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Businessman Passes Baton to Businesswoman

Is succession planning a myth?

13th May 2019
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The theory of succession planning sounds great, but AccountingWEB's anonymous partner is willing to wager that accountancy has very few examples where it has proved successful.

Throughout my career, I have been aware of the term “succession planning”. However, to date, with only a single, very limited, exception, I cannot ever remember seeing it being implemented in the profession and hardly more frequently amongst clients.

The exception literally runs in the family. While it has not been my good fortune to observe an accountancy practice being handed down from father to son personally, I am aware of such situations, although those examples come from the distant past. One day, I might even see a practice passing from father to daughter or mother to daughter.

In industry, the principle of passing the family company down through the generations still seems to exist, although very sadly most  companies of this kind have ended in tales of woe, where the third or fourth generation was very reluctantly forced to close down what had, until the latest family member inherited, been a highly profitable business.

It is a fact of life that a high proportion of accountancy practices seem to be run by partners close to retirement. You must, therefore, imagine that in most cases those ageing partners have regular conversations about how on earth they are going to secure its future (and their pensions) after their departures.

The obvious solution is to pick a likely younger partner or even director/manager and groom them for eventual succession. An even better route might be to hedge bets by bringing on board three or four promising leaders of the future, ideally in the 30 to 45 age bracket. The theory is great but you have to wonder why this never seems to work out in practice.

I know that it may be painful for some readers to discover, but often the main problem is that all of the existing partners refuse to put their trust in those from the next generation. The cynical, and I’m certainly one of those, would also unkindly suggest that there is an element of jealousy involved.

Whatever the underlying reason, and it could be nothing more than overwork or lassitude, which almost always win the day as partners leave things until too late, frequently watching their designated champion sailing off into the sunset, having assumed that he or she had no future working for a firm in which all the younger partners were in their mid-to-late 50s and there was no hint of a plan to hand over power.

An equally knotty problem is the desire of retiring partners to get what they see as their just deserts. Frequently, they expect not only an instant repayment of capital but also a lengthy period of highly paid “consultancy”, perhaps topped off with a sizeable pension, which might even continue beyond their own demise to that of their spouse.

Younger partners aspiring to take a business into the future come from the other end of the spectrum, believing that the oldies have run the business dry and do not deserve another penny beyond the repayment of capital, which ought to be spread over at least 20 years.

Generally, the best way to achieve the goals of existing management is to merge the firm out of existence, effectively selling out to another practice that has the funds to struggle on for a few more years, then suffer the same fate.

Readers may well have their own experience of failed succession planning but I would be willing to wager a significant sum that very few have seen more than a couple of examples where it has actually gone to plan, with the younger generation smoothly stepping into the shoes of their professional forefathers and, having done so, running the practice successfully and paying a nice stipend to those predecessors.

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paddle steamer
15th May 2019 18:08

Appreciate your point re family successions, clogs to clogs in three generations, as whilst family can inherit assets they may not inherit talents.

No experience of professional succession in recent years but I do know how my father was brought in to the law firm in which he ended up as senior partner, so maybe in the 1950s and 1960s these things were better planned.

He was purloined from Murray Beith & Murray W.S. in Edinburgh by a similar Edinburgh firm , Melville & Lindesay W.S. who wanted a bit of talent and as he knew MBM were never going to make him a partner (all partners at MBM back then tended to own landed estates and not need to financially be partners-of independent means-the essential qualification alongside hunting, shooting and fishing) he jumped ship to a firm with a more progressive outlook.

He was advised at outset that with decent performance he had prospects when starting as a qualified solicitor in the 1950s, whilst still in his twenties.

After a couple of years a fellow lawyer friend of the then senior partner took ill so my dad got parachuted in to manage that person's smaller firm for about 18 months (In effect part of his training for the future-how to run a firm) and on his return he was made first a salaried partner in his late 20s then a profit sharing partner by about age 33 in circa 1960.

As a profit sharing partner he had a right each year, under the partnership agreement, to buy a small fraction of the then retiring senior partner's interest in the firm using a pre arranged formula based on average firm profits and a fixed multiplier. (As did his more senior partners as he ranked initially fifth)

This was a five partner firm and over the intervening years my father purchased those fractional shares (64ths I think) he was entitled to from the original senior partner and then others who over the years departed and offered up their interests, so that by 1974 he was the senior partner owning the largest stake of the then three partners firm (two junior to him had come in over the years)

The structure of the partnership agreement, with this mechanism , remained pretty much constant over the years from the 1950s until the firm eventually split in 1982 ,and always seemed to me to be a reasonably clever way of enticing ambitious prospective partners who did not come from a particularly wealthy background.

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