With baby boomers retiring and many Generation Xers in management positions, now is the time to consider who will drive your company forward in the future.
Managers and directors often dream of retirement but many overlook the all-important issue of succession planning until it’s an emergency.
Putting off the question of how to hand over the reins poses a serious threat to the smooth running of a business. If left too late, or handled badly, it can result in loss of customers and profits, and could even threaten the future of the business.
Despite the obvious importance of planning the company’s future, many baby boomers (aged 55+) and Generation Xers (aged 40-54) in senior positions are reluctant to tackle succession planning. Moreover, many companies do not have a clear plan to address succession effectively.
For younger managers, planning the future of the company is a distant vision that can be addressed at a later stage. Those of more senior years are so reluctant to give up the reins when they approach retirement, they refuse to even think about succession planning.
So, what do you need to do to make the succession process as smooth as possible and ensure your company is left in the hands of talented new managers?
What you need to consider
To avoid putting the future of the company in jeopardy, planning for retirement should start as early as possible and should be part of a detailed strategy to mitigate risk.
To get the ball rolling, these are the types of questions managers and HR staff need to be asking:
- Do you want a trade sale, generational handover or management buyout?
- Is internal succession appropriate?
- How do you make changes at the top without upsetting staff?
- How do you encourage younger talent to take up the reins and take the company forward?
- When is the right time to hand down assets or key responsibilities?
The answers to these questions aren’t always easy to come by, especially for smaller, mid-size and family firms, where one or two key people retiring could have a major impact on the direction and value of the business.
Barriers to overcome
Even accountants, who advise clients on the importance of succession planning, are reluctant to think about their own plans. Ingo Haug, managing partner at German accountants HWS, a participant firm in Praxity Global Alliance, says: “It’s much easier to advise other people because you do not have to execute, you only have to advise.”
Currently his early fifties, Ingo admits he hasn’t spent much time considering retirement and succession planning. He believes one of the reasons senior partners are reluctant to think about succession planning is the strength of their client relationships.
“It’s about personality,” he says. “When a partner is appreciated by a client it’s a good feeling. They don’t want to work such long hours but at the same time they don’t want to miss the feeling of clients saying good things.”
The same sentiments can be applied to management positions in other professions and sectors. The thought of losing contact with customers, or close colleagues, is difficult to contemplate.
The challenges of succession could be exacerbated by the rise in digitalisation and automation. This will make it even more important to develop and retain good client relationships as a way of adding value, and managers may be more reluctant to hand over the reins in client-facing roles.
Other considerations include the recruitment and training of employees with the right qualities to be the managers of the future, and ensuring they are capable of taking the company in the right direction when senior people retire.
Developing a clear plan
To overcome these challenges, companies need to develop a clear succession plan to ensure a smooth transition when senior personnel retire. This plan should be updated every year to reflect the changing age profile and retirement plans of the workforce.
When developing a succession plan, it is important to look as far ahead as possible. In family businesses, for example, there may be greater need to review the capabilities and provide external training for next-generation owners. Inheritance planning will also be a major consideration, including gifts of business interests or establishing a trust.
In terms of individual employees, companies will need to evaluate the skills of each candidate and how best these skills can be utilised to meet the vision of the business.
Succession planning experts at Albert Goodman LLP, a participant firm in Praxity Global Alliance, the world’s largest alliance of independent accounting and consulting firms, say companies must first be clear about their overall vision. With this in place, a succession plan can be developed to fit this vision while taking account of tax and successors’ considerations.
Managing internal succession
Leading by example, Albert Goodman developed its own plan to successfully manage the retirement and replacement of a senior partner who had been in the role for over 20 years. This plan forms part of a broader strategy of internal succession.
Managing Partner Richard Bugler, who replaced the long-standing partner, says “Succession planning is very high up on the agenda. It is something we experience on a regular basis and we have to take it seriously.”
Prior to Richard’s appointment, Albert Goodman faced the classic dilemma: how to manage succession after the retirement of a highly respected partner who had left a very personal stamp on the firm.
Richard and his team developed a programme of change to take the business forward while keeping everyone on board and remaining true to the firm’s values. He explains: “When one person has been at the helm for so long, it presents challenges. We wanted to make sure we had a good team in place, with clear responsibilities, and a broader management structure.”
To achieve this, the firm invested in soft skills training, beginning with a two-day course for partners to supplement the partners’ soft skills.
He adds: “We have this phrase that the best way to change is evolution not revolution. Our firm has evolved and today it is quite different. It has a more modern and defined structure. Now, we have a board of five with individual areas of responsibility.”
Looking ahead, the firm has mapped out the next five years and managers are looking at how to manage retirement issues in the five years after that. “We need to make sure we have a good spread of skills and specialisms. Recruiting people with a good attitude is key and that applies as much to new trainees as it does to more experienced people joining the firm,” Richard says.
Developing an exit strategy
The type of succession plan, or indeed exit strategy, will depend on the nature of the business. It may be that senior managers plan to work towards selling the business, in which case, managers will need to consider how to:
- Plan for the most tax efficient succession or sale
- Source realistic market valuations of the business
- Conduct due diligence
- Sell the business, negotiating price and other terms
- Dispose of corporate goodwill
- Implement handover and transition plans
Managers and directors who haven’t done so already may wish to take up Ingo’s advice when he says: “You need to take time to sit yourself down, maybe with a glass of good red wine, and think about the future.”
Whatever your preferred beverage, taking the time to consider succession planning now could save you and your company a great deal of time, hassle and money.
This article was written for Praxity Global Alliance, the world’s largest alliance of independent accounting and consulting firms.