Berkshire Hathaway 2005 Annual Report Download - page 22

Management Succession
As owners, you are naturally concerned about whether I will insist on continuing as CEO after I
begin to fade and, if so, how the board will handle that problem. You also want to know what happens if I
should die tonight.
That second question is easy to answer. Most of our many businesses have strong market
positions, significant momentum, and terrific managers. The special Berkshire culture is deeply ingrained
throughout our subsidiaries, and these operations won’ t miss a beat when I die.
Moreover, we have three managers at Berkshire who are reasonably young and fully capable of
being CEO. Any of the three would be much better at certain management aspects of my job than I. On
the minus side, none has my crossover experience that allows me to be comfortable making decisions in
either the business arena or in investments. That problem will be solved by having another person in the
organization handle marketable securities. That’ s an interesting job at Berkshire, and the new CEO will
have no problem in hiring a talented individual to do it. Indeed, that’ s what we have done at GEICO for 26
years, and our results have been terrific.
Berkshire’ s board has fully discussed each of the three CEO candidates and has unanimously
agreed on the person who should succeed me if a replacement were needed today. The directors stay
updated on this subject and could alter their view as circumstances change – new managerial stars may
emerge and present ones will age. The important point is that the directors know now – and will always
know in the future – exactly what they will do when the need arises.
The other question that must be addressed is whether the Board will be prepared to make a change
if that need should arise not from my death but rather from my decay, particularly if this decay is
accompanied by my delusionally thinking that I am reaching new peaks of managerial brilliance. That
problem would not be unique to me. Charlie and I have faced this situation from time to time at
Berkshire’ s subsidiaries. Humans age at greatly varying rates – but sooner or later their talents and vigor
decline. Some managers remain effective well into their 80s – Charlie is a wonder at 82 – and others
noticeably fade in their 60s. When their abilities ebb, so usually do their powers of self-assessment.
Someone else often needs to blow the whistle.
When that time comes for me, our board will have to step up to the job. From a financial
standpoint, its members are unusually motivated to do so. I know of no other board in the country in which
the financial interests of directors are so completely aligned with those of shareholders. Few boards even
come close. On a personal level, however, it is extraordinarily difficult for most people to tell someone,
particularly a friend, that he or she is no longer capable.
If I become a candidate for that message, however, our board will be doing me a favor by
delivering it. Every share of Berkshire that I own is destined to go to philanthropies, and I want society to
reap the maximum good from these gifts and bequests. It would be a tragedy if the philanthropic potential
of my holdings was diminished because my associates shirked their responsibility to (tenderly, I hope)
show me the door. But don’ t worry about this. We have an outstanding group of directors, and they will
always do what’ s right for shareholders.
And while we are on the subject, I feel terrific.
The Annual Meeting
Our meeting this year will be on Saturday, May 6. As always, the doors will open at the Qwest
Center at 7 a.m., and the latest Berkshire movie will be shown at 8:30. At 9:30 we will go directly to the
question-and-answer period, which (with a break for lunch at the Qwest’ s stands) will last until 3:00. Then,
after a short recess, Charlie and I will convene the annual meeting at 3:15. This schedule worked well last
year, because it let those who wanted to attend the formal session to do so, while freeing others to shop.
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