In family business succession planning, the biggest mistake is assuming a child is the right person for the job. Iconic examples show they aren't.
Gen. Douglas MacArthur's son, Arthur, escaped the towering shadow of his heroic dad only by changing his name and living as a recluse for most of his life. Bill Gates Jr., son of a renowned lawyer whose name graces a top global firm, eschewed the bookish discipline of law and dropped out of college to forge his own spectacular path in computer software and, lately, philanthropy. Winston Churchill's son might have been better off had he never run for public office. Greg Norman Jr.'s golf game may be better than average, but even impressive performance matters little when the frame of reference is his championship father.
The children of legends who carve out their own niche offer a broad model and lesson: Find your own strengths and play to them, rather than try to measure up to those of your parent's. The succession challenge may be greatest in the context of a family business, as several generations of DuPonts or Pritzkers might attest.
While Howard has served on Berkshire's board since 1994 and owns a billion-dollar stake in the company, his primary occupation is farmer, operating large grain farms in three Midwestern states. Rather than pick stocks or build a conglomerate, Howard has worked to spread knowledge of sustainable farming techniques throughout the developing world to reduce hunger.
True, Warren, in his recent annual shareholder letter, declared that he wants Berkshire's board to elect Howard as chairman one day. But in a pattern familiar to the sons of legend, this prompts critics to object that Howard is no Warren and to complain that he cannot possibly fill his father's shoes. Critics miss, however, that Warren and Howard have carefully avoided this typical trap, as Howard's tasks will include none of the things Warren has done and instead consists solely of tasks Warren has never performed.
Warren's primary responsibilities at Berkshire have been making investments, allocating capital and sculpting a distinctive corporate culture. After his tenure, investments are to be handled by a small group of portfolio managers the company began to put in place five years ago. Capital allocation will be led by a successor chief executive chosen from among managers now running Berkshire subsidiaries.
The job of sculpting the corporate culture having been completed, the remaining task is to preserve it. That is the task that Howard will be assigned, and one for which he is uniquely suited: He knows Warren better than any other prospective board chairman and is dedicated to preserving his father's legacy. As Warren explains in his letter, Howard's principal job will thus be to oversee the successor managers to assure that they adhere to Berkshire culture and to lead their removal and replacement if necessary.
Buffett on Buffett Jr.
Here are Warren Buffett's exact words from the 2014 Berkshire Hathaway annual letter on why he wants his son Howard to be a non-executive chairman at Berkshire:
"To further ensure continuation of our culture, I have suggested that my son, Howard, succeed me as a non-executive chairman. My only reason for this wish is to make change easier if the wrong CEO should ever be employed and there occurs a need for the chairman to move forcefully. I can assure you that this problem has a very low probability of arising at Berkshire-likely as low as at any public company. In my service on the boards of 19 public companies, however, I've seen how hard it is to replace a mediocre CEO if that person is also chairman. (The deed usually gets done, but almost always very late.)
If elected, Howard will receive no pay and will spend no time at the job other than that required of all directors. He will simply be a safety valve to whom any director can go if he or she has concerns about the CEO and wishes to learn if other directors are expressing doubts as well. Should multiple directors be apprehensive, Howard's chairmanship will allow the matter to be promptly and properly addressed."
One manager taking over for another is expected to cover the same territory-leadership, strategy, manufacturing merchandising, acquisitions. But each can be done in varying ways. And in the case of a family business, you are more likely to succeed by deploying your unique talents than trying to emulate those of your parents, especially as a company and its business environment changes from generation to generation.
Succession plans are vital for any institution but especially those led by iconic figures. But a succession plan is less likely to succeed if a company's prosperity is due primarily to a leader's personality traits. And many people attribute Berkshire's success primarily to Warren's peculiar tastes, including Berkshire Hathaway Vice Chairman Charlie Munger in his postscript to Buffett's recent letter.
However, Berkshire culture runs far deeper and broader than a single personality, defined by a core set of common values that stretch across the company's 350,000 employees. Far from a one-man show run from a central corporate office staff of 25, Warren's greatest achievement has been building an institution larger than himself. Berkshire's scores of companies tend to share management principles such as thrift, integrity, trust and a sense of permanence. Maintaining this culture will be Howard's job, one far easier than carrying out the jobs his dad did, which is better left to a group of experienced professionals.
Many children have learned to avoid the trap of following in parental footsteps, and it's something the rest of us can heed as well, whether children of legend or not. Compare the twin children of legendary British Prime Minister Margaret Thatcher, Carol and Mark. While Mark tried but failed to mirror his mother in national politics, Carol never ran for public office. She first moved to Australia to make a name for herself in journalism, before returning to Britain to cement her leadership role in that profession. Chelsea Clinton may yet enter her family business of politics but has thus far moved through other fields-business consulting, hedge funds, journalism and, most recently, nonprofit work.
Some may still judge the children of legend by the outsized standards of their parents. But tempting as it can be to struggle to measure up-or to become a recluse-it is best to forge ahead on your own path and to walk in shoes made just for you.
-By Lawrence A. Cunningham, author of "Berkshire Beyond Buffett: The Enduring Value of Values" and Henry St. George Tucker professor at George Washington University