Study: Greg Abel’s Challenges

From Switzerland: Happy New Year to all our readers!

Buffett’s Last Day as CEO

It’s the last day of 2025 and also the day when Warren Buffett retires from CEO position. The Buffett-Munger era has officially come to an end.

But this end took a really long time!

When Roger Lowenstein published Buffett: The Making of an American Capitalist in 1995, Warren Buffett was 65 years old, an age when most CEOs are getting ready to pass the baton to a younger executive.

It was well known that Buffett had no intention of retiring soon, but we doubt anyone thought that Buffett’s CEO tenure was only at its halfway point!

On this final day of 2025, Buffett will conclude a tenure of more than 60 years at the helm of a company that underwent a transformation so profound that he is properly regarded as the founder of Berkshire Hathaway.

His successor, Greg Abel, is 63 years old almost the same age as Buffett back in 1995. He also has no intention of retiring soon.

In his Thanksgiving letter, Buffett clearly stated that Berkshire must avoid hiring CEOs “whose goal is to retire at 65, to become look-at-me rich or to initiate a dynasty”. He hopes that Berkshire might have only five or six CEOs over the next century. Clearly, the pressure is on Abel to be the first in a string of successors carrying forward Buffett’s legacy.

We think there are 3 main challenges that would shape how Greg Abel manages Berkshire.

Challenge 1: Corporate Culture

Berkshire’s unique corporate culture is built on what Charlie Munger termed as “seamless web of deserved trust”.

The decentralized approach requires a very high level of trust without which the system would quickly fall into chaos. The foundation of Berkshire’s seamless web of deserved trust was the relationship between Warren Buffett and Charlie Munger, but this level of trust did not develop instantly. The two men hit it off immediately when they met in 1959 and cooperated on business ventures throughout the 1960s, but it was only in the 1970s that the two truly became business partners.

Trust takes time to develop and can be easily lost.

Abel has been at Berkshire for over 25 years, managing the energy subsidiary for many years before becoming Vice Chairman of non-insurance operations in 2018.

It is fair to suppose that a seamless web of deserved trust currently exists between Berkshire’s Board and Abel. However, the seamless web needs to extend down into Berkshire’s hundreds of subsidiaries to make its decentralized system work in the years to come.

During the first half of Buffett’s tenure, most acquisitions were handshake deals with founders or longtime managers of subsidiaries. These leaders had tremendous trust in Buffett and, in return, he allowed the managers to operate with minimal supervision.

This system worked very well for decades even though there were few inevitably unfortunate exceptions. However, Berkshire’s size has grown to the point where any future acquisition that moves the needle must be very large. The possibility of acquiring privately held subsidiaries of adequate size run by founders or their families diminishes every year.

Challenge 2: Improve Laggards

Under the huge Berkshire umbrella, it is inevitable that some subsidiaries are underperforming.

Buffett has always said that Berkshire will tolerate underperforming subsidiaries as long as they do not consume capital. It would be risky for Abel to embark upon a “restructuring program” that sells businesses that are merely sub-par, but he shouldn’t be tolerant of large laggards if they appear to be unfixable.

One of the current examples is the situation at Pilot, now a wholly owned subsidiary that Berkshire acquired from the founding family over a period of several years.

At a surface level, the Pilot acquisition was right out of Buffett’s playbook. The Haslam family built Pilot over several decades into a successful business familiar to anyone who has driven on America’s interstate highway system. However, a lawsuit (on how much the Haslam family should be paid for remaining 20% stake) two years ago illustrated that things can go wrong with handshake deals. To make matters worse, the performance of Pilot has lagged badly ever since Berkshire assumed full ownership.

Abel appointed a new CEO (Adam Wright) and management structure at Pilot. The company is investing in improving its locations and continues to own real estate along America’s interstates that cannot be replicated. But the verdict on this acquisition will not be in for many years to come.

Abel must manage the situation at Pilot knowing that the managers of other Berkshire subsidiaries are paying close attention. Good managers are not afraid of ambitious goals and do not shy away from accountability, so making such demands at Pilot is not going to hurt Berkshire’s culture. What could hurt is a sense of arbitrariness, unfairness, or a short-term focus that managers of other subsidiaries take as a signal of what may happen to their businesses.

Pilot is an example that is almost certainly fixable in the long run, but this is not necessarily the case for all of Berkshire’s subsidiaries, particularly some of the smaller businesses that were acquired decades ago under very different economic conditions.

Challenge 3: Capital Allocation

This is likely the biggest and most difficult challenge for Abel. His decisions will also be under the scrutiny of shareholders. First of all, he shouldn’t try to replicate the past achievements of Buffett, because Buffett has unique skills when it comes to capital allocation due to his background as both an investor and a businessman. He also had the great fortune to partner with Charlie Munger. The duo produced results that will simply not be repeated.

Abel is taking charge of Berkshire which has over $350b of cash and produces tens of billions of cash every year. Abel is also responsible for Berkshire’s enormous equity portfolio. The resignation of Todd Combs leaves him with just Ted Weschler.

It is very difficult to deploy cash at such a large scale. On the public markets, Berkshire has been a net seller of stocks so they don’t see opportunities currently, although things can indeed change very fast.

Acquiring a privately held business large enough to move the needle will also be very difficult.

Repurchasing shares is also currently not an option; the last time it happened was in May 2024. They probably think the stock is trading at reasonable valuation now. As Berkshire continues to produce and retain earnings, a static stock price will push its valuation towards bargain levels again. If so, Abel will have an easy channel to deploy capital.

What if Berkshire’s shares don’t trade cheaply?

Throughout most of its history, Berkshire shareholders would have been far poorer if Buffett had paid dividends to shareholders. This is because Berkshire has historically been able to act as a compounding machine, deploying retained earnings within the conglomerate at good rates of return that shielded shareholders from dividend tax consequences.

The most sensible dividend policy would be non-regular payouts. It seems inevitable that Berkshire will declare some form of a cash dividend within the next 5–10 years unless very large repurchases are possible at reasonable prices.

Voting Rights

After Buffett dies, his shares will be given to charities very quickly. Within a decade of his death, the voting picture will change dramatically even if his children remain on the Board, or his grandchildren take Board seats. At that point, probably in the 2040s and hopefully still under Abel’s leadership, Berkshire will face a much greater inflection point.

But that’s a problem for another day. For now, let’s celebrate the new year and wish Greg Abel the best in his new role!