ONE treat of the business year is to read the annual letter to shareholders from Berkshire Hathaway's celebrated boss, Warren Buffett. The Sage of Omaha's latest epistle is just out, and it is full of good things.

There is the well-deserved dose of self-congratulation―Berkshire Hathaway's $16.9 billion gain in net worth in the past year is “more than has ever been booked by any American business”―shared generously with the “great managers” who run the companies, and seasoned with a self-deprecating joke or two (“our wonderful group office has made me the Pampered Chief”).

There is a survey of the general business scene, and the usual sharp talking points.

Mr Buffett does not expect that coming disclosure rules will put a stop to “astronomical” executive compensation, often unrelated to performance. That will “only occur if the largest institutional shareholders―it would only take a few―demand a fresh look at the whole system”.

Another favourite target is the fees charged by fund managers: “In 2006, promises and fees hit new highs”.

Noting that his firm's gains were due in large part to the kindness of Mother Nature (Berkshire is big in insurance), Mr Buffett wonders if the “terrible hurricane seasons of 2004-05 were aberrations...Or were they our planet's first warning that the climate of the 21st century will differ materially from what we have seen in the past?” His sobering conclusion: “It is naïve to think of Katrina as anything close to a worst-case event”.

AFP

The king of Berkshire

This year's letter also has an unusually elegiac quality. Mr Buffett mourns not only the passing of traditional climate patterns, but also the glory days of the newspaper industry, another big industry for Berkshire, where he thinks that “eroding fundamentals will overwhelm managerial brilliance”. Even if “non-economic buyers” emerge for newspapers, he says, “the ‘psychic' value of possessing one will wane”.

A couple of his comments touch on ISCAR and TTI, firms that sold themselves to Berkshire Hathaway last year partly to resolve succession challenges. Paul Andrews of TTI wanted to sell after he “happened to witness how disruptive the death of a founder” could be to a firm, says Mr Buffett, adding: “What starts out as disruptive, furthermore, often evolves into destructive”.

That added an extra edge to the subject on which Mr Buffett is most elegiac of all―the impending end of his own time at the helm. At 76 he claims to “feel terrific” and to be “in excellent health. It's amazing what Cherry Coke and hamburgers will do for a fellow.” On the other hand, he is clearly worried about finding a successor.

As Mr Buffett said in last year's letter, his own firm has identified three “outstanding” internal candidates to replace him as chief executive. The board knows “exactly who should take over if I should die tonight”, he says.

But Mr Buffett's genius is not primarily that of a chief executive. It is that of an investor, perhaps the greatest investor of his generation. And who could possibly be assured of succeeding him in that role? His long-term business partner, Charlie Munger, is too old, as is the best internal candidate, Lou Simpson, who is 70.

So Mr Buffett is left looking for a younger version of himself, someone who will be committed to Berkshire Hathaway, and “genetically programmed to recognise and avoid serious risks, including those never previously encountered.” Finding such a person will be hard, if not impossible.

At least Mr Buffett is avoiding the trap that has caught many a corporate King Lear. He is not pinning his business hopes on his children. Indeed, he is not even trusting them with most of his fortune, as he showed last year by giving some $30 billion to the Bill and Melinda Gates Foundation, a charity, and warning of the dangers of the “lucky sperm club”.

Compare that with the more conventional line taken by Rupert Murdoch, another corporate Lear probably approaching the end of his reign. At various times various Murdoch children have reputedly been in line to succeed, only to leave the family firm. Only James Murdoch is working currently for his father.

Now Mr Murdoch's latest wife, Wendy Deng, is viewed by some as a potential successor―a prospect said to dismay the Murdoch children, who, unlike the Buffett offspring, also expect to inherit much of their father's fortune.

For an ageing boss spared the Grim Reaper's hand, the question of when to step down voluntarily may be the most painful decision of a lifetime. But ducking it is to risk, in Mr Buffett's words, “decay...accompanied by my delusionally thinking that I am reaching new heights of managerial brilliance”.

No one thinks Mr Buffett is near that position yet. The same goes, if a touch less confidently, for Mr Murdoch. But decay, when it comes, can move fast. It would be a pity for either man's empire to rely too heavily for its continuity on a diet of Cherry Coke and hamburgers.