Charlie Munger's uncommon sense eases Berkshire succession

Berkshire Hathaway (BRK-A, BRK-B) vice chairman Charlie Munger is a more complicated character than Warren Buffett.

While I don’t think for a moment that Buffett is some sort of Nebraska hayseed, he is much more of an everyman than Munger, a curmudgeonly, conservative Californian and self-described “wise-ass” who doesn’t give a whit about being diplomatic or politically correct.

Munger is Buffett’s counterpoint. His not-straight man. The one who delivers cut-to-the-quick daggers. And he’s been at it his whole life.

In a recent interview with me in Omaha after the Berkshire Hathaway annual meeting, I asked Munger, 95, about his time in the army, some 70 years ago, and he remembered his fractious tenure like it was yesterday.

“My senior officers could tell I thought they were wrong,” he told me, “And I tried to hide it, and they could still tell... who in the hell likes a junior officer, you look over there, and he's plainly indicating he thinks you're an idiot?”

While I first got to know Buffett fairly early on in my career, I only became acquainted with Munger much later. He was in L.A. for one thing and I was in New York. And unlike Buffett, Munger rarely ventures to NYC.

The other thing is that people, even some in Buffett’s circle, warned me about Charlie. “He can be difficult,” one told me. “Opinionated doesn’t begin to describe.” Sounds like a fun, challenging interview to me, I thought.

Common sense isn’t the standard human condition

And certainly once I got to know Charlie, and after having interviewed him a few times, I found that very much the case. He doesn’t tolerate fools, guff, or unpreparedness. But I’ve always found him to be amazingly insightful, sharp as a whip, often spot-on, and funny as hell.

Charlie, just really, truly does think different.

Even his ideas about common sense, are, well, uncommon, as he explained to me.

CHARLIE MUNGER: When people use the word[s] common sense, what they mean is ‘uncommon sense,’ because the standard human condition is ignorance and stupidity. And when they say oh, ‘Joe has common sense,’ they mean he has uncommon sense.

ANDY SERWER: I guess it's a bit of a misnomer then.

CHARLIE MUNGER: It really is.

ANDY SERWER: So why is it that people can't think clearly about investing, or decisions in their lives?

CHARLIE MUNGER: Well, [they] don't think very well about sex or gambling, either. You know, the standard human condition is a lot of mis-cognition.

Even with all of Munger’s brain power—plus all the supernova thinking that Buffett brings to the equation—there’s one issue that concerns Berkshire shareholders above all others, that being succession. Who’s going to take over Berkshire when Munger and Buffett—at 88 Warren’s the junior partner—die or become incapacitated, and how well will their successors do?

There’s been a great deal of discussion around this, and countless barrels of ink spilled. And Buffett has been asked about it for as long as I can remember. (Side note, if you had been overly concerned about Buffett’s age—never mind Munger’s 15 years ago—when they were 73 and 80 respectively, you would have missed more than 110 percentage points of outperformance versus the S&P.)

The transition to new leadership of course has been underway for years now, with Ajit Jain and Greg Abel—whom I spoke with a bit this weekend and who seems comfortable with his growing responsibility—on the management side, and on the investment side, Todd Combs and Ted Weschler. Any number of Buffett watchers are optimistic about Berkshire after Buffett (and Munger).

“It's an amazingly talented group of people. Everyone thinks Warren's a one-man show at Berkshire, but there are hundreds of supremely talented people that he's trained and groomed and brought along,” said Lawrence Cunningham, professor of law at George Washington University and author of the book, “Berkshire Beyond Buffett: The Enduring Value of Values,” at the Yahoo Finance US/China Investor Forum this past Friday in Omaha.

“Warren has told people to speak up when the time comes”

Even if you buy all that though, there’s another big question I have for Munger, which is how do he and Buffett know if they are becoming unfit for the job? And would they have the wherewithal to step down? By definition, they might not!

And so I asked Charlie about that. His response was, shall we say, Munger-esque.

ANDY SERWER: How do you make the decision to step back if you may not have the mental acuity to make that decision?

CHARLIE MUNGER: Well, I think you’ll be surprised at how well both Warren and I are capable of stepping back when we feel our powers are too far deteriorated.

ANDY SERWER: Have you talked about that?

CHARLIE MUNGER: Sure. And Warren has told people to speak up when the time comes. If we’ve been rational all this way, do you think we’re not going to try to be rational right to the bitter end?

ANDY SERWER: [You’re] sort of in the middle of the process. You’ve been giving more and more control, or authority, to Ajit and Greg and Todd and Ted. So it’s sort of a continuum?

CHARLIE MUNGER: Of course. And by the way, it’s working fine. It’s amazing how good this next generation is. And they’re steeped in our non-bureaucratic ways. These big bureaucracies think the work is done if you get it out of your inbox and into somebody else’s inbox. That is not getting it done. Getting it done is getting it done, not when it’s in somebody else’s inbox. If everybody is in a big committee meeting all the time, you’re worn out at the end of the day and you haven’t done anything.

Right on Charlie!

I say that to be a truly successful leader, you really need to do only two things. Build an amazing, above-trend organization. And find a successor or successors who will sustain and take that entity to the next level. The second step is as important, if not more important, than the first one. (It looks like Steve Jobs did right by the process at Apple with Tim Cook for instance.)

At Berkshire, replacing Buffett’s genial wisdom and Munger’s iracasable brilliance will be an extreme challenge.

The best possible news for Berkshire shareholders is that Buffett and Munger understand this challenge as their legacy.

Munger made the remarks to Editor-in-Chief Andy Serwer in a conversation that will air on May 9, 2019 on Yahoo Finance in an episode of “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment.

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Andy Serwer is editor-in-chief of Yahoo Finance.

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