Succession Planning in Service Firms

Succession Planning in Service Firms

This month’s newsletter addresses succession planning in “service firms,” which are organizations that provide services to clients and are generally organized as a form of partnership, such as law firms, accounting firms, and consulting firms. In particular, this newsletter discusses some of the underlying reasons why succession planning can be uniquely difficult for these types of organizations.

The Federal Government’s Office of Personnel Management’s definition of “succession planning” is fairly straightforward:

  • Succession planning is a systematic approach to:
  • Building a leadership pipeline/talent pool to ensure leadership continuity
  • Developing potential successors in ways that best fit their strengths
  • Identifying the best candidates for categories of positions Concentrating resources on the talent development process yielding a greater return on investment.

Succession planning recognizes that some jobs are the lifeblood of the organization and too critical to be left vacant or filled by any but the best qualified persons. Effectively done, succession planning is critical to mission success and creates an effective process for recognizing, developing, and retaining top leadership talent.

The first clause in OPM’s definition, “Succession planning is a systematic approach” (emphasis added) is where things often go awry in service firms because most service firms lack a systematic approach to succession planning. In a perfect world, firms would have a clearly articulated plan to transfer primary client relationships to junior members of the firm, those people would receive the support they need to step into a more senior role, and the clients and senior partners would be active participants in the transfer.

Instead, firms frequently fail to take sufficient steps until junior partners get frustrated that they can’t take on more responsibility and power because senior partners still control the client relationships and sit on the management committees. At that point, firms start worrying that they will lose strong and promising junior people, or that they will lose clients if the person with the primary client relationship retires without adequately transferring the client work and relationship to others within the firm.

To be fair, it is difficult for many service firms to have the type of systematic approach recommended by the federal government because people in service firms tend to be very autonomous. Partners find their own clients, manage their own clients, and work for their own clients. There are many benefits to this type of system. The downside, however, is that when the firm decides it is time for partners to stop finding, managing, and working for their own clients, the firm often has very little leverage over those partners.

Some firms have tried to deal with this by instituting mandatory retirement ages for partners. Sometimes this works, but often it backfires. If partners don’t transfer the client relationships before they retire then, when they do retire, the clients may move to another firm. Or, if partners aren’t ready to retire by the mandatory retirement age, and simply refuse to transfer the relationship, then firms often relent and let partners stay on. While this might make perfect sense, particularly if the partners are still doing excellent work, it does not help the junior partners and can be bad for the morale of other retirement age partners who don’t wield the same clout.

So what can firms due to encourage senior partners to get actively engaged in succession planning? It seems that a major underlying issue is that partners have no incentive to step back. While many of them intellectually support the idea that it is good to develop junior people, prepare for emergencies, and train their successor, I suspect that the nagging question in the back of their minds is, “But what will I do next?” If someone is defined by their work and gets a lot of enjoyment and satisfaction from it, then they need to have a succession plan for themselves, and one that doesn’t involve puttering around the house and playing the occasional round of golf.

Thus one important step that firms can take is to provide opportunities for partners to continue to contribute in meaningful ways even after they scale back, step down, retire, or whatever the firm calls it. It needs to be interesting work, and work with some status to it. Remember, these are successful people who are used to being sought after and treated with respect and deference.

I recently discussed this topic with a friend who is a senior partner in a large British law firm. His firm actually seems to be doing this right – it has a comprehensive “glide path” for senior partners. There are a variety of things that the partners can get involved with, such as traveling internationally with their spouse to the firm’s many international offices to train associates, essentially act as gurus to junior partners, etc. While this is not inexpensive, it is probably less costly than replacing excellent junior partners or losing major clients.

So instead of trying to force your most senior (and often most successful) people out, provide them with other, more attractive, options. If they are looking forward to the next step in their lives, then they are more likely to put in the work necessary to make the transition a success for everyone.


 

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