December Leadership Forum
Vol. 3 No. 12, December 2011
The Leadership Forum is a panel of the most prominent thought leaders in the profession. Each month we ask them to respond to a question dealing with CPA firm management and leadership.
This month's question is: What are the key components a firm needs to execute an internal succession plan?
Consultants and Other Prominent Observers
| August Aquila | Aquila Global Advisor Group, LLC | www.aquilaadvisors.com [email protected] |
| Let's define succession as "passing the baton" to the next generation of leaders. Succession planning is all about creating options for the individual who is stepping down, for the firm and for the successor. To be successful, the retiring partner needs to identify his/her own retirement needs. For smaller firms this means working with your spouse and other trusted advisors. The successor needs to be identified and a plan for the transition needs to be developed. A plan for the successor needs to be developed so they can move into the leadership position with fewer issues. The entire transition plan can take up to three years. | ||
| L. Gary Boomer | Boomer Consulting, Inc. | www.boomer.com [email protected] |
| An agreement that protects the firm rather than just individual partners. A written plan for each person age 50 and older. This plan should identify objectives, measurements of success, strategic initiatives, due dates and responsible parties/advisors. It should also be used to foster communication. Accountability to the plan that is directly tied to current and deferred compensation. A mandatory retirement age and an agreement that rewards the retiring partner for client transition prior to that age. Funding options. Multiple advisors that may include insurance, financial planning, estate planning, transaction attorney, and banker. A talent development program that provides experienced personnel with both management and leadership skills to succeed the retiring person. A team approach to client service. A provision to utilize key personnel in consulting roles after the date of retirement if desired by the firm and agreed to by the retiree. | ||
| Rita Keller | Keller Advisors, LLC | www.ritakeller.com [email protected] |
| All the talk of succession plans for CPA firms wears me out. So, I'm not going to go on and on about all the things firms should be doing. To me, it is simple. If current CPA leaders, who have been working at the firm for 25-30 years, do not have people to replace them, whose fault is that? I believe that succession planning is simply good management. It means that firm management continually works to create a culture that attracts and keeps top talent. As Herb Kelleher has always said, "if my people are happy, my customers are happy." I believe that the most successful firms are the ones that grow their next generation of leaders and do not try to bring them in from the outside. I believe that a "one firm culture" is key in succession. I believe that a decisive managing partner, with great communication skills, that truly leads the firm assisted by a professional firm administrator that handles ALL of the day-to-day operations, who are both supported by a partner group that trusts each other and functions as a team, a partner group that puts the "good of the firm" first, is what sets the stage for a smooth transition to the next generation. | ||
| Patrick Pruett | The Alliance of Professional Associations and Enterprise Network Worldwide | http://enterprisenetworkworldwide.com [email protected] |
| Firms need to begin from day one finding quality people, giving them appropriate training, and providing internal support to make sure people are getting where they need to be and the firm is meeting its objectives. Make the ongoing commitment to a long term process - whether you grow the firm to sell it or pass it on you will want to get the greatest possible return for the business you helped build. To do that you must stay the course and realize it is a long term project. Recruit quality people - when you work on attracting quality people to your team many of the issues regarding growth, longevity, and succession eventually take care of themselves. People who have a desire to grow and be part of a winning team are leaders who can and will help you move the firm to the next level and will elicit greatness from others. Commit to training - quality training programs for skill and leadership development provide business differentiation. Great companies do many things well however they focus explicitly on finding great people and give them incredible training opportunities that help them improve and deliver ever greater results to the business. Connect partner compensation plans to firm succession - partners in the firm need to have incentives to coach, mentor, and train people. They also need an agreement in place that provides incentive to transition clients well in advance of their departure (3-5 years is a benchmark). The firms compensation plan is one of the best accountability tools a firm has at its disposal to move people to do what is best for them and the firm. | ||
| Marc Rosenberg | The Rosenberg Associates | www.rosenbergassoc.com [email protected] |
| 1.The first step is to "do the math." Poll each partner and find out when they plan to retire. Then, project the firm's revenue growth over the next five years or so. Finally, compute how many new partners the firm will need in five years. This exercise usually is an eye-opener for the partners. 2. Assess your current staff. How many have the potential to be a partner over the next five years? Do you have enough to satisfy the number calculated in #1 above? 3. Given the above, the partner group needs to discuss what they want to do: stay independent and develop future leaders or merge up. If the decision is to merge up, then a game plan for this needs to be created. 4. If the plan is to stay independent, the firm needs to create a leadership development plan to supply the new partners that are needed. 5. Decide what the transition will be for replacing the managing partner and other key positions, if these positions will need to be replaced in the next five years. 6. Make sure your partner buyout plan is competitive, modernized and not onerous to younger partners. 7. Given the look and size of your firm in five years or so, determine if your firm will need to be structured differently. Examples: expanded duties for the MP, creation of an executive committee, appointment of department heads, hiring of full-time professionals in admin, marketing and HR, etc. |
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| Joel Sinkin | Accounting Transition Advisors | www.transitionadvisors.com [email protected] |
| The first thing you need to have is the excess capacity and the expertise to replace the role of the partners that will be slowing down as well as the professionals who moved up to assume these responsibilities. Remember, you are not just replacing the bodies, but the roles. Another key is making sure the value being paid for the retiring partners' interest in the firm is structured correctly so that it walks the line of ensuring the remaining partners benefit from the sale and the retiring partners get compensated for their years of sweat equity. In addition, a strong transition plan needs to be in place that over time transitions the relationships and responsibilities to the successors to ensure client and staff retention. It is critical it is held out to the clients as a gain of something, not the loss of a retiring partner. This is something that likely requires time so must be started well in advance. The responsibilities of the retiring partners to transition, both before and after retirement is a key factor in the success of the succession plan. Being realistic about what talent you have on the bench is a critical factor in executing an internal succession plan. First review how many partners will seek to reduce their time commitment to the firm over the next five years. Who do you have to replace them and so on... At that point in time you should be able to determine if you have the depth as currently situated to execute your plan. If you do not, the two main options are to build a deeper internal succession team and or consider an upstream merger with a firm that has the capacity and professional strength. | ||
| Douglas H. Thompson | CPA Choice, LLC | www.cpamerica.org [email protected] |
| Overcoming fear of letting go. True, open communication on desires of retiring partners and remaining partners. Starting the process early (five years minimum recommended) with drafts of firm and of individual retirement plans. Review and update/affirm plans annually. Minimizing impact on deferred compensation resulting from about to retire partner transferring his/her clients two years before planned date of retirement (often deferred comp is based upon highest of last three/five years during a 5-10 year period and comp is based on book of business/charge hours). Make deferred comp tied, in part, to successful transition and retention of retiring partner's clients. Have realistic valuation of firm, individual payouts (I have discovered individual payouts are unrealistically high and should be adjusted in spirit of fairness and good business sense) and maximum partner retirement payouts annually by firm as a whole. Maximum payouts should be set so as to not "kill the goose (the firm) that is laying the golden egg" (the payments to retired partners) And accountability. | ||
| Jennifer Wilson | ConvergenceCoaching LLC | www.convergencecoaching.com [email protected] |
Our ten steps to succession are:
2. Developing your firm's up-and-coming leaders. 3. Understanding your firm's operating agreement. 4. Getting honest about retirement timing for all partners. 5. Brainstorming with leaders who are over 58 to define their ideal retirement plans. 6. Defining the roles of those who face retirement within three years and preparing the successor for each of their responsibilities. 7. Identifying the right successors. 8. Planning for the ripple effect. 9. Managing the transition process. 10. Honoring your retirees and keeping them engaged. |
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Firm Leaders
| Bob Knight | Lane Gorman Trubitt, PLLC | |
| Undertake a true assessment of the next generation's ability to continue to build the practice, lead the team members, and not just focus on their charge hours and technical ability. | ||
| Paul Regan | Hemming Morse, Inc., CPAs | |
| Identify the tasks done by the person to be succeeded and delegate them to others as soon as possible. Those that are not to be delegated should be done by the both the person retiring and the person that will take that persons place. | ||
| John Sensiba | Sensiba San Filippo LLP | |
| A written plan and excellent communication of expectations with all parties. | ||
| Anonymous | ||
| Good leadership and good next-generation willingness. | ||