Warren Buffett just took a big risk with the $1.5 trillion giant he built

Last week, Berkshire Hathaway announced that Warren Buffett’s son, Howard, would replace him as chairman of the sprawling conglomerate. There was no outcry.

At face value, Howard, 71, has no obvious qualifications to be appointed chairman of a venerated $US1.08 trillion ($1.5 trillion) company, other than that he is the founder’s son.

Howard is a farmer, on properties whose purchase was funded by his father. He is a philanthropist, deploying funds provided by his father. He’s not a college graduate and has little experience, if any, in operational management or asset management.

He has been on the boards of a number of major public companies – including Coca-Cola and Conagra – but it is a reasonable question to pose whether he would have been appointed had Warren not been his father.

Yet, there was no outcry in response to what would appear to be a clear case of nepotism. Even the proxy advisers, guardians of good corporate governance, seem to have fallen into line.

That may be because Warren’s succession plan has been a long time in the making, having been flagged at least as far back as 2000, when Warren told the Wall Street Journal that Howard would eventually succeed him as chairman, citing his business acumen and Warren’s desire to maintain Berkshire’s culture. It didn’t come as a surprise.

It might also, of course, because it is Warren’s plan and Berkshire shareholders, and the market-at-large, trust his judgement when it comes to the company that has always been built around Warren’s personal convictions and philosophies – and his success and folksy charisma – since he acquired an ailing textile company in 1965, built it into the world’s most revered investment conglomerate and became a cult figure to generations of investors and investment managers.

Howard’s main qualification as the incoming chairman, apart from being Warren’s son, is that he has been on the Berkshire board for 33 years.

“This is a longer apprenticeship than I served before taking the reins at the age of 34,” Warren, 96, wrote in a letter to shareholders last Friday.

Greg Abel, who succeeded Warren as chief executive in January last year, “runs the company,” Warren said.

“Howard will guard its culture and values – both worth more than anything on our balance sheet. Think of Howard as a policy the shareholders own and hope never to claim against.”

The demarcation of responsibilities is clear. Howard won’t be making the calls on acquisitions, investments or divestments, those will be Abel’s responsibilities.

When Warren referred to culture and values, he was talking about something more than the way authority has historically been delegated to operational managers, or his focus on the long term, shareholder-first approach to investment and the deep personal engagement he developed with his shareholder base.

He made it clear in an interview last year that his greatest fear for the future of the group he built was that the unusual mix of financial and industrial operations, its $US350 billion portfolio of listed investments and a similar level of cash holdings would lead to calls for it to be broken up.