As the race for the keys to Berkshire Hathaway closes in, two names have not only come up as the likely successor to Warren Buffett’s $87.1 billion enterprise, but shareholders also witnessed them in action on Monday.
One of them is IIT-Kharagpur alumnus and longtime Berkshire executive Ajit Jain, who presently leads the company’s insurance division and has been known to share a close relationship with Buffett.
At the annual shareholder meeting on May 6, the billionaire CEO hinted that Jain could one day join him and 95-year-old vice-chairman Charlie Munger to answer shareholder questions, according to CNN.
Greg Abel, who runs the non-insurance subsidiaries, is also a strong contender for the post, although Buffett cautioned that “this format is not set in stone.”
Then he went on to open the floor for shareholder questions to be directed at his lieutenants, saying, “The truth is Charlie and I are afraid of looking bad, those guys are better than we are.”
“They know the businesses better, they work harder by far, and you are absolutely invited to ask questions to be directed over to them at this meeting,” he announced putting names to the next probable face of the sprawling conglomerate.
In an earlier interview, Buffett had teased that the Berkshire board can install a new CEO within a day when he steps down, dies or becomes incapacitated.
Buffett, 88, has been known to be proud of his two most trusted deputies, writing in an annual letter in February, “Berkshire is now far better managed than when I alone was supervising operations. Ajit and Greg have rare talents, and Berkshire blood flows through their veins.”
Both Abel and Jain were promoted last year and appointed to the board of directors. Since the raised profiles, they have steadily climbed to become the favourite candidates for taking the reins from Buffett, the third richest man in the world.
At yesterday’s shareholder meeting in Omaha, lenders and the world saw Jain and Abel speak up for the time, as they fielded shareholder questions on insurance and energy investments alongside the old horses, in a move suggested that the stage for the future has already been set.
What happened on Monday
Bloomberg reported even though Buffett and Munger still hogged most of the speaking time during the five hours of Q&A on Monday—betraying no inclination to step back from their roles in the firm they built – the appearance of Abel and Jain offered shareholders “a bit more familiarity with two executives that took direct oversight of the company’s primary operating units last year.”
It did put to rest the usual round of questions at Berkshire Hathaway’s shareholder meetings, regarding the challenges and strategies to replacing Buffett, whose failing faculties by self-admission will hasten that process.
In response to a question about succession, Buffett pointed to Abel and Jain being present and available to take questions. The pair then ended up fielding multiple queries, as opposed to investing deputies Ted Weschler and Todd Combs who were answered for by Buffett himself.
The duo’s line of answering was starkly different from Buffett and Munger’s, who are known to dwell primarily on the central philosophies on investing and managing companies.
Abel and Jain offered some more on-the-ground specifics instead, with the former laying the roadmap for Berkshire’s clean energy initiatives and talking about competitive rates, while the latter compared its profitability metrics with key rival Progressive Corporation’s.
Now the business world is rife with speculation
Most analysts are in agreement with Meyer Shields, managing director of New York-based investment firm Keefe, Bruyette & Woods who told AFP, “I suspect it will be either Greg Abel or Ajit Jain and probably the former, given his solid and growing exposure to Berkshire’s non-insurance businesses.”
Abel is seen as the more likely CEO successor, according to Bloomberg, because of his younger age (he is 56) and broader remit. At the same time, Jain, 67, has probably made more money for shareholders than anyone else in the firm, Buffett included – a fact Buffett repeatedly cites.
“You could not have two better operating managers than Greg and Ajit. It’s just fantastic what they’ve accomplished,” Buffett said.
Jain’s rise to the top
Born in Odisha in 1951, Jain graduated from Indian Institute of Technology (IIT) Kharagpur in 1972, with a degree in mechanical engineering before joining IBM in 1973.
Five years later, he was on his way to Harvard Business School where he got his MBA degree and worked at McKinsey & Co before joining Berkshire Hathaway Insurance Group in 1986. He claimed he knew very little about insurance at the time, but under his tutelage, Berkshire’s insurance business grow fast and contributes massively to its investment float.
Today, he is the Vice Chairman of Insurance Operations and Buffett refers to him as family. “I really feel about him like I would a brother or a son”, he notably said in an interview with HuffingtonPost, adding if Jain wanted to be the CEO, he’d have the board of directors back him and “put him there in a minute.” There are some unconfirmed reports, however, that suggest Jain is not particularly inclined towards holding the top position.
Nonetheless, Jain’s value to the firm and its founders is documented in one of Buffett’s letters to shareholders, in which he said that if “Charlie, I and Ajit are in a sinking boat, and only one of us can be saved, swim to Ajit”.
How crucial is Jain to BH?
It has been Jain’s unmatched expertise at underwriting—or knowing when and how much insurance to offer to customers—that ensured upfront premium by the millions without undue risk or blow-ups. Buffett once hailed Jain’s skills at insuring risks that no one else has the desire or the capital to take on.
“His operation combines capacity, speed, decisiveness and, most important, brains in a manner unique in the insurance business. Yet he never exposes Berkshire to risks that are inappropriate in relation to our resources,” he said. Buffett also described his mind as an “idea factory that is always looking for more lines of business he can add to his current assortment.”
According to Money Control, BH’s investments yielded high returns not just because of Buffett’s legendary stock-picking skills, but also due to the leverage and premiums generated by the low-cost ‘float’ from Jain’s insurance business.
Munger too has credited Jain with “creating out of nothing” an immense reinsurance business that produced both a huge “float” and a large underwriting gain.
A regulatory filing after his promotion last year revealed that Jain had amassed a stake in Berkshire Hathaway valued at more than $100 million. Whether he will follow in the footsteps of Satya Nadella (Microsoft), Sundar Pichai (Google) and Shantanu Narayen (Adobe), and thus carry forward the tradition of Indian origin businessmen going big in the west remains to be seen.
At the end of 2016, Berkshire Hathway’s insurance business employed 44,000 and contributed $113 billion in premiums collected before payments, according to a Mint report. The company holds major shares in publicly traded companies like Apple, American Express, Coca Cola, Wells Fargo, Kraft Heinz and Bank of America and has been expanding its portfolio despite a fluctuating global economy