Warren Buffett’s Likely Successor Owns Little Stock in Berkshire Hathaway

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Ownership of

Berkshire Hathaway

stock is a big part of the culture at the sprawling conglomerate, but Greg Abel, the likely successor to Warren Buffett as CEO, appears not to have bought into that.

In a surprise to some Berkshire Hathaway (BRK/A, BRK/B) watchers, Abel sold a 1% stake in the company’s big utility unit, Berkshire Hathaway Energy, back to the subsidiary for $870 million in cash, rather than getting Berkshire stock. That June sale was disclosed in Berkshire’s recently filed 10-Q for the second quarter.

 Abel, a Berkshire Hathaway (ticker: BRK/A, BRK/B) vice chairman and head of the company’s vast noninsurance operations, could have sold the stake for Berkshire stock, based on the language of the Berkshire proxy. A sale for Berkshire shares likely would have been tax efficient and aligned him in a major way with Berkshire shareholders.

That would have been in keeping with the example set by Buffett, Vice Chairman Charlie Munger, and other Berkshire executives and directors, as well as with the management philosophy Buffett has laid out.

As it stands, Abel, 60, owns 2,363 of the company’s Class B shares worth about $700,000. Those are held on behalf of his family. Abel is trustee for five Class A shares worth over $2 million but he disclaims beneficial ownership of that stock, according to Berkshire’s 2022 proxy.

He hasn’t bought any Berkshire stock in the past four years based on the Berkshire proxies. His total compensation has been $75 million over the period.

Berkshire, unlike most companies, doesn’t grant stock-based compensation to its executives or board members. They must buy stock in the open market like anyone else.

Berkshire Hathaway didn’t respond to a request for comment and a spokeswoman for BHE, where Abel is chairman, declined to comment on the matter. Abel couldn’t be reached directly.

Buffett, meanwhile, holds over $100 billion of Berkshire stock even after giving away more than half of his holdings to various philanthropies since 2006.

Munger, his longtime partner, owns about $2 billion of Berkshire stock. Ajit Jain, a longtime Berkshire executive and head of the company’s insurance operations, holds almost $200 million in Berkshire stock, based on the latest proxy. All of Berkshire’s directors, including former American Express CEO Ken Chenault and investment manager Chris Davis, own more stock than Abel, based on the latest proxy.

Many companies require top executives to hold a certain amount of stock. At

General Motors
,
executives need to own one to six times their annual salary with CEO Mary Barra required to hold the most at six times. Berkshire has no such requirement.

But Buffett has made it clear that he believes in the people running the company owning the stock. In his 2017 shareholder letter, Buffett updated Berkshire’s Owner’s Manual, which outlines his management philosophy.

“In line with Berkshire’s owner-orientation, most of our directors have a significant portion of their net worth invested in the company,” he wrote. “We eat our own cooking. Charlie’s family has the majority of its net worth in Berkshire shares; I have more than 98%.

“Charlie and I cannot promise you results. But we can guarantee that your financial fortunes will move in lockstep with ours for whatever period of time you elect to be our partner,” he wrote.

 Abel headed Berkshire Hathaway Energy from 2008 to 2018 before taking on his current role at the parent company. He was president of BHE from 1998 to 2008 and joined it in 1992.

 “I would like to see Mr. Abel invest a large portion of the after-tax proceeds from the sale of his interest in BHE into shares of Berkshire Hathaway, which demonstrate both his long-term commitment to the company and a solid alignment with shareholders,” wrote James Shanahan, an Edward Jones analyst, in an email to Barron’s.

If Abel had swapped his BHE stake for Berkshire stock, it would have been a tax-free exchange, according to New York tax expert Robert Willens. He told Barron’s in an email that it would have been a “B reorganization’ under the tax code.

  “An acquisition by a parent of stock of a subsidiary, which it already ‘controls’ and continues to control after such acquisition, is a reorganization and that classification of the transaction, in turn, allows for a tax free exchange by the shareholders of the subsidiary for stock of the parent,” Willens wrote. Berkshire holds 92% of BHE.

The Abel stake in BHE came up at Berkshire’s annual meeting in April when a shareholder asked Buffett and Munger if Abel’s incentives were misaligned given his big stake in a Berkshire subsidiary.

 Buffett and Munger replied that Abel was totally committed to Berkshire. “It’s a historical accident, it’s not causing any big tension or breaches of fiduciary duty,” Munger said.

Abel got the bulk of the BHE stake from options grants more than 20 years ago when BHE was publicly traded as MidAmerican Energy before its purchase by Berkshire in 2000. BHE stock is up 30-fold since then, but doesn’t trade publicly.

In the coming months, Berkshire holders will be looking to see if Abel invests some of the sizable proceeds from the BHE sale into Berkshire stock.

Write to Andrew Bary at [email protected]