Berkshire Hathaway's 2023 Q&A Session
Buffett and Munger answer nearly fifty questions in a five hour marathon session prior to Berkshire Hathaway's 2023 annual meeting.
Warren Buffett and Charlie Munger were in top form this weekend as they answered forty-eight questions from shareholders in a marathon five hour session. Although this number fell short of Mr. Buffett’s goal of sixty questions, shareholders had more than twice the opportunity to be heard compared to last year’s languid pace. During Berkshire’s formal business meeting following the Q&A session, shareholders re-elected the Board of Directors and defeated six shareholder proposals.
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Prior to taking questions, Mr. Buffett made some remarks on first quarter results. He projected that the majority of Berkshire’s businesses will report lower earnings in 2023 compared to last year and that the fast pace of stimulus driven spending in recent years has come to an end. Berkshire subsidiaries that did not experience much resistance to raising prices over the past two years have started to have sales.
On the bright side, Berkshire’s large holdings of short-term treasury bills will benefit from higher interest rates this year which should ameliorate the decline in earnings from operating subsidiaries. Barring major catastrophes, Berkshire’s insurance underwriting results should improve this year. Overall, Mr. Buffett expects, but cannot guarantee, that operating earnings will increase in 2023.
Prior to the Q&A session, I briefly reviewed Berkshire’s first quarter results on Twitter. I will write a more detailed article about the quarter now that I have had time to analyze the results, so I will not comment further on quarterly results in this article.
Shareholders asked many good questions that pertained to Berkshire directly as well as on macroeconomic and geopolitical topics that impact the overall business climate. I commented on the questions and answers in a Twitter thread during the meeting.
CNBC will soon provide a transcript of the meeting in addition to videos of the morning and afternoon sessions. Several video clips on various topics are already available. There is limited value in creating a transcription of these videos so instead I am providing my views as a longtime shareholder on a few selected topics that I believe are most important for Berkshire’s future prospects.
This article covers the following topics:
I attended my first Berkshire Hathaway annual meeting in 2000. Succession planning was already on the minds of shareholders at that time as a sixty-nine year old Warren Buffett and a seventy-six year old Charlie Munger took the stage. If you had told me then that we would be sitting here nearly a quarter century later with the same two elderly men running Berkshire, I would have found the idea ridiculous. It’s amazing to note that over 48% of Mr. Buffett’s tenure at Berkshire has been as a senior citizen!
It was arguably reasonable for Berkshire to have a vague succession policy in 2000 or even a decade later but it would not be reasonable today with Mr. Buffett approaching his ninety-third birthday in August and Mr. Munger on the verge of centenarian status. Five years ago, Mr. Buffett elevated Greg Abel and Ajit Jain to Vice Chairmen and two years ago Mr. Abel was named as Mr. Buffett’s successor as CEO.
Starting in 2021, Ajit Jain and Greg Abel have been available to answer questions from shareholders at the annual meeting. The presence of these men on stage with Warren Buffett and Charlie Munger has served to provide reassurance regarding continuity of management. This year, Mr. Abel provided general commentary on matters related to Berkshire Hathaway Energy and BNSF and Mr. Jain made several newsworthy comments related to GEICO which I will discuss later in this article.
Late in the morning session, Mr. Buffett said that Mr. Abel knows capital allocation as well as he does and will do very well in this area. As CEO of Berkshire Hathaway, Mr. Abel will be responsible for making decisions on repurchases and he indicated that he will follow the same framework established by Mr. Buffett.
Prior to his appointment as Vice Chairman responsible for oversight of Berkshire’s non-insurance businesses, Mr. Abel was responsible for Berkshire Hathaway Energy, a subsidiary that has reinvested tens of billions of dollars in recent decades. Although Mr. Abel has not been involved in repurchase decisions, he has worked closely with Mr. Buffett on reinvestments in Berkshire subsidiaries and in acquisitions.
Mr. Buffett later noted that shareholders should be comfortable with Mr. Abel knowing that 99% of Mr. Buffett’s net worth is in Berkshire and billions of dollars of future philanthropy will depend on Mr. Abel doing well. I was surprised to hear that Mr. Buffett has no second choice after Mr. Abel since I assumed that Mr. Jain would step in as CEO if necessary. I did not find that statement particularly reassuring. It would be a good idea to have a backup plan given that Mr. Abel is sixty years old.
What I do find reassuring is the fact that Berkshire’s directors have a great deal of skin in the game and that Mr. Abel made a significant investment in Berkshire Hathaway in September 2022 and added to his position in March 2023. With 228 Class A shares currently worth $113 million, Mr. Abel has built up a substantial holding. In June 2022, Berkshire Hathaway Energy purchased Mr. Abel’s 1% stake in the business for $870 million. I would not be surprised to see him make additional purchases of Berkshire Hathaway shares in the future.
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Future Voting Control of Berkshire
Warren Buffett controls over thirty percent of Berkshire’s voting power and the force of his personality and well-earned loyalty of shareholders has given him effective control of the company for decades. This has allowed Mr. Buffett to “paint his canvas” as he sees fit. However, voting control in the future is certain to change because all of Mr. Buffett’s Class A shares will eventually be converted to Class B shares with diminished voting power prior to being donated to charitable foundations.
One of the questions I submitted this year was about how voting control at Berkshire would change by 2050. My question was not selected but voting control was brought up during the meeting. One shareholder asked whether a corporate raider might be able to buy enough shares to control the company in the ten to fifteen years. Another question was about whether large financial institutions will eventually gain control.
Mr. Buffett said that he thinks about the issue but he did not appear to be very worried. He noted that Berkshire’s size limits the number of potential corporate raiders that could take control of Berkshire. In addition, he thinks that the shareholder base is unique and will reject changes to the culture. Index funds and other institutions are likely to back off when it comes to voting control if Berkshire is considered a national asset rather than a liability.
I remain very concerned about the power of institutions to impact Berkshire’s policies in the future and Mr. Buffett’s comments did not do much to alleviate my concerns.