By Anupreeta Das
Warren Buffett once wrote to shareholders of Berkshire Hathaway
Inc. that if he, his partner Charles Munger and his deputy Ajit
Jain were ever on a sinking boat and only one of them could be
saved, "Swim to Ajit."
On Saturday, Mr. Munger solidified Mr. Jain's importance to the
future of Berkshire when he hinted that the 63-year-old head of the
conglomerate's reinsurance business is part of what appears to be a
two-man race to don the chief-executive hat once Mr. Buffett, 84,
is no longer around.
Mr. Munger, Berkshire's vice chairman, also suggested that Greg
Abel, who runs Berkshire's energy business, would be another worthy
successor. Messrs. Buffett and Munger wrote separate letters to
shareholders to mark 50 years of running Berkshire Hathaway.
"Ajit Jain and Greg Abel are proven performers who would
probably be under-described as 'world-class,'" Mr. Munger wrote,
adding that in some ways, "each is a better business executive than
Buffett."
Messrs. Jain and Abel couldn't be reached for comment.
Both men appear to fit Mr. Buffett's description of the right
Berkshire CEO as a "rational, calm and decisive individual who has
a broad understanding of business and good insights into human
behavior. It's important as well that he knows his limits."
Mr. Jain, who has spent nearly 30 years at Berkshire, has long
been considered a front-runner for the top job at Berkshire. Mr.
Buffett hired him in 1986 to build a reinsurance business even
though, as Mr. Jain likes to say, he knew little about insurance or
reinsurance. It didn't take long for Mr. Buffett to begin singling
Mr. Jain out for praise in his annual letters as the risks he took
began to pay off. Last year, Berkshire Hathaway Reinsurance Group,
which Mr. Jain heads, contributed $42.5 billion to Berkshire's
total insurance "float" of $84 billion. This float--upfront
premiums Berkshire collects from customers that it pays out much
later as claims and invests for its benefit in the interim--has
been a cornerstone of Berkshire's business model, helping fund its
expansion into diverse businesses and investments.
Mr. Jain was born in India and educated in that country as well
as at Harvard Business School. Although he lived in Omaha, Neb.,
for a few years after joining Berkshire, Mr. Jain works out of
Stamford, Conn. He is known for taking large and unorthodox risks,
such as writing a policy in 1999 protecting the Texas Rangers from
the possibility that Alex Rodriguez would become permanently
disabled.
"He excels at assessing and pricing unusual risks and also
creates new, highly profitable businesses," said Laura Rittenhouse,
a consultant specializing in the relationship between CEOs and
investors. "These talents are essential to succeed in insurance,
the business engine that drives Berkshire's cash machine."
Mr. Jain's access and proximity to Mr. Buffett and his long
Berkshire career also have made him well-acquainted with
Berkshire's culture, whose hallmarks are a decentralized operation
and low bureaucra
cy.
At a panel discussion in February, Mr. Jain said the absence of
corporate red tape at Berkshire and its operating units makes the
company unique. The event was organized to discuss Berkshire's
future without Mr. Buffett, the subject of a recent book by Larry
Cunningham, a professor at George Washington University.
"Ajit, like all the other Berkshire CEOs, recognizes that
delegation and decentralization are key" to the conglomerate's
future, Mr. Cunningham said.
Asked at the panel about the qualities a future Berkshire
Hathaway CEO should have, Mr. Jain replied the person shouldn't be
a micromanager.
If Mr. Jain is the Berkshire veteran, Mr. Abel is the astute
deal maker. Their backgrounds, too, are different. "Ajit is
financial, Greg is industrial," Mr. Cunningham said.
The 52-year-old head of Berkshire Hathaway Energy, Mr. Abel
joined the conglomerate in 2000 with Berkshire's $2 billion
purchase of an Iowa utility. Since then, Berkshire has spent more
than $15 billion on acquisitions, transforming the energy unit into
one of the country's largest power suppliers. It has spent a
roughly equal amount on renewable-energy projects.
Mr. Abel has gained experience allocating capital across the
energy industry, an important skill for the next Berkshire CEO, who
will have to decide, as Mr. Buffett does, whether and when to buy
companies or stocks or spend on capital expenses. In the process,
he also has worked closely with Mr. Buffett.
"Warren always sets the bar pretty high when we're looking at
acquiring an asset," Mr. Abel said in an interview last year. "Is
this additive to the family of assets that Berkshire Hathaway
Energy already owns?"
Mr. Abel took over as CEO of the energy unit (called MidAmerican
Energy Holdings Co. until last year)in 2008 from David Sokol, one
of Mr. Buffett's former lieutenants who left Berkshire in 2011.
Like Mr. Jain, Mr. Abel prefers to stay out of the spotlight,
although people who know him say he is a charismatic leader with
the ability to win over multiple groups in the energy industry,
from regulators to customers.
Last year, he initiated the company's name change with the goal
of bringing the Berkshire Hathaway banner to the energy sector.
"Our operating principles are the same as [the parent company] and
we truly invest forever, and that gives stakeholders and regulators
the ability to hold us accountable," Mr. Abel said in an interview
last year.
Mr. Buffett includes the energy business in his "Powerhouse
Five," which together accounted for a chunk of Berkshire's nearly
$20 billion in 2014 earnings.
"The critical factors in choosing one or the other is: Which is
most devoted to Berkshire Hathaway and possesses the ideal mix of
'constructive peculiarities' that Buffett and the board can
uniquely judge?" Ms. Rittenhouse said. "As well, who is most needed
to remain where he is to continue to grow Berkshire?"
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