So much for Warren Buffett’s reputation as a hands off manager.
On Monday, NetJets, the luxury air travel unit owned by Buffett’s Berkshire Hathaway, replaced its chairman and CEO Jordan Hansell after more than a year of growing turbulence at the company. Adam Johnson, a NetJets veteran, will become the company’s new CEO. And a former NetJets executive, Bill Noe, is returning to be chief operating officer and president.
The company’s problems have grown worse recently, with employees at the company complaining about poor pay and aggressive cost cutting. NetJets pilots protested at Berkshire’s recent annual meeting. So far, the company has been a rare investing miss for Buffett. According to the Wall Street Journal, NetJets has never paid Buffett’s conglomerate a dividend, and it is likely worth less than the $725 million he paid for it in 1998.
But it’s not Buffett’s investing prowess that is likely to take the biggest hit from the troubles at NetJets. Buffett is well known for his willingness to buy a company and then take a completely hands off approach to its management. Buffett cultivates that image. He, and others, say that reputation allows Berkshire to get deals on the cheap.
But Berkshire’s history with NetJets seems to run counter to that hands off image. Johnson will be the company’s fourth CEO since the firm was taken over by Berkshire in 1998. WSJ said NetJets is the rare case in which Buffett has fiddled with management. But that’s not really the case, or at least not as much as it has been in the past. Benjamin Moore, the paint company that Berkshire bought in 2000, has had three CEOs in the past three years. Top management at Heinz, too, has been completely turned over since Berkshire bought the company with Brazilian investment firm 3G two years ago. Buffett has said he’s willing to do more deals with 3G.
When Berkshire was smaller and still mostly an outside investor in big businesses, it may have been easier for it to maintain a hands off reputation. But as Berkshire has grown, and owns more and larger businesses, it’s likely to end up with subsidiaries that have problems. That leaves Buffett with a choice. Either protect his reputation as a laissez fair CEO or deal with his subsidiaries’ problems. Buffett has clearly chosen the latter. And with fewer years left in the octogenarian’s time as a CEO, that’s probably the right call.
