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Tax Talent & Culture

How to approach retiring partner succession in accounting firms

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 7 minute read

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 7 minute read

A recent posting on the American Institute of Certified Public Accountants’ blog held that “regardless of your firm’s size or how far you and your partners are from retirement, a formal succession plan is a great attraction and retention tool” for junior talent’s career growth.

We spoke to Sandi Guy, a partner in Human Capital at Carr Riggs & Ingram, and Claudio Diaz, Chief People Officer at Briggs & Veselka, who both say they agree with that sentiment, although they each emphasizes different parts.

According to Diaz, succession management is one of the most critical components of an accounting firm’s talent strategy because of its impact on revenue, client satisfaction, and associate engagement. The succession plan is the final output of succession management, but that cart shouldn’t be put before the horse, he adds. “Succession management is a mindset that balances client project deliverables with associate development towards one end — sustainability for everyone.”

Diaz suggests that upon identifying the new client relationship owner, skill and talent gaps should fuel the actions that need to be taken over the next 18 to 24 months to maintain and ideally enhance client satisfaction.

Guy agrees, and frames the two most important components of succession plan development as: i) holistically assessing the retiring partner’s role and the identification of a successor for each client relationship; and ii) creating a training and development plan for the successor that needs to occur before the transitioning partner officially retires.

More specifically, Guy breaks down the concept of a succession plan in five components:

      1. Understanding the retiring partner’s plan for retirement — First and foremost, understanding the retiring partner’s timing is key. Setting a target date, even if it is somewhat fluid, from which to plan is paramount. In fact, Guy advises that once partners reach their mid-50s, it is a good idea for the firm to open up the dialogue on what their thoughts are on retirement.
      2. Assessing the partner’s role — The second component is analyzing the retiring partner’s role and what parts of the firm the partner touches. It is necessary to understand what clients the partner serves, what internal leadership commitments he or she has (for example, as a training instructor or committee member), and what role the partner plays in the wider community, such as in professional associations.
      3. Identifying potential successor talent — The next step is looking at what senior managers are involved with the retiring partner’s clients and to identify potential candidates to step in as new relationship owner. Any candidate at the senior manager level needs to be able to delegate the work to others to best take on the new client responsibilities. This opens up other development opportunities for junior talent.
      4. Training and development of successors — Once the candidates are identified, the retiring partner needs to work in partnership with Human Resources to assess the candidates’ ability to perform as new relationship owner. Then, the firm needs to create a training and development plan to address current leadership as well as any skills and knowledge gaps. According to Guy, this is where a lot of mentoring and shadowing on the job needs to take place, such as with client discussions. Then, the successor should slowly start taking over the internal team that’s working on the client’s projects, if that is not already happening.
      5. Multi-layered communication — Finally, communication is the last element. No succession plan goes well without good communication with the person who is leaving, the individual or individuals who will be succeeding them, the clients, and the retiring person’s colleagues within the firm.

Redefining retiring partner identity

One of the most difficult situations that comes up with retiring partners is helping them envision what their post-work life will look like, especially if their identity is closely tied to their work. In many cases, their work has become their purpose and a critical part of who they are, having built a career over several decades, developed key friendships with clients, and been viewed as an influencer within their community. Coaching is critical to help the retiring partner deal with the emotions of the transition while they are still working and to assist in building a vision of their post-work life.

Flexibility on the part of the firm is also key, Guy says, adding that a gradual transition from working full-time to working part-time or giving the retiring partner responsibility to mentor and develop younger talent is often successful. “Being empathetic to the partner, demonstrating appreciation for the partner’s role in building or contributing to the firm, while communicating the need to adhere to a transition plan takes an artful, thoughtful approach built on a foundation of trust,” Guy explains.

Bringing in the client early during succession conversations is also critical. Ideally, the client has a voice in the selection of the new relationship owner with ample time to get comfortable with the successor while the retiring partner is still working.

Aligning compensation policy to incentives for succession

Compensation policies can favorably or adversely impact how a firm manages succession. Many accounting firms’ compensation protocols too often incentivize partners to hoard their clients, eventually creating a mindset of my clients rather than the firm’s clients. Hoarding clients simply to keep the book of business high in a retiring partner’s last few years runs counter to the effective hand-off to the new relationship owner.

Once, at a prior firm, Diaz says he designed a three-year transition strategy that included evaluating the retiring partner’s performance and compensation based on key performance indicators, such as client transition schedules and respective associate development. “If they aren’t self-motivated to ensure the firm’s future sustainability, let money be the catalyst towards compliance,” he says.

The best example that Diaz says he has seen in succession management involved a partner who saw her primary role as managing human capital and performance towards the effective succession of the firm’s clients. “Within the first of her last three years, she identified senior managers to step into the client relationship owner role and even identified two or three back-ups per client,” Diaz recalls. “She then brought the senior managers in on every client meeting in the second year. By the third year, the senior managers oversaw each client meeting with her being present to offer feedback and guidance.”

Changing policy, instilling new succession requirements, and creating the culture to support succession management is a multiyear process. “It is easily a two-year process, if not three for most larger clients,” says Diaz, adding that “you have got to get past that microculture that it’s my client and I know what’s best.”

And while it may be difficult to get there, the journey is worth it in the end. “You know you are on your way to success when you reach the flywheel effect — the right behaviors and policies create forward momentum towards a true win-win-win for the client, the associate, and the firm.”