Monday, March 05, 2007

Berkshire Hathaway Future Dilemma

Berkshire Hathaway (NYSE:BRK.A, BRK.B) leader Warren Buffet has released his annual letter to shareholders with the latest commentary. Warren Buffet is the second richest man in the world and his financial achievements will always hold a special place in investing history.

We all know that he is getting old and admits to a diet of cherry coke and hamburgers. The entire succession thing is approaching a crisis point. There exists an intense media speculation about his successor which is sometimes stoked by management comments regarding three top individuals who are known to the board etc. But we cannot tell the market who they are.

We all know that Warren Buffets estate is primarily going to charities. Currently Berkshire is a purely capitalist entity. Step One is maximize profit. Step Two is repeat step one. Once Warren Buffet is longer on the scene the new leader will have to report to the new shareholders to a degree that Buffet never had to do.

Charitable entities will have their own agenda’s. Social causes will have a much heavier weighing. The shareholders will exert an influence onto the investee entities. Can you try to help stem the rise of an epidemic in Africa using the profits from Coca Cola (NYSE:KO) which has sugared its product and stands accused of contributing to a vast array of health problems within western society?

Also charitable institutions spend money as they attempt to rightfully fix a problem or two. This may mean cashing in a few chips here and there not because the investment has peaked and should be sold but because someone needs an expensive medicine. In any event there will be a huge need for dividends to pay for ongoing programs.

When looking to Berkshire Hathaway’s future there will be more influences coming from socially motivated shareholders rather than a high profile replacement.

So the issues will be if you follow the superstar’s replacement whoever he/she may be, will you go long on an investment that will have an above average concern in social causes? This perhaps explains the current handling of the succession question and the whole secrecy issue.