Greg Abel’s challenge: Lead Berkshire into a new era without the Buffett touch

He has tasked CEO-in-waiting Greg Abel with running most of the companies the sprawling conglomerate owns. He named Abel a vice chairman, worked with him on recent investments in Japan, and shared the stage with him at Berkshire’s famous annual meetings.

There is one thing he can’t simply hand off to the next guy: the Buffett brand and the glow it imbues on anything his company touches.

Buffett said Saturday at Berkshire’s annual meeting that he plans to step down as CEO at the end of the year and hand the reins to Abel. In his 60 years of delivering stunning investment returns and folksy wisdom, the 94-year-old has been the glue that binds together Berkshire’s collection of businesses—from Dairy Queen and Duracell to railways and insurers—at a time when big conglomerates are out of style.

Abel will inherit the challenge of overseeing that wide-ranging empire, while living up to Buffett’s seemingly impossible-to-replicate record in stock picking—something even Buffett has struggled to do in recent years.

“He would make a huge mistake trying to be Warren Buffett, and he knows that," said Will Danoff, the Fidelity money manager who counts Berkshire as a top holding. “Shareholders want Greg to be the best Greg Abel he can be."

Buffett isn’t just an investor. His unique stature allows him to confer legitimacy on damaged businesses in times of crisis—as he famously did when Wall Street veered toward potential collapse—and to extract a good deal for his shareholders in the process.

And his reputation as a brilliant investor means that many shareholders are content letting Berkshire amass a huge pile of cash, because they expect that Buffett will eventually be able to deploy it well. No one can completely fill those shoes.

“Warren’s so unique," Bill Gates, the Microsoft co-founder, said of his close friend. “I hope we have leaders like Warren in the future."

Buffett’s planned departure, combined with the death in 2023 of his close friend and investing partner Charlie Munger, sets Berkshire on a new path. The company’s fundamentals remain strong. But Berkshire’s investment decisions might no longer carry the same weight.

Abel, who is 62, will join other successors with tough acts to follow. Tim Cook filled Apple’s top job after Steve Jobs died and has made a lasting imprint. He drew on his supply-chain expertise to expand manufacturing in China and built up a services business. At Disney, Bob Chapek took over as CEO for Bob Iger only to have his uneven tenure cut short by a boardroom coup that resulted in Iger’s return.

‘A quick study’

“Greg will have to be Greg," said Mark Oman, a retired Wells Fargo executive and a close friend of Abel’s in his adopted Iowa hometown.

Berkshire’s succession plans, long one of Wall Street’s favorite guessing games, were finally revealed in 2021 when Buffett said Abel would eventually become the next CEO. Buffett had previously said that his son, Howard Buffett, would someday replace him as chairman, though without an executive role. Until this weekend, many shareholders assumed those handoffs wouldn’t take place before Buffett’s death.

A former accountant from the Canadian Prairies who joined Berkshire through its acquisition of a utility in Des Moines, Iowa, Abel helped build Berkshire Hathaway Energy into one of the company’s biggest businesses through a series of acquisitions and investments.

By 2018, Buffett had seen enough to put Abel in charge of all of Berkshire’s businesses outside of its insurance operations and add him to the board. Abel now oversees dozens of companies, including Benjamin Moore, Fruit of the Loom, Oriental Trading and See’s Candies. Buffett still runs the bulk of the company’s investment portfolio and makes decisions on how to deploy capital.

Abel set off on a listening tour, visiting Berkshire’s many companies to meet their executives and learn about their operations and challenges.

“He’s just such a quick study," said Troy Bader, chief executive of International Dairy Queen. “When we have something that we need to connect on that’s important, he always finds a way to make himself available."

Buffett was famously hands-off as a manager, and Abel said at Saturday’s meeting that he will continue to let each company run autonomously. But, he added, he is eager to suggest potential growth opportunities or help the subsidiaries identify risks. It is a sign Abel might differ in style as a CEO.

“He knows the businesses now perhaps better than Warren," said Ron Olson, a longtime Berkshire director who retired from the board Saturday.

Surprise

A few hours after Saturday’s meeting, Abel still seemed taken aback. “That’s the first time I heard that," he said of Buffett’s onstage announcement.

On Sunday, the Berkshire board met in Omaha to discuss in detail Buffett’s recommendations.

Buffett’s decades of success as a stock picker, along with widely read annual letters explaining his investment philosophy, have earned him the trust of shareholders large and small. Many Berkshire investors are willing to excuse periods of underperformance, especially during rising markets when bargain hunters such as Buffett can struggle to find attractively priced stocks.

Warren Buffett with Charlie Munger in 2019.

Berkshire has amassed hundreds of billions of dollars in cash in recent years, partly because large acquisitions or investments have been few and far between. Buffett’s biggest success in the past decade was building a large stake in Apple, though he has since pared it significantly. Berkshire also spent billions buying back its own stock.

Buffett said Saturday that Berkshire’s cash would come in handy during the next major market downturn, whenever it happens. “We will be bombarded with offerings that we’ll be glad we have the cash for," he said.

However, Abel might feel more pressure than Buffett to spend Berkshire’s cash, especially while Buffett is still alive, said David Harden, chief executive and chief investment officer of Summit Global Investments.

Two lieutenants, Todd Combs and Ted Weschler, each manage a portion of Berkshire’s stock portfolio, and some Berkshire watchers expect them to take on a bigger investing role when Abel becomes CEO.

“I don’t see anything in [Abel’s] background that would make him a good stock picker. That’s not where he got his chops," said Robert Miles, who teaches a class on Buffett at the University of Nebraska Omaha. “My guess is Greg will be in charge of major acquisitions and capital allocation, but the investment managers already in place will continue" to oversee the equity portfolio.

Bill Miller, the veteran stock picker, advised Abel to follow the advice Buffett has long dispensed to individual investors: “Put most of the excess cash in an S&P 500 index fund," he wrote. “Then let Todd and Ted actively manage the residual."

Mount Rushmore

Even if Abel fails to match Buffett’s record as an investor, the transition might not be as disruptive as some fear.

Berkshire’s stock portfolio, which made up about half of the company’s total assets between 1970 and 2000, comprises just over 20% today, according to Cheviot Value Management, a Los Angeles-area investment firm and longtime Berkshire shareholder.

Buffett became a legend in part because he was willing to write enormous checks and invest in companies at short notice during crises.

“Buffett’s ability to strike when there’s chaos or panic is legendary, but it’s not really valuable or pertinent anymore," said Darren Pollock, who runs Cheviot. “He’s on the Mount Rushmore of investing for many reasons, including those kinds of investments, but they haven’t happened in many years."

What’s more, many of the family-run businesses that once made prime takeover targets for Buffett are too small to move the needle for the modern Berkshire. Deep-pocketed private-equity firms prowl for these same deals and are often willing to outbid Berkshire.

Berkshire’s shift to a company that demands more executive leadership than investing skill may have played a part in Buffett’s thinking.

“Warren just feels he’s ready to go," Olson said of Abel. “He’s been working at this for five, six years, and ‘time to move him up’ is what I’m guessing Warren thought was the right call."

And on Saturday, he made it.

Five minutes

Just before 1 p.m. in Omaha, a sign flickered before Buffett as he addressed the final query of the Berkshire gathering’s question-and-answer session: Five-minute warning.

It was his cue to share the news that surprised nearly everyone in the CHI Health Center arena, including Abel sitting nearby. “The time has arrived where Greg should become the chief executive officer of the company at year-end," he said.

Before this revelation, Buffett said he would allow time for CNBC’s Becky Quick to ask a few follow-up questions.

But thunderous applause soaked up every last moment of the appointed time. “It made me choke up," Gates said of the crowd’s response. When the audience finally returned to their seats, all Buffett could do was thank them before disappearing backstage.

Write to Karen Langley at karen.langley@wsj.com, Nicole Friedman at nicole.friedman@wsj.com and Gregory Zuckerman at Gregory.Zuckerman@wsj.com