediately took office, appointing the 28-year-old Abel as the company's accountant.

The Kiewit culture profoundly influenced Abel's work style and negotiation approach.

This company values a straightforward, no-frills work ethic: employees serve for life, participating in the construction of dams, bridges, and oil platforms across various locations.

Sokol became Abel's deal mentor, while the 20-year-older Scott set an example of leadership for him.

In 2020 (the year before Scott passed away), Abel interviewed his former boss at a charity event in Omaha, guiding Scott to recall his childhood experiences of mowing grass on the farm, sleeping in a work shed while surveying the Monticello Dam during summer breaks, and his journey through 18 jobs over 12 years.

Abel admitted that he loved visiting landmarks like the St. Lawrence Seaway and Garrison Dam, projects that Scott had fought for, and he listened with admiration as Scott shared his memories, often exclaiming, "That's amazing, I love this story!"

David Wit, a tech entrepreneur and CalEnergy board member, witnessed the operation of the triangle formed by Scott (chairman), Sokol (CEO), and Abel (financial architect). He marveled at how this team dared to take risks in acquisitions while also insisting on deeply understanding the financial data of targets and anticipating potential risks before acting.

"Scott had a unique vision," Wit told Fortune, "Greg combines approachability with sharpness: humble, hardworking, and devoid of elitist arrogance, but more importantly, he truly understands numbers."

During this period, CalEnergy began a series of acquisitions, including a British utility company, which Abel successfully transformed into a profit machine.

This achievement earned Scott's high praise, and he recommended Abel's talents to his friend Warren Buffett.

Subsequently, they also acquired a major power supplier and renamed the company MidAmerican.

However, during the energy market frenzy at the end of the 1990s, utilities remained an unpopular choice—investors were eager to pay high premiums for companies like Enron, AES, and Calpine, which were continuously acquiring transmission networks, power plants, pipelines, and utility assets to cater to the fully deregulated energy market.

In contrast, MidAmerican focused on acquiring regulated assets that were overlooked by the frenzy, and its monopoly position and stable customer base were precisely what emerging companies lacked.

Scott keenly recognized that these "cash cow" assets were exactly what Buffett craved.

In a 2002 interview with Fortune, Buffett recalled that Scott, who had left Kiewit to lead the fiber optics company Level 3, flew from Omaha to Carmel, California, to persuade him to acquire MidAmerican during a family dinner at Buffett's sister's house.

"Walter pulled me into the room and told me that this utility company had been trying to explain its business model to Wall Street analysts, but the analysts weren't interested because they were more focused on fast-paced, frequently merging companies like AES and Calpine," Buffett recalled.

Scott asked Buffett if he would be willing to work with him, Sokol, and Abel's team to privatize MidAmerican.

Buffett has always favored contrarian investments, and he was thrilled by this idea. In October 1999, Berkshire announced the acquisition of a controlling stake in MidAmerican, with Scott joining as a minority shareholder.

As the energy market's full deregulation turned into a crisis, MidAmerican quickly became a "quality buyer" during major corporate asset disposals.

In 2002, Williams Companies sold the Cohen River gas pipeline to MidAmerican for $960 million; this pipeline connects the Rocky Mountains, Las Vegas, and California, and this price was several hundred million dollars lower than its valuation two years prior.

That same year, Sokol and Abel acquired Northern Natural Gas Co. for $928 million, a 17,000-mile natural gas pipeline network connecting the Texas Permian Basin and the U.S. Midwest. The price of this deal was about $600 million less than Dynegy had paid to acquire it from Enron a few months earlier.

Severo reported that Buffett was "as excited as if he had just caught a giant tuna" when recounting these achievements.

06 About Dollar Depreciation

Starting in 2007, Buffett began sending Sokol to clean up troubled subsidiaries under Berkshire, taking over insulation materials manufacturer Johns Manville and private jet operator NetJets.

The following year, Abel was promoted to CEO of MidAmerican.

Sokol's outstanding performance as a "firefighter" led many investors to believe he was the most promising candidate for CEO succession. However, in 2011, Sokol suddenly resigned after being questioned about purchasing stock in the lubricant manufacturer Lubrizol just before recommending its acquisition to Buffett (Berkshire later completed the acquisition of Lubrizol). Fortune magazine's attempts to contact Sokol via email went unanswered.

After Sokol's departure, Abel's promotion became a foregone conclusion.

After taking charge of the energy sector, he continued the strong profit growth momentum, skillfully using Berkshire's robust balance sheet to acquire assets at low prices, channeling all cash flow into business expansion, creating the compounding miracle that Buffett cherishes.

In 1997, CalEnergy generated $2.3 billion in revenue and $139 million in profit; by 2022, Berkshire Energy (BHE) saw revenues soar to $26.4 billion, with profits reaching $3.9 billion.

Abel also avoided a potential public relations crisis for Berkshire over environmental issues through a visionary negotiation, further solidifying the company's image in the eyes of environmentalists and regulators.

At that time, hydroelectric dams along the Klamath River in Oregon and Northern California were damaging the fishing resources of Native American tribes. Abel facilitated an agreement through patient and flexible negotiations: MidAmerican would close these dams, but only if it could continue operating for a period to recoup some investments, while also covering the demolition costs through state-issued bonds and a slight increase in electricity prices.

This historically largest dam removal project was completed earlier this year, and the Klamath River has now been restored to free-flowing conditions, expected to soon yield new fishing harvests benefiting local indigenous fishermen.

In a video interview in 2015, Abel summarized his negotiation style: "The key is, how do you get the other party involved? How do we become long-term partners?"

Whether serving as CEO of MidAmerican from 2008 to 2018 or subsequently overseeing all of Berkshire's industrial business sectors, Abel has demonstrated a tough, hands-on management style and has become a significant driver of green energy infrastructure development in the U.S.

Under his leadership, Berkshire has made significant strides in the solar energy sector while also becoming the largest regulated wind energy utility company in the U.S., operating numerous wind farms in Texas, California, and the Midwest (especially Iowa).

At the 2024 Berkshire annual shareholder meeting, Abel announced that just weeks earlier, on Earth Day, strong winds had powered wind turbines to meet the electricity needs of over 800,000 Iowa customers (in mid-2022, Berkshire acquired an 8% stake in BHE from the Scott family and Abel for $8.7 billion).

In the manufacturing, service, and retail sectors (valued at $165 billion, encompassing dozens of subsidiaries including NetJets, Benjamin Moore, and Clayton Homes, excluding railroad and energy businesses), Abel has also brought significant improvements, raising the operating profit margin from 4.9% in 2017 to 7.6% in 2023.

Unlike Buffett's hands-off management style, Abel is hands-on and does not tolerate underperformance.

Jim Weber, former CEO of Brooks Running, revealed that Abel visits the company's headquarters in Seattle several times a year to discuss company strategy with management. "If your performance is lacking, he will tell you directly and give you a few months to adjust," Weber stated during an interview at the 2021 Berkshire annual shareholder meeting.

Larry Cunningham also mentioned in an interview, "Greg will not let underperformers continue to lag behind. If you are underperforming, you will receive a call from him."

Buffett himself admitted in a 2023 interview with CNBC, "Greg may be even tougher on execution than I am. He can leave with a smile after executing, and the people being executed can feel good about it."

07 About the Work of the Efficiency Department

From the outside, Abel seems poised to take over a stable and well-managed business empire, but in reality, Berkshire faces numerous challenges.

Recent overall performance has been decent, but compared to past glories, there has been a noticeable decline. Some formerly thriving subsidiaries are currently underperforming:

The auto insurance giant GEICO is lagging far behind competitors like Progressive in pricing risks using connected car technology, leading to a loss of market share;

BHE's profits have declined due to wildfire compensation from their peak in 2022;

The railroad company BNSF ranks last among the five major U.S. railroads in returns over the past two years, and Buffett has publicly stated that BNSF urgently needs a "major restructuring of its cost structure."

Buffett himself has acknowledged that some of Berkshire's businesses have long underperformed and that there are some "dragging" business segments.

How Abel will respond to these challenges and whether he can continue Buffett's legend is not only related to Berkshire's future but also to Wall Street's confidence in this "wealth machine."

Abel can boost performance through a three-pronged approach and revitalize underperforming businesses. However, these measures will inevitably impact Berkshire's long-standing competitive advantage—the high degree of independence of its subsidiaries, which is the core of Berkshire's business ecosystem.

Under the traditional model, Berkshire acquires quality companies at reasonable prices and grants them full autonomy; this "non-interventionism" allows it to act as the "last buyer" in times of crisis. Investment manager Adam Mead, who has authored authoritative works on Berkshire's financial history, believes this is Berkshire's key competitive advantage.

Strategy 1: Set Profit Targets and Replace CEOs if Necessary

Buffett rarely sets profit targets for subsidiary CEOs and would not directly replace management due to poor performance. However, Abel may challenge this practice.

"He will pressure us like any good manager would," said Troy Bader, CEO of Dairy Queen.

Recently, Abel's management style has been evident; he dispatched Adam Wright, a 47-year-old executive who successfully managed MidAmerican, to take over the management of Pilot Travel Centers, the largest truck service center chain in the U.S.

Wright was a former NFL halfback, and Buffett praised him as an "outstanding executive." Currently, Wright has begun renovating outdated convenience stores and optimizing the company's financial situation.

Strategy 2: Establish an Operational Management Team

This structure is unprecedented in Berkshire's history but may become a necessary step.

It should be noted that Abel will receive substantial support—Ajit Jain continues to lead the insurance business with rich experience; for managing the massive stock and bond investment portfolio, he can also rely on Todd Combs and Ted Weschler.

Legendary CEO coach Ram Charan pointed out, "Greg cannot personally manage 80 subsidiaries." David Kass, a professor at the University of Maryland, believes Abel can categorize non-insurance businesses by industry, with each group consisting of about 20 companies managed by dedicated personnel.

Strategy 3: Integrate Procurement and Operational Resources

Successful conglomerates like Honeywell and Danaher have achieved economies of scale by centralizing the procurement of raw materials and components and promoting "best practices" across various factories.

In contrast, Berkshire's current synergies mainly manifest at the financial level; for example, the headquarters can provide financing to Clayton Homes at rates lower than banks or bond markets.

As Mead pointed out, Berkshire has not integrated on the procurement side, such as not encouraging its companies to jointly procure aluminum or semiconductors, nor has it promoted cross-selling of GEICO insurance.

Buffett has acknowledged that as Berkshire has grown, the company can no longer replicate the super-high returns of the past 40 years.

However, he believes Berkshire still has the potential to outperform the S&P 500 index by 1 to 2 percentage points. The most likely scenario is that Abel will largely continue the fundamental formula that led Berkshire to success:

In times of crisis, as the "last buyer," he has the ability to write multi-billion dollar checks;

Increase equity investments when the stock market is down and timely reduce holdings when valuations are high;

Actively repurchase shares when the company's market value is below its intrinsic value.

And as for what Berkshire's true "intrinsic value" is—perhaps, apart from Buffett himself, no one is better positioned than Greg Abel to approach the correct answer.

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