Buffett: I Have a Secret, but Can’t Tell You

28 Feb

This week, Warren Buffett communicated to his investors, Wall Street, and the financial world that he has chosen a successor for his mammoth holding company, Berkshire Hathaway.  Buffett maintains immense respect in the investment world; everyone wants to know who will take his throne.  Yet, he refused to name his successor!

The Background

Because Buffett had not communicated the possibility of a successor for the past decade, investors fear that if the 81 year old CEO should pass, Berkshire’s share price would drop tremendously.  While Buffett is widely regarded as the most successful investor ever, many (myself included) doubt that his successor will perpetuate Berkshire’s success.  Buffett partially communicated the issue and put some investors at ease; other investors, however, are even more concerned.  If the new successor is not publicly groomed by Buffett, then the financial world may not give necessary respect and trust to the new successor. 

Who is David Sokol? Never Heard of Him!

Berkshire’s share price appreciation has been hurt over the past five years by the successor uncertainty and public distrust in his executive management team.  Last year, one of Buffett’s closest advisors, David Sokol, resigned because he was accused of violating Berkshire’s insider trading laws.  Mr. Sokol was considered to be first in line to succeed Buffett.  However, Mr. Buffett did not address Sokol when announcing that he had chosen a successor.  Since Sokol deeply embarrassed Buffett last year, Buffett may take extra precautions to prevent another fiasco. 

Time to Really Explain What is Going On!

Buffett is certainly a good decision maker.  He has earned tremendous respect for the discipline he demonstrates in his investments.  I am in awe of his accomplishments.  Nevertheless, he needs to realize that his successor may not carry his same weight.  His communication is parallel to telling your friend “I have a secret, but I can’t tell you.”   His letter is informative, but still intensifies the issue.   This is Buffett’s chance to communicate strength in the future of his company.  Buffett will eventually be replaced; therefore, a reassuring statement is necessary.  When he is gone, will Berkshire still be the powerhouse that it is today?

Let People Know

The method in which we chose to disclose information significantly impacts the perception of our co-workers, friends, and shareholders.  Whether news is positive or negative: disclose all relevant information up front.  Listeners are more receptive and trusting when they feel consciously involved.  Buffett has many stock holders who do not know who the new successor to Berkshire Hathaway will be.  Although I am a huge fan of Buffett, I am also skeptical of this mysterious decision.  Why should stakeholders entrust their capital in a company that won’t reveal its next leader?  Buffett needs to state all of the facts; good communication is open communication.

by Rafi Lowenstein

Source: http://www.thefiscaltimes.com/Articles/2012/02/27/Buffett-Successor-a-Mystery.aspx#page1


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