Buffett Misses The Mark With His Comment On Future CEO

| About: Berkshire Hathaway (BRK.B)

As many expected, the question of Buffett's successor came up during this weekend's annual meeting for shareholders of Berkshire Hathaway (NYSE:BRK.B). Buffett largely sidestepped the issue by reiterating what he said in his annual letter, that both he and the board had the utmost confidence in the current succession planning strategy.

But he did tell the Omaha crowd who would not be running Berkshire after he's gone. When asked about a potential replacement, Buffett offered this comment to the Berkshire faithful:

I don't think every deal that I made would necessarily be makeable by a successor, but they'll bring other talents. We're not going to have an arts major in charge of Berkshire.

Whoa, I wish Buffett would have read Rocco Pendola's Feb. 27th article titled "MBAs, Gimmicks, and Apple's Culture" before making that comment. I've mentioned before that there have only been a few times when I've disagreed with Buffett, but his comment that "we're not going to have an arts major in charge of Berkshire" is not only condescending, but is also wrong on three levels. It is wrong philosophically, it is wrong historically, and it is wrong when taking into consideration the operating ethos at Berkshire.

Instead of saying "we're not going to have an arts major in charge of Berkshire," Buffett should have responded, "I am going to pick the person who displays the level of integrity expected at Berkshire, displays the most skill and competence necessary for the job, and is the best person I can find at allocating capital." If Buffett could find someone who could replicate his legendary investments in See's Candies, American Express (NYSE:AXP), The Washington Post (WPO), and Coca-Cola (NYSE:KO), does it really matter whether he or she was a liberal arts major or completed an MBA program at Harvard? Buffett should be making his choice based on skill, integrity, and allocation abilities instead of making a snap judgment about someone's talents in those three areas based on a few classes they took during a small fraction of their lives. In the late 1990s, Buffett remarked that Michael Eisner of Disney (NYSE:DIS) made the short list of the best businessmen in America. Well, guess what -- he was an English major in college. If Eisner was working under the Berkshire umbrella, would he somehow be disqualified from the short list for being a liberal arts major at Denison University?

And, of course, there's the late Steve Jobs to consider when assessing Buffett's careless comment. Jobs dropped out of Reed College and continued to audit creative writing classes even after he ceased to be an enrolled student. By Buffett's yardstick, he must have been doubly bad -- not only was Jobs an arts major, but he was a dropout to boot! Yet, somehow, Apple (NASDAQ:AAPL) turned out to be twice as profitable as Buffett's Berkshire Hathaway, and Jobs was able to do it in a fraction of the time. But, hey, Buffett said "we're not going to have an arts major in charge of Berkshire." I guess someone like Steve Jobs would automatically not be considered.

Buffett usually doesn't miss the mark with his off-the-cuff comments, but in this case he displayed a profound ignorance of his own company's history. His own sidekick, Charlie Munger, attributes the multidisciplinary approach to his success, often claiming to draw on science, math, language, history and, yes, the arts to combine the best of every discipline when reaching a conclusion. Rose Blumkin, the founder of Nebraska Furniture Mart, was an immigrant from Russia who never attended a day of schooling past the elementary level, and yet she went on create the highly successful furniture store that she sold to Warren Buffett in the 1980s (which now brings in hundreds of millions of dollars in profits annually). If she were still alive, would she be disqualified from consideration because she did not attend college and get a degree?

Buffett's comment about the successor at Berkshire seems to go against the ethos and culture of Berkshire that he has spent the past several decades building. Buffett has always claimed that he judges employees by three characteristics: integrity, intelligence, and energy. Before this weekend, he never said anything about pedigree. That's what makes it so shocking that Buffett would seem to preclude top leadership positions to the likes of Eisner, Jobs, and Blumkin based on how a potential candidate chose to spend four to eight years of his or her life during early adulthood. Buffett's historic response of "no comment" to the succession question was better than this statement.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.