When you retire as a firm leader, who will take over your responsibilities in running the practice? Many owners and partners assume all business development functions and most client interaction, employing staff mainly for technical work while providing them little opportunity for client contact. As a result, when senior management members retire, the younger professionals are unprepared to take charge. The outcome is a shrinking base of current clients, a fall-off in new business and, ultimately, the end of these firms, not to mention perhaps their retirement fund.

The point of nurturing future leaders, then, is not only to extend the life of your practice once you retire, pass away or possibly become disabled, but also to increase its value, thereby protecting you and your family’s finances, as well as your estate.

With fewer people, smaller firms that lose an owner may find it more difficult to fill his or her position than larger practices. This becomes a problem when smaller practices fail to prepare prospective leaders in advance, by passing on client responsibility as part of an ongoing succession plan.

How far in advance should you prepare for succession? Experts recommend five years as the minimum period needed to mentor a potential senior management member. In
other words, it’s never too early for firms to begin the grooming process.

Many, however, have not encouraged their own in-house talent nor benefited fully from it, as PCPS (Private Companies Practice Section), the AICPA’s alliance for firms, found in a recent succession planning study of nearly 500 practices. Firms’ written responses to an open-ended question on developing new owners and other management reflected everything from solid plans to none at all.

A number of practices did allow higher-level staff to participate in management decision-making or receive training in such areas as leadership, communications and marketing. Other firms brought in consultants to smooth the process or hired more experienced people to take on management responsibilities. And many other responses could be summed up by one firm’s plan: “Keeping our fingers crossed and praying.”

To avoid such uncertainty, here are some practical guidelines for nurturing future leaders:

• Give people throughout the organization the power and responsibility to do their jobs autonomously. This doesn’t mean each functional area should set up its own rules and regulations. In fact, that is not recommended. Instead, give your staff – and particularly potential leaders – the time, guidance and encouragement to develop the kind of initiative and independence that will serve them well as they advance within the firm.
• Identify managers or other staff with potential. Once you have staff members working independently and you understand what kind of talent you have, the firm should develop formal or informal processes for judging how well younger employees manage people and situations. Depending on budget and size of staff, you may also consider providing training for the most promising candidates.
• Mentor promising staff. Though employees need the technical skills, they also must understand what it means to handle clients and run a business if they are to take over one day. Give them responsibility, and if they run into problems, help them understand how to resolve them. Introduce them to clients and to the kinds of challenges that come up in the field.
• Include junior staff in decision-making. Top management still must make key decisions, but consider how the firm can include younger staff in selected decisions and perhaps delegate some choices to them.
• Set up a timetable for new leadership. Will the new managing partner, for instance, take over when all the senior partners have retired, or will the reins be passed sooner? Many consultants recommend that a new managing partner be put in place while older partners are still on the job. These partners should offer advice and support without trying to interfere with the new leader’s authority.

For more information on succession planning, check out the following:

• Preparing for Transition: The State of Succession Planning and How to Handle the Process in Your Firm, a free PCPS white paper.
• Securing the Future: Building a Succession Plan for Your Firm, a book written by Bill Reeb, CPA, and issued by PCPS (visit pcps.aicpa.org/Products; press the “Member Discounts” button, and scroll toward the bottom of the first table).
• Other free resources at the PCPS Firm
  Practice Center.

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