9 Lessons in the Succession Selection Process from Warren Buffett & Berkshire Hathaway

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Mark Green

Warren Buffett and his company Berkshire Hathaway gave the family business world an inside look of how an entrepreneurial first generation business goes about the selection of a new leader. Earlier this week Berkshire Hathaway introduced little known Todd Combs as the new heir apparent of Warren Buffet’s empire. An excellent article in the October 27th edition of the Wall Street Journal titled Todd Combs Is a 100% Fit With Berkshire Culture  provides a glimpse of the process used by Buffet and Berkshire Hathaway. In this article we see many of the “best practices” as well as some insightful lessons for the next generation that we urge our family business clients to follow in succession planning. Here are nine of these observations:

Succession is a Long Process – Warren Buffet is 80 years old but it is clear that succession planning has been underway for some time with his immediate successor Vice Chairman Charles Munger driving the process. We also learn in this article that Mr. Combs responded to a mysterious “help wanted” request in early 2007 marking over three years to find the right person.

Leadership Comes in All Styles – We learn that Mr. Combs is a “low -key” guy and that he doesn’t come from a “typical path of privilege and pedigree.” Knowing that Mr. Buffet keeps it simple, it appears Mr. Combs shares Mr. Buffett’s core values of modesty, respect, and work ethic.

Forty is About the Right Age – The age of 40 (plus or minus a few years) is typically the time when a next generation leader should be in position for a transition to a leadership role. Is there magic to 40? Certainly not, but by around 40 the experience, accomplishments, maturity, and understanding of a person’s strengths and weakness are usually evident, and there is still some time for final leadership grooming. In this case Mr. Combs is 39 which is right on track.

Work Ethic & Winning Attitude — One of the most common issues that comes up in the succession process is the demonstration of a strong work ethic by the prospective successor. Younger generations are often criticized for their lack of drive and work ethic – but clearly Mr. Combs is noted for his ability to work hard and be focused to get the job done. As his former professor noted, “I don’t remember saying to myself, “this guy is the next Warren Buffett” says Richard Hanley, but he probably had the greatest desire to win.”

Experience + Education Lead to Credibility — Mr. Combs has an undergraduate degree from Florida State and an MBA from the Columbia Business School.  What is interesting is that he is remembered as a notable student for his drive and focus.  As one of his professors remembered “when you teach, you see some people that just go through the motions, and some people who genuinely want to make money … that is where Todd’s head was.”

Beyond his education is his impressive resume, working in both the public sector as a government regulator as well as the private sector with various stops at an insurance company, a hedge fund, as well as leading his own investment firm.  His steady path, and diverse experiences links together a “deep understanding of finance, business, and regulation.”

Street Smarts Too — Formal education is certainly important but street smarts and the ability to learn, be flexible, and develop the softer skills are things that you just can’t teach in the classroom. It is noted, “he is smart and he can adapt… when he got in this business, he didn’t know anybody.” The ability to develop his people skills and to think on his feet, along with his formal experience and education is a powerful combination that any next generation leader should strive to develop.

Thinking Different is Leadership — Success in not measured by following the crowd. Mr. Combs has often thought differently and many times he has won but occasionally he has lost. “As markets collapsed in September 2008, and his fund lost 9% during that month, clients say Mr. Combs was disappointed but quite calm, unwilling to sell shares he believed in … others who became fans of Mr. Combs say that, unlike many hedge-fund managers, he spent little time sharing investment ideas with others in the business, preferring to develop his own ideas.” Leaders are willing to continue to lead even when the chips are down and remain calm.

Passion and Thoughtful Matters — In order to be successful as a leader you need your own passion that gets you up each morning. Throughout the article people from various aspects of Mr. Combs’ life provide examples of his commitment.  One example came from an investor in his firm who stated: “It’s tough to find someone that passionate and thoughtful.”

Cultural Fit is Everything — Impressive resumes and the finest schools are great but a next generation leader must fit the culture. Mr. Buffett says, “he is a 100% fit for our culture. I can’t define the culture while I am here, but we want a culture that is so embedded that it doesn’t get tested when the founder of it isn’t around. Todd is a perfect in that respect.” “Mr. Buffet says he and Mr. Munger were sold on Mr. Combs not only because of his ability and intelligence but also because they were convinced he would fit in to Berkshire’s no-fuss culture.”

Time will tell how successful Todd Combs will be in filling the biggest shoes in business but once again with their process of succession planning, Mr. Buffett gives the business world yet another lesson on how we might think about how we manage our own companies for long-term, sustainable success.

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