Berkshire Hathaway Inc. celebrated its Golden Anniversary this year, marking the 50 year period it has been run by the current Chairman of the Board, Warren Buffett and his partner, Vice Chairman, Charlie Munger. During their tenure, the stock value has moved from $19 to $146,186. That was on the strength of an average increase in value of 19.4% compounded annually. The fact that Munger is more than 90 years old and Buffett is in his late 80’s causes no small degree of concern among the thousands of investors and employees that have enjoyed their ride with Berkshire’s success. They don’t want to see a good thing end when these remarkable managers step down or pass away.

The company’s 2014 Annual Report addresses the issue of future leadership in a fascinating and highly effective way. The report has two stories embedded in it. One, written by Buffett, is titled, “Berkshire: Past, Present, and Future (Page 24).” The other, written by Munger, is titled, “Vice Chairman’s Thoughts: Past and Future (Page 39).”

After working together for 50 years, it was no surprise that the two stories (which had been prepared by each author without collaboration of the other) told the same story with only stylistic differences. 

There were several threads running through the past, present, and future sections of their stories, including investment strategy and guiding principles, but I will focus on the issue of the leadership succession. What follows is the “gist” of the succession plan I got from reading their stories.

My Version of the Berkshire Hathaway Succession Plan Story:

“After a few bad acquisitions, Berkshire began to focus on selecting well-managed, profitable companies and leaving their successful managers and operating policies in place. Thus, over the years, they developed a large cadre of seasoned and successful leaders operating in a highly decentralized system. While the total number of employees grew to over 340,000, the corporate staff was limited to 25. Good managers were given the freedom to manage a wide variety of companies without interference from headquarters.

Presently, several corporate leaders of Berkshire-controlled firms have been identified to have the competence to run the entire company. 

When Buffett and Munger exit, the company is prepared to move forward with a new management team selected from within. Stockholders and employees can be confident the company will continue with the values and management style that made it one of the most successful businesses in the world.”

Concluding Comment:

The Berkshire succession plan story is easy to remember and can be retold to thousands of investors and employees who have a stake in Berkshire’s future. It should go a long way in setting the stage for transitioning to a new management team and put the minds of many investors and stakeholders at ease. It will be a key factor in retaining investor and employee confidence in the future of the company.

Hey, it worked for me! I was spared having to read the customary voluminous corporate strategic plan, topped off with vision and mission statements full of buzz words. The vision of Berkshire’s corporate leadership succession plan is clear, memorable, and reassuring.

Stories are perhaps the most powerful tool available to a leader. It should be no surprise the leaders of one of the most successful businesses in the world chose to tell a story about the future of their company, instead of wordsmithing a vision statement.

Rather than take my word for this, I suggest you put the premise to the test. Please go back and read the Lawrence-Douglas County draft vision statement from my previous post and the Berkshire succession plan story once each. Then try to tell both to a friend without notes.

Joe Harkins’ career in public service spanned 50 years, including his service as the Secretary of the Kansas Department of Health and Environment as well as the Director of the Water Office during the administration of Governor John W. Carlin. He retired in 2002 as the Director of the Public Management Center at the University of Kansas. After a short break, he returned to work first serving as a special assistant to the Governor then retiring again after completing a term on the Corporation Commission for the State of Kansas.

In the 1990’s, vision and mission statements came into vogue when they were considered an essential element of Total Quality Management (TQM) programs. One of the first TQM implementation steps usually involved assigning a committee of employees to craft vision and mission statements.

The fact that many organizations never succeeded in differentiating between vision and mission statements notwithstanding, these exercises often failed to produce anything more than a string of buzzwords embedded in a set of sentences that, upon close examination, said little or nothing about the future of the organization. In spite of their deficiencies, they were frequently memorialized on business cards, used as introductions to budget documents, or prominently displayed on the walls of high traffic areas for all to see and read. The trouble was, it was unusual to see anyone stopping to read one.

Now, I am not arguing that all vision statements were an exercise in futility that created more obfuscation than clarity. Some were very useful and served a good purpose. But crafting a single statement that effectively describes an organization’s desired growth, advancement, or development is a very difficult challenge and there is a more effective method available. Before I get to the alternative, let me share with you a draft of a vision statement that is currently a work in progress. I do not present this as a critical comment but merely to demonstrate the problem faced by any group trying to draft a vision statement. The following draft was prepared by a committee in the process of updating the Lawrence-Douglas County Horizon 2020 Comprehensive Plan.

“The City of Lawrence and Rural Douglas County is one of the most desirable places in the United States to call home. A well-educated community with a unique free-state spirit, we are diverse, publicly engaged, and boldly innovative. We are prosperous, with full employment and a broad tax base. Our development is human-scale and our neighborhoods are livable, allowing people downtown to age in place. We have ample choices for safe, efficient transportation including bicycling, walking, and transit. The City’s lively and historic downtown attracts residents and visitors for commerce and cultural arts. Our citizens value preserving and enhancing the natural environments for our enjoyment and for future generations. The proximity of rural and agricultural land to the city provides beauty and respite, and we enjoy the economic and health benefits of a robust local food system. We make Lawrence and rural Douglas County a place where creativity thrives, sustainability is a way of life, and community pride is contagious.”

The strong sense of community pride comes through loudly and clearly. However, the statement does not provide a mental image of what the authors hope to see the city and county become in the future. Documenting current strengths is a good starting place, but vision statements are supposed to be about the future.

I hope the authors keep working to produce something that will help them share their vision. But, rather than continuing to wordsmith a vision statement, I suggest the alternative I alluded to above. I recommend they write at least one story that addresses major issues the city and county must deal with in the future. Potential relevant subjects include the issue of jail crowding due to the incarceration of mentally ill persons and/or the development of adequate police facilities. Perhaps several short stories that each address a priority issue would be more effective than a single one covering multiple topics. There is no rule that limits the number of stories needed to communicate effectively. And this approach is far more effective than jamming multiple topics into a single and usually useless vision statement.   

Joe Harkins’ career in public service spanned 50 years, including his service as the Secretary of the Kansas Department of Health and Environment as well as the Director of the Water Office during the administration of Governor John W. Carlin. He retired in 2002 as the Director of the Public Management Center at the University of Kansas. After a short break, he returned to work first serving as a special assistant to the Governor then retiring again after completing a term on the Corporation Commission for the State of Kansas.