Yoshikami: Why Warren is Challenged Finding the Next Buffett

The sudden resignation of David Sokol, widely considered by many to be the heir apparent to the 80-year old Warren Buffet, is clouded in controversy and perceived conflicts of interest. It has left investors shocked and confused. It has also highlighted the huge challenge facing Berkshire Hathaway – how to find the next Buffet. This task is clearly no easy pursuit.

If you listen carefully to the compelling interview Becky Quick and Joe Kernan conducted with Sokol on Thursday, it would appear that Sokol resigned simply because he didn’t want the job. In the interview, Sokol said that he is a "builder of companies" and that is what he enjoys doing.

According to Sokol, the role of CEO of Berkshire simply did not fit the vision of what he wants his future to be. It's the same story with Li Liu who also withdrew from CEO consideration. Both Sokol and Liu passed on being the next Buffett.

This episode has once again raised questions regarding Buffet’s succession strategy. Frankly, we all know Buffett is a tough act to follow. It will clearly be a monumental task to take over from this investment legend. What is evident is that the future leader of Berkshire Hathaway must be a brilliant analyst but, at the same time, a broad theme visionary. And it would seem that the desire to be a CEO ("a builder of companies") should be secondary to the desire to be a great investor.

Warren Buffett
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Warren Buffett

The management method that Buffett has used in the past has been to allow gifted CEOs to handle the day-to-day activities of running and operating businesses.

Many believed that any of the stable of talented CEOs would jump at the chance to take the helm of Berkshire.

But this is a much different role than running Berkshire Hathaway and CEOs may not necessarily enjoy a primary role focused on portfolio management. Apparently that was the case with Sokol and Liu.

So what traits will the next leader of Berkshire Hathaway require?

The next leader of Berkshire Hathaway will likely be someone who will continue Buffet’s philosophy of owning cash flow rich companies that provide capital for more risk oriented investments with high potential (see Chinese electric carmaker BYD). The new CEO of Berkshire Hathaway will likely be a brilliant strategist and a shrewd manager. And look for a opportunistic investor who seizes the advantage at moments of great distress; a buyer when others are sellers.

Buffett knows what he is looking for because he knows that's what it takes to run a company with such diverse assets. And his last great investment pick will be choosing the next leader of Berkshire Hathaway.

The formula is simple. The ability to weave different companies into an overall strategy. Stellar integrity. A simple, penetrating grasp of the key elements of a business and profitability. A tactical perspective. The willingness to admit mistakes with candor and humility. And the courage to have conviction in the face of criticism.

Easy right? Well, maybe not. After all finding a replacement for the greatest investor of our time was never expected to be easy. And that's turning out to be the case.

Michael A. Yoshikami, Ph.D., CFP®, is CEO, Founder, and Chairman of YCMNET’s Investment Committee at YCMNET Advisors, Inc., a registered investment advisory firm. He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 and 2010 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com