Warren Buffett says he has a succession plan, one that includes his son Howard taking over as non-executive chairman. As far as CEO, names like Todd Combs and Ajit Jain have been floated, and Buffett has even joked about the succession plan for his number two, Charlie Munger.
Investors are undoubtedly worried about how Berkshire Hathaway (BRK-A) will continue to beat earnings estimates like it did last Friday without an “oracle” at the company’s helm. By saying his son will stay on the board to continue a “Buffett” brand of culture, he has turned the succession story into a matter of family planning, but according to one leadership expert he may not be doing a very good job.
“What most companies have not been able to do, family companies, is really bring up a generation of leadership that’s served in the trenches and really knows how to run a business,” said Noel Tichy, author of the new book “Succession: Mastering the Make-or-Break Process of Leadership Transition.”
Buffett is far from alone in this category. Look at Sumner Redstone and Rupert Murdoch. For years, Redstone said he’d pass Viacom (VIAB) on to his daughter Sheri. The tune changed when the pair feuded, but Redstone has since re-opened the door saying it wasn’t certain if current Viacom CEO Phillipe Dauman will take over full control or not. At 90, Redstone still serves as executive chairman at the company.
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As for the Murdochs, Rupert’s eldest son Lachlan has emerged as the heir apparent at News Corp (NWSA). He's the same Lachlan who once turned his back on the company and left matters up to his brother James and sister Elizabeth.
“All three of them [Buffett, Murdoch and Redstone] are very vulnerable because they haven’t done what I’ve said,” said Tichy. Which is to say they haven’t put their children in the trenches.
“The gold standard I found is SC Johnson,” said Tichy. That’s right, the maker of Pledge, Raid and Windex. The company, which prominently bills itself as a “family company” is on its fifth generation of Johnson leadership. They’re a rare success story. “Most [potential heirs] kind of have a halo around them, they run around from business to business as the heir apparent and they never really have to do the tough things to run a business.”
Tichy compared it to sports saying, “You play in the minor leagues and if you succeed we’ll bring you up to another level.” CEO kids, it seems, never have to play in the minors.
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Another company that has gotten it right? CP Thailand. Also known as Chareon Pokphand group, it's a massive conglomerate whose chairman/patriarch Dhanin Chearavanont is one of the richest men in Thailand. Chearavanont is the third generation of a family business started in 1921 when the region was still known as Siam. Today, Tichy says, his children are charged with running different arms of the massive conglomerate, something Tichy says has groomed the children in the type of profit and loss governance that will truly prepare them to take over.
Buffett, Redstone and Murdoch shouldn’t feel bad that they’re missing the mark, though, according to Tichy. “There are very few examples around the world where family businesses get it right." Of course, neither of these three men truly run businesses that are easily comparable to either SC Johnson or CP Group, both of which are private companies. But being a public company may not improve things as far as succession goes, says Tichy. "80% of succession overall isn’t done right.”