Doug Kass: Here’s What I Asked Warren Buffett About This Very Moment
Thirteen years ago, I asked Warren Buffett and Charlie Munger about the plan to have Howard Buffett become chairman. Now the time has come.
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Warren Buffett has stepped down as chairman of Berkshire Hathaway. As planned, his son Howard G. Buffett, a director since 1993, will become the new chairman. Warren Buffett is now chairman emeritus, Susan Decker will stay put as lead independent director.
I have been considering this transition for a while. In fact, I asked Buffett and Charlie Munger about this succession plan 13 years ago, when I appeared as “the credential bear” at Berkshire Hathaway’s 2013 Annual Meeting. (You can read all about hit in “Buffett Picks Douglas Kass as His ‘Bear’ for Annual Meeting” in The New York Times).
This question about having his son take up the responsibility was one of the more controversial questions I posed to Buffett.
Here is the transcript of my question and the responses from Warren and Charlie; I think it speaks for itself:
Kass: Warren, 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.
Buffett: Sounds like it is going to be, but go ahead!
Kass: But it is a question I have to ask.
Buffett: Okay.
Kass: Someday your son Howard, will become Berkshire’s Non Executive 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 of enterprise risk managment. 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?
Buffett: Well, he is not taking on the role you describe. He is taking on the role of being Non Executive Chairman in case a mistake is made terms of who is picked as CEO. I think the probabilities of making a mistake are low but they are not zero in a hundred. And I have seen such a mistake made in other businesses.
It is not his job to run the business, allocate capital or do anything else. If a mistake is made in picking the CEO having a Non Executive 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. Howard would be there as a protector of the culture and he has got an enormous sense of responsibility about that. He has no illusions at all about running the business. He would have no interest in running the business. He will not be running the business at all. He won’t get paid for running the business. He only has to think about whether the Board may need to change the CEO.
I have seen many many times over 55 years as a Director, at times when a mediocre CEO, likeable, not dishonest but not the right person. Its hard to do when that person is in the Chairman’s position. Its a bit easier now that you have the procedure that the Board meets once a year without the Chairman. Thats a very big improvement in my opinion in Corporate America. The Board is a social institution and it is not easy for people to come to Chicago or New York or Los Angeles every three months and have doubts about who is Chairman. Who’s going to make a change? That’s the position Howard (the non Executive Chairman). I know no one who will bear the responsibility of doing the job as it should be done.
Munger: I think the Mungers are much safer with Howard there. You gotta remember the Board owns alot of stock. We are not trying to gum it up to the shareholders
Buffett: After my death, whatever it maybe in terms of value then, perhaps $50 billion of stock will, over a period time. go to help people around the world. It makes an enormous difference if the company behind the stock is doing well or not. Both Charlie and I have seen more than one example of where a CEO, who might be a six on a scale of ten), is perfectly likeable and perhaps has helped select some of the Directors but someone else can do it better. Its very hard to make the change when the Chairman controls the agenda. And keeps everyone busy when they come into town for a little while.
Munger: You can have a CEO who is nine out of 10 with deep flaws, too. It helps to have an objective person with a real incentive sitting in the position Howard will be in.
Buffett: An example I have used in the past: ‘Blessed are the meek for they shall inherit the earth.’ But after they inherit the earth will they stay meek? That could be a problem. The CEO could be a position where someone throws his weight around, in various ways. You may have noticed that in our Annual Report in terms of our newspapers, I said am not going to tell them who I endorsed as President (I voted for Obama). When I write that sort of thing I am trying to box in my successor to some degree, too. We do not want someone to use Berkshire Hathaway as a power base in the future. We want the CEO to think about the shareholders.
Munger: Sometimes somebody becomes CEO , characteristic of a once-famous California CEO. They used to say about him that he is the only man who could strut sitting down!
I will end by extending my best wishes to THE GOAT, Warren Buffett.
Kudos.
This commentary was orginally posted in Doug’s Daily Diary on TheStreet Pro.
At the time of publication, Kass had no position in any security mentioned.
