Rich Santulli Steps Down From Netjets

[Parsad]

Rich Santulli has decided to step down from Netjets to spend more time with family and pursue other interests.  He will stay on as a consultant for a year.  Interestingly enough, David Sokol will take over...I suspect Sokol is the front-runner to run the operating businesses, other than insurance, when Buffett passes.  Cheers!

 

http://www.reuters.com/article/marketsNews/idINN0417370320090804?rpc=44

[Partner24]

If I remember correctly from "The Warren Buffett CEO" book, Rich told openly that we would like to take the CEO job when Warren would leave. Again, if I remember correctly, he said something like "I would then call all the subsidiaries CEO, ask them what they were doing before I was at the helm...and them tell them to just keep doing it".

 

Just my 2 cents, since it only comes from my memory and I haven't red the book since 4 years. Please correct this information if I'm wrong.

 

Cheers!

 

 

[Parsad]

I'm sure there are plenty of great candidates at Berkshire, but I REALLY like both David Sokol and Ajit Jain.  I think if you could get those two to run it going forward, it is very likely that they would get along great and would do an exceptional job on the operating and insurance sides.  You have Bill Gates overseeing the Buffett shares through the Gates Foundation and Howard Buffett overseeing the culture as figurehead Chairman.  I think that group could do a very damn fine job maintaining the reputation, results and culture.  Cheers!

[Partner24]

In my mind, you're right Sanjeev. From what I read, David Sokol seems to take more attention and place at Berkshire. I know, from what Warren said about him and the track record he shown, that Ajit Jain is a terrific underwriter, but I don't know much about him aside these comments.

 

And for Warren son to take the Chairman role when he's gone, it's a terrific idea, especially if he's able to keep the culture intact after Warren is gone. Bill Gates is a visionary and a great capitalist. We're certainly in good hands also with him as a director and a significant stakeholder with his fundation.

 

From what I red in the Warren CEO book, I felt at the time that even if the CEO role might be split, it might be David Sokol, Lou Simpson, Rich Stantulli and/or Ajit Jain. But, you know, Warren is far from having lost his marbles and new candidates might be added over time, so time will tell who will ultimately be the one(s).

 

Cheers!

 

 

[EdWatchesBoxing]

I also think that Berkshire has the proper people in place to keep the machine running well, way after Buffett and Munger (even Lou Simpson) are gone. I won't repeat the stuff that's already been mentioned.

[lethean46]

<<< David Sokol, the chairman of Berkshire's MidAmerican Energy Holdings unit and also considered a top candidate to run Berkshire, as NetJets' chairman and interim chief executive.>>>

 

Two things sort of bother me:

 

1.  Why did Sokol resign effective "immediately"?   In effect, with no notice.  Isn't that unusual?  This seems like a poor time for him to do that .... notwithstanding that he is willing to act as consultant for 1 year.  

 

2.   I thought that Buffett required his CEOs to update him in writing every two years re who that CEO recommends as his replacement ... from within his own company/subsidiary.    So, why isn't there a candidate under Santulli who is already qualified to take the CEO position?   Buffett has stated so often ... that "we" (BRK) can't supply management.  

 

I think both pieces of the announcement are a bit odd.   1)  the Santulli resignation effective "immediately"  2) and Sokol named as "interim".

 

Thoughts? ....

 

Lethean

 

 

[lethean46]

1.  Why did Sokol resign effective "immediately"?    that should read Santulli.

 

Lethean

[Parsad]

In regards to the questions:

 

1)  We don't know the true reasons.  It only says he wants to spend time with family and pursue other interests.  It could very well be that it is a health issue for Santulli or a family member.  I would think that running Netjets requires him to be away from his family for extended periods, including overseas in Europe and the Middle East.  Perhaps, there are underlying reasons he needs to be with them and also why the resignation is immediate.

 

2)  There very well could be a replacement, but perhaps because of the speed of his resignation, Santulli and Buffett feel more comfortable with Sokol overseeing the transition.  Or it could be that Sokol is an excellent in-house manager who always was going to take over Netjets, since it is a global, capital-intensive business that is customer-oriented...not unlike Mid-American.

 

Frankly, I'm not sure you could find a better manager than Sokol.  Everything I've heard and read about him, both publically and privately, is that this guy is the real deal...not unlike what I hear about Mark Ram at Northbridge.  Cheers!

[lethean46]

Parsad

 

Thanks for your reply. 

 

This surprise resignation and interim appointment at Net Jets has sort of thrown me for a loop. 

 

I had already considered that when Warren is "gone" - that the CEO resignation/and retirement pace might accelerate at the BRK subsidiaries thereafter.  But I also thought that those subsidiary CEO succession issues had already been addressed by the current CEOs ... in written form to Buffett every two years.  Good enough for me. 

 

But something is amiss in this story re Net Jets and Santulli.  It makes no sense on a number of levels. 

 

<<<It could very well be that it is a health issue for Santulli or a family member.>>>

 

I have come around to thinking that that may be the case, too.

 

I totally agree with your comments re Sokol.  The BEST.  But, he's already got a VERY BIG job at MAE. 

 

There's more to this story than we are privy to ... as usual.  :-)

 

Interestingly, as an investor in BRK, I'm not so concerned about Buffett's demise in and of itself.    It's a given.    However, I am concerned and have considered the subsidiary CEO succession issue *after* Buffett's demise.  It's very  important.  And I thought that that issue had already been taken care of via the requirement by Buffett that the current CEOs provide written recommendation to him re their own replacement.   

 

Santulli and/or Buffett seem to have gone off script on this one.  A BIG one at that.  I hope it's not a precursor of things to come - particularly after Buffett's demise - re other subsidiaries. 

 

It's difficult for me to articulate thoughts in writing in a cogent concise manner.  I DO appreciate and understand your comments though.  So, there is no particular need for you to specifically reply to this.  OK?

 

I'll be reading along, as usual.  It's a very interesting story ... on a number of levels. 

 

Regards .... Lethean 

 

 

 

 

 

 

   

[snailslug]

In Sokol's defense, he's no longer "running" MAE.  He's given several interviews where he's said something to the effect of "Greg Abel is the CEO", and "my job is to go and find opportunities" (meaning deals, I think).

[T-bone1]

lethean brings up an interesting point. Did anyone read the recent Michael Lewis article on AIG?

 

I am certainly not comparing BRK to AIG, but it is interesting that AIG was also a succesful group of businesses with a strong manager and strong cult of personallity at the top in Greenberg. Once he was gone, the subsidiary managers one by one seem to have gone off the reservation.

 

I think Warren has prepared BRK as best as possible the eventual transition, but it is tough to imagine that any replacement could command the respect and deference that Warren does

[scorpioncapital]

Don't forget, after Buffet is gone, Gates is at the helm, that's a pretty good leader. Also there are many great leaders in the world, these aren't the only people that can do a great job. About Greenberg, didn't the AIG/Gen Re fiasco occur under his watch?

[wabuffo]

Go back further -- Teledyne's Henry Singleton had one of the very best capital allocation/operating records in American business history in the 1960s, 1970s and 1980s with the stock price appreciation to go with it.  Like Berkshire, Singleton's Teledyne was a comglomerate of hundreds of operating businesses.  Teledyne also had several big insurance operations at its hub providing float for Singleton's passive investments in other stocks.

 

And it also could not survive when Singleton stepped down and ultimately broke apart.  Harold Geneen and ITT may be a similar example though I'm not as familiar with that one.

 

This is not a prediction about Berkshire, post-Buffett, but the history here of success beyond an iconic leader for comglomerates is not great.

 

wabuffo

[T-bone1]

Scorpion, I don't mean to say that Greenberg was on par with Buffett, only that decentralized businesses seem to have a tendency to fall apart when the strongman at the top is gone. Obviously Buffett is a very unique type of "strongman" in that people seem to work extra hard to not dissapoint him out of respect rather than fear. Gates might be on the board, but he isn't going to be breathing down the neck of subsidiary managers. Maybe Sokol can do this . . . I'm not saying there will be a problem, only that transitions of this type have historically been problematic. Obviously Greenberg's ouster and replacement was not planned or smooth . .  I am not suggesting a repeat at BRK.

 

Wabuffo, I am too young to remember Teledyne, but someone else recently suggested that I read about it. Can you suggest a decent book or source of information. It sounds like an interesting saga.

 

Thanks, T-bone1

[el_chieh]

 

Here's very nice link w/ Teledyne articles:

 

http://valueinvestingresource.blogspot.com/2008/04/reflecting-on-leon-coopermans-case.html

 

In addition, I enjoyed, "Distant Force: A Memoir of the Teledyne Corporation and the Man Who Created It" which can be found on Amazon relatively cheaply.

[T-bone1]

Thanks el Chieh!

[wabuffo]

Wabuffo, I am too young to remember Teledyne, but someone else recently suggested that I read about it. Can you suggest a decent book or source of information. It sounds like an interesting saga.

 

I think this book provides a good history of Singleton/Teledyne:

http://www.amazon.com/Distant-Force-Teledyne-Corporation-Created/dp/097913630X/ref=sr_1_1?ie=UTF8&s=books&qid=1240868683&sr=8-1

 

IMHO, one of the greatest titans of American business (yet least well-known) was Henry Singleton of Teledyne.  He was an engineer by training and had several patents so he was self-taught when it came to business and capital allocation.  Growing up he won the 1939 Putnam Intercollegiate Mathematics Competition Award (folks who win this thing are off the charts in terms of IQ and smarts).

 

What made his operating style exceptional was that he ran hundreds of companies under the Teledyne conglomerate structure -- many of which were industrial companies -- yet Teledyne was extremely stingy with capital spending.  His approach was to tax subsidiaries for their capital at high rates.  Yet Singleton's industrial group often earned 60-90% returns on net assets employed.   I truly believe this operating model can be very successful and yet is almost completely ignored in the corporate world.  From what I've seen the impulse/desire to grow is too strong to be overcome by business managers (no matter how poor the returns delivered on incremental capital spending turn out to be).

 

Buffett admired him a lot and declared that Singleton had the best operating record in American business at the time.  Its unfortunate that Henry Singleton is so misunderstood, is not followed widely and the only reference in modern business literature is in the "Good to Great" book as an example of "bad business leadership" due to the issues Teledyne had after Singleton stepped down.   Not only was Singleton an excellent operational executive, he was a self-taught capital allocator (Buffett's methods weren't widely known and he hadn't started to write his letters to shareholders).  He wisely used his high-flying stock in the go-go sixties as currency to make hundreds of acquisitions before turning around in the 1970s and buying insurance companies for their investable float (sound familiar?).  When conglomerates like his sold at a huge discount to tangible equity value, he dumped bonds from his insurance companies and tendered multiple times to buyback his stock.  I can't remember the exact percentage but I think he bought back something like 80% of Teledyne's common stock outstanding from 1974 through the mid-1980s via serial share repurchases/tenders often borrowing money when the tenders to sell to him were oversubscribed heavily.

 

I wish business schools would study Henry Singleton a lot more and Jack Welch a lot less....

 

wabuffo

[T-bone1]

Thanks Wabuffo! I already ordered the book and look forward to reading the article. Its nice to get some color on the story, as the only impression I have is also negative. Strange that someone of his (one-time) stature barely has a wikipedia article.

[rmitz]

I've attached a pdf of a contemporary profile article of Singleton from Forbes in 1979 when he was in his prime (back when Forbes was actually a great business magazine).  Sorry for the quality but its a scan of a hard-copy photocopy that I have in my files -- I think its still pretty readable though.  Its probably the most thorough profile that I ever came across and the author had access to Singleton's ideas about business strategy and capital allocation.

 

wabuffo

 

Seems to me that the biggest difference between Singleton and Buffett is pointed out right in that article..

 

This is not the kind of conglomerate where headquarters staff only loosely supervises a number of good-size, semi-independent operations.

 

I don't dismiss the other concerns, but I don't really see it as a similar "post leader" situation at all.

 

Roman.

[claphands22]

Wabuffo, I am too young to remember Teledyne, but someone else recently suggested that I read about it. Can you suggest a decent book or source of information. It sounds like an interesting saga.

 

I think this book provides a good history of Singleton/Teledyne:

http://www.amazon.com/Distant-Force-Teledyne-Corporation-Created/dp/097913630X/ref=sr_1_1?ie=UTF8&s=books&qid=1240868683&sr=8-1

 

IMHO, one of the greatest titans of American business (yet least well-known) was Henry Singleton of Teledyne.  He was an engineer by training and had several patents so he was self-taught when it came to business and capital allocation.  Growing up he won the 1939 Putnam Intercollegiate Mathematics Competition Award (folks who win this thing are off the charts in terms of IQ and smarts).

 

What made his operating style exceptional was that he ran hundreds of companies under the Teledyne conglomerate structure -- many of which were industrial companies -- yet Teledyne was extremely stingy with capital spending.  His approach was to tax subsidiaries for their capital at high rates.  Yet Singleton's industrial group often earned 60-90% returns on net assets employed.   I truly believe this operating model can be very successful and yet is almost completely ignored in the corporate world.  From what I've seen the impulse/desire to grow is too strong to be overcome by business managers (no matter how poor the returns delivered on incremental capital spending turn out to be).

 

Buffett admired him a lot and declared that Singleton had the best operating record in American business at the time.  Its unfortunate that Henry Singleton is so misunderstood, is not followed widely and the only reference in modern business literature is in the "Good to Great" book as an example of "bad business leadership" due to the issues Teledyne had after Singleton stepped down.   Not only was Singleton an excellent operational executive, he was a self-taught capital allocator (Buffett's methods weren't widely known and he hadn't started to write his letters to shareholders).  He wisely used his high-flying stock in the go-go sixties as currency to make hundreds of acquisitions before turning around in the 1970s and buying insurance companies for their investable float (sound familiar?).  When conglomerates like his sold at a huge discount to tangible equity value, he dumped bonds from his insurance companies and tendered multiple times to buyback his stock.  I can't remember the exact percentage but I think he bought back something like 80% of Teledyne's common stock outstanding from 1974 through the mid-1980s via serial share repurchases/tenders often borrowing money when the tenders to sell to him were oversubscribed heavily.

 

I wish business schools would study Henry Singleton a lot more and Jack Welch a lot less....

 

I've attached a pdf of a contemporary profile article of Singleton from Forbes in 1979 when he was in his prime (back when Forbes was actually a great business magazine).  Sorry for the quality but its a scan of a hard-copy photocopy that I have in my files -- I think its still pretty readable though.  Its probably the most thorough profile that I ever came across and the author had access to Singleton's ideas about business strategy and capital allocation.

 

wabuffo

 

Wabuffu,

 

Thanks for the PDF - that was a terrific article. Forbes doesn't make them like they used to.

 

Here is my favorite quote from Henry Singleton

"I believe in maximum flexibility, so I reserve the right to change my position on any subject when the external environment relating to any topic changes, too."

 

I love this type of thinking.

 

Great find Wabufu!