Succession key to survival

LAST weekend, Greg Abel took the stage in addressing Berkshire Hathaway shareholders during the AGM as CEO.

For the first time in memory, Warren Buffet was not sitting at the table facing the shareholders. Instead, he was alongside the shareholders looking up the stage.

It was a significant moment as a clear message was being sent. Succession has taken place.

While Berkshire was synonymous with Buffet, he knew that for the company to survive beyond him and Charlie Munger, it is imperative that succession planning be conducted while he is still around and not after.

Prior to Munger’s passing at a ripe old age of 99, Buffet was CEO while Munger was chairman. Thereafter, Buffet was elevated to the chairman’s seat while Abel took on the CEO mantle.

They are indeed big shoes to fill, taking on the responsibility of steering Berkshire, which has a US$1 trillion (RM3.96 trillion) market capitalisation with US$397bil of dry powder, but someone has to shoulder this burden (or legacy) sooner or later.

After all, Buffet is 96 this year.

Wave of successions

Interestingly, this was not the only big-name retirement in Corporate America that happened recently.

Apple Inc, led by Tim Cook since the demise of Steve Jobs in 2011, has announced his due retirement from CEO position effective Sept 1, 2026, after 15 years at helm of the largest and most valuable consumer technology company of the world.

Cook will transition to being executive chairman while John Ternus, a 20-year Apple veteran will take on the role of the CEO.

During Berkshire’s AGM, Buffet gave a glowing tribute to Cook’s stewardship of Apple, particularly crediting him for helping Berkshire grow six times the initial investment of US$35bil to a pre-tax US$185bil in returns today.

Apple remains one of Berkshire’s largest shareholdings and contributed significantly to the company’s performance returns over the past decade.

Cook was a relative unknown to Corporate America when he was identified as Job’s successor, yet his steady hands have helped grow Apple from US$350bil to a US$4 trillion giant.

Professional versus family

This trend of baton passing is sweeping across economies and regions beyond just corporate America.

In this part of the world, we are witnessing a big shift in leadership of major companies, conglomerates and business empires. While succession planning has clearly taken place for some of the household name companies, unfortunately many remain elusive.

When it comes to Western countries versus Asian countries, there is a noticeable difference.

In Western economies, we often see succession planning involving professional managers who have no blood relations with the founding family.

In Asian economies, it’s the reverse. Family relations come first when it comes to holding the keys to the kingdom.

There are Asian companies that hire professional managers but usually an identified family member or heir will be at the helm, with professional managers deferring to them in key decisions be it in the capacity as a chairman or CEO.

Asians do not trust outsiders, beyond their family members.

This is more than a cultural phenomenon. It would appear to be deeply rooted in the value system for Asian households as this extends to roadside food business all the way to large sprawling business empires.

You don’t know what you don’t know

An interesting part of my job involves getting to know the management of companies before we decide to invest in them. Often, I get to meet the controlling shareholders of listed and private companies before making any investment decision.

Our conversation can span from business performance, tales of origins to the growth plans for the future.

I very much enjoy these conversations as it is inspiring to learn how they have built their business over time.

Increasingly, I have made it a point to talk about succession planning especially if the founder or controlling shareholder is aged above 60.

My decision whether to take a position in the company is heavily influenced by their views and plans on succession.

For public companies, accountability and transparency is paramount. The companies listed on the bourse logically accounts to the public and not the family ownership, even if it is controlled by family members.

This means that succession plans must be in place if the founder is getting older.

When we invest in a company, we are not looking at the companies’ short-term performance. Most of the time, the long-term growth and sustainability is what counts the most.

This means if a company is too heavily reliant on a single individual, it poses key man risk. Most family-owned listed companies in Malaysia are facing this problem today.

Some may have their second generation installed in leadership roles but I have come across very few that possess the same level of acumen as the founders.

They may be more vocal or visible than the founders but unfortunately this does not automatically translate to competency.

A wise man once told me, “You don’t know what you don’t know.”

This is my key observation whenever second generation takes on leadership roles before they are actually ready.

Lack of execution experience and ego leads to questionable decision-making.

Understandably, experiences are accumulated over time. However, the experience of hardship and failures cannot be taught except through actual personal experience.

There is no perfect formula when it comes to succession but one thing which I am certain of is that competency matters.

Period.

Circle of life

The Chinese believes in the maxim that wealth does not last beyond three generations. Some call it a curse.

To break this curse, possibly adopting a page out of the playbook of Western companies may help.

For those who do not subscribe to Western management philosophy, I have observed that Japanese companies would be more suited as reference for companies in Malaysia.

The track record of survival and succession for Japanese companies is impressive, often going beyond the third generation.

The combination of family and professional managers through institutionalisation works wonders, at the very least surviving beyond the next generation.

If the wealthy remains wealthy perpetually, then the poor will never be able to achieve a breakthrough. Upwards social mobility is an integral part of the circle of life.

Many factors come into play such as family harmony, knowledge, prudence, greed, opportunity and luck too.

Ultimately, whether a company or business survives is part of the circle of life.