By Ian Lavis on behalf of Praxity Global Alliance
Accountants who often advise clients on succession planning often struggle with their own planning when it comes to retirement.
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? Is internal succession appropriate?
These are among the questions facing senior partners as they, or their colleagues, approach retirement. The answers aren’t easy to address.
Succession planning is particularly challenging 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.
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, like many of his colleagues in accounting firms worldwide, admits he hasn’t spent much time considering retirement and succession planning. He’s not alone.
There’s no shortage of guidance from accounting bodies on developing succession strategies. The Accounting Professional and Ethical Standards Board (APESB) states:
“A firm shall document its succession plan as part of its risk management framework. The succession plan should include specific actions that a firm will undertake in order to enable the firm to continue performing its professional obligations to its clients.”
Lack of planning
Not all firms are acting upon the guidance. A 2018 report from Australia entitled Good Bad Ugly reveals just one in four accounting firms surveyed have a documented succession plan in place.
The report, produced by Business Fitness, rightly asks: “If a firm is unable to plan for succession internally, how can they provide an added value service such as succession for their clients and grow revenue?”
It’s a global problem. A study by Rutherford Cross, the senior recruitment partner for the Institute of Chartered Accountants in Scotland, found a similar lack of formal succession planning.
Ingo Haug 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.”
This reluctance to hand over the reins could become an even more common in future due to automation. The rise of robots means it will be even more important to retain good client relationships as a way of adding value in a more personal way.
Other challenges include the recruitment and training of employees who it is hoped will be the senior partners of the future, and ensuring management is capable of taking the firm in the right direction when senior partners retire.
Leading by example
One business addressing these challenges is Praxity participant firm Albert Goodman. The UK-based firm has developed a clear succession planning strategy to ensure a smooth internal transition when a senior partner retires. The strategy is updated every year.
Managing partner Richard Bugler 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.”
Richard joined Albert Goodman as an audit trainee 24 years ago. He became managing partner three years ago when his predecessor retired after more than 20 years in the role.
This was the classic situation many accounting firms face – how to manage succession after the retirement of a highly respected Managing Partner who has left a very personal stamp on the firm.
Albert Goodman 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.”
Evolution not revolution
“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,” he adds.
To ensure the success of this evolution, the firm invested in soft skills training, beginning with a two-day course for partners to supplement partners’ technical skills.
What to think about
Every firm will have different challenges when it comes to succession planning but how do you get the ball rolling? The Good Bad Ugly report identifies the following key questions senior partners need to ask:
- What is your preferred exit strategy?
- Have you identified the core attributes future directors must bring to the firm?
- How are you planning or what are you implementing now to improve the value of your business?
Of firms surveyed in Australia, around one-third plan transition via internal succession. Only 14% say they will introduce new directors to the business while 24% will look to sell the firm.
A firm’s succession planning strategy will clearly vary depending on the exit plan. Some partners see themselves as trustees for the business while others have a plan to sell it on.
Finding the next partners
At Albert Goodman, the focus has been on internal succession. Partners have mapped out the next five years and are now looking at how to manage retirement issues in the five years after that.
However, Richard acknowledges that significant challenges lie ahead, not just for Albert Goodman but for accounting firms worldwide due to the changing nature of the profession and the different mindset of younger generations.
“There is the question of whether the partnership model is fit for purpose in the future,” he says. “There is evidence from the legal profession that the up and coming partners do not want to stay for ten to 20 years and go into partnership. They are more transient. You have to plan accordingly.”
Commenting on Albert Goodman’s approach, he adds: “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.”
He believes training people internally, and providing opportunities for everyone to develop, is critical to holding on to them in future as part of succession planning.
There is also the question of how to manage the relationship part of succession. Ingo says firms must consider the psychological aspects of transition and the effect on the client.
He adds: “You have the relationship between the client and the partner, and the client’s staff and the partner’s staff. You also need to consider the working style of the senior partner and junior partner. It could be difficult, or even dangerous, for a client to accept a change of relationship manager without meeting the junior partner first.”
This highlights the importance of developing a clear strategy for many years ahead, and involving clients in the process where possible.
Partners 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 firm a great deal of time, hassle and money.