Succession plans should be more than schedules for transferring ownership— they should be integral to a firm’s strategic plan to recruit and develop talented staff

The process of succession planning

For a group of principals that’s just starting, the main task is to become fully informed in general about all elements of succession planning and how they specifically apply to their firm. The best way to do this is by talking to colleagues who have done it, and reading about the process for professional service firms. It will probably be necessary to hire a consultant. The most prudent use of the consultant’s time is the front-end strategizing—setting forth goals, requirements, making a timeline, and specifying tasks—and moving forward. A consultant can prevent mistakes, such as inadvertently chasing away viable successors by overpricing the firm, or advise principals against selling out but failing to retire.

Peter Piven, FAIA, the Philadelphia-based principal consultant of The Coxe Group, and author (with William Mandel) of Architect’s Essentials of Ownership Transition (John Wiley and Sons, 2002), lists seven steps that are crucial to making a succession process successful: start early, recruit constantly, share information, assign and delegate judiciously, provide feedback and establish accountability, communicate interests and intentions on a regular basis, and mentor continually. These steps, discussed below, should serve as a good starting point.

Start early: Firm principals should put an ownership transition in motion at least 10 years before they plan to retire.

 Comment: Share an example of a smooth—or not smooth— ownership transition and perhaps a lesson for others who are about to embark on a similar journey. Comment now.

The conventional wisdom is that it takes about that much time to implement a reasonable transfer, although there might be some exceptional cases where it could be accomplished sooner. It is more than a financial transaction. It is a transfer of the responsibility, contacts in the marketplace, and so on—the whole firm culture. Client relationships will also benefit from early planning, with likely successors working with their counterparts on the client’s side of the table. It takes time to develop close working relationships.

Recruit constantly: This will illuminate differences in the talent pool and help to clarify to management which skills and personal characteristics may be desirable in the future. It is prudent to use job searches to identify interested potential successors rather than simply addressing the firm’s immediate need for a new employee.

Share information: Effective communication will foster staff education about all aspects of the firm—particularly its culture. Allowing candidates to examine financial reports such as income statements and balance sheets will yield an understanding of the firm’s operations, which is significant for future partners.

Assign and delegate judiciously: What work is assigned, to whom, and when are important decisions. Principals must get into the habit of delegating components of a leadership position to facilitate the transition and provide exposure. If there is some overlap, for example, a principal can observe and evaluate performance. It is easier to pinpoint any weaknesses or deficiencies in this context, which can then be addressed. If principals fail to provide opportunities for successors to engage in meaningful client relations and practice management tasks, they risk losing successors, who might even take clients with them. These exercises may also expose staff who are not good candidates for the succession process.

Provide feedback and establish accountability: Debrief early and often to discuss how you—or another principal if you are not in a position to be a direct role model—would have handled a given situation. Annual performance evaluations are a good mechanism to provide feedback related to any anticipated partner-level accomplishments.

Communicate intentions on a regular basis: Ann Chaintreuil asserts that expectations for future partners must be explicit. In her firm’s case, generating new work and assuming a leadership role were important and consistent with the stated desire for the firm to continue to grow.

Mentor continually: Provide frequent mentoring beyond job-related issues to include all aspects of professional growth. This might even involve a team of principal mentors in a firm—matching strengths of a mentor to needs of a candidate at the most appropriate time within his or her development.

Tower Pinkster Titus Associates

Tom Mathison, FAIA, of Tower Pinkster Titus Associates, explains that soon after establishing the firm several decades ago, the founding principals agreed to an organized plan to sell their stock and retire—intentionally staggering the dates so they all wouldn’t leave at once. They began to increase the number of shareholders to give more people a voice in the company’s direction. There are now 21 stockholders in the 60-person, Michigan A/E firm. One reason to broaden ownership was to attract and retain talent; it also offered an incentive for individuals to aspire to leadership positions and be proactive in project management, marketing, and representing the firm. To become an associate, firm members must first be nominated by shareholders from either of the firm’s two offices or by the board of directors. Associates are expected to be talented architects or engineers who possess leadership traits and have the ability to attract new clients and talented staff.

Left to right: Arnold Mikon, FAIA, president/C.E.O., and principals Steven Hoekzema, AIA, Thomas Mathison, FAIA, and Richard Bromfield, AIA.

It is anticipated that principals will rise through the associate ranks, although it may be necessary to hire outside the company to acquire needed expertise. Such an external hire may enter at the associate or senior associate level.

It has become clear that senior members of the firm should retire only under financially manageable circumstances, if at all possible. There is an attempt to balance retiring principals who are selling stock with stock purchases by associates. The firm encourages associates to buy more stock if they haven’t reached their limit, or it identifies new associates who are future leaders of the firm. To a certain extent, departures can be anticipated based on employees’ age and an understanding of their career goals.

Stock is valued by book value (net worth), based on an assessment by the firm’s accountant at the end of each calendar year. Goodwill is not part of this firm’s valuing formula. The current board is hard at work on the transition to the next generation of leaders. A new in-house training program is scheduled to be launched next year to prepare associates to lead the firm and to bolster skills in project management. Mathison believes that principals can’t begin too early to groom successors to understand relationships, contacts, and projects, so when the transition does occur, it is very smooth.