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Brett Davidson: Succession planning- the options

A plan of action for getting one of a firm’s most challenging periods right

Succession planning is one of the major issues within our profession. As the founding owners of firms approach the latter stages of their careers, the thorny issue of “what next?” looms large.

Last year, I attended a fantastic session at a conference in the US from wealth management firm Ballentine Partners. Founder Roy Ballentine and his chosen successor Drew McMorrow shared how they dealt with the situation, which I will use as a case study. Ballentine opened with the following statement: “One way or another, you will have to answer the question: who will lead my firm when I am no longer able to do so?” There are four options you can pursue:

  1. Promote someone from within: internal succession;
  2. Hire from outside: external succession;
  3. Sell your firm: a form of external succession;
  4. Liquidate your firm: not really an option, so let’s exclude it.

Clearly, it is best to get started on this nice and early, because if you have any failures, it could turn into a 10-year process. The succession planning problem becomes easier to solve if you separate ownership from governance/management of the firm.

Ballentine highlighted a key issue. For owners, their responsibilities look like those illustrated in image one above. However, for the successor, they look like image two.

As the original owners grew the firm from scratch, they often did it all. The successor will not do that. Because the firm is larger, different leaders within it will take on some roles and report to the successor.

What are you seeking in a successor?
It is important to think about the traits you are seeking in a successor. For Ballentine, these were:

  • Investment professional;
  • Ambassador/super salesperson;
  • Charismatic leader;
  • Manager;
  • Wealth planning professional.

You may not be able to find someone who can do all of those things. In fact, it is likely you will not. As such, you need to evaluate whether you can compensate in other ways for any shortcomings. There will be trade-offs and compromises to be made.

If your successor can do two or three of these things very well, it is certainly possible to learn others or to hire in the skills necessary to compensate for the rest. For example, a lot of successors are not the natural rainmakers the original owners were. This is not an issue. In a mature firm, the business marketing has already assumed a life of its own to some extent, or can be turned into a business process. It does not have to rely on the skills of one single rainmaker, as it may have in the past.

What are your succession goals?
It is important to have some goals when you consider succession. What are you actually trying to achieve?

Like all things business-related, the clearer you can get in the thinking and planning phase, the easier decision-making gets in the execution phase. Here are the succession planning goals for Ballentine:

  • To answer the question: who will lead the firm when our founder retires (or dies)?
  • To remain independent;
  • That the employee group retains majority ownership and control;
  • To retain all senior team members, if possible;
  • To empower and motivate the next generation of leaders;
  • To position the firm for the next phase of growth;
  • To identify leadership that will reaffirm the firm’s values.

The goals you set for your own succession will drive your decision-making. You may come up with a different list to that above and, as a result, take a different approach. That’s cool. Just make sure you do the “think work” before acting.

The process
There are some key questions you will need to answer about the process. Here are Ballentine’s:

  • Is the founder really ready to make room for new leaders?
  • Who will make key decisions?
  • Should you hire a consultant? If so, what type?
  • Will it be a competitive or collaborative selection process among key employees?
  • How do you prevent the process from creating winners and those who feel they lost?
  • Who will be involved?
  • Will you interview both internal and external candidates?
  • Will the process be secret or open?
  • What are the criteria by which candidates will be evaluated?
  • How do you retain everyone you wish to?

Risk of failure
What if you do all this and your first-choice successor does not work out? It happens. You need to address the risk of failure, by asking:

  • How much collateral damage will your firm suffer if this goes wrong?
  • How will the founder respond to failure? Give up, try again or change course?
  • What lessons can be learned from failure?

This is not something to be feared but something to be planned for. You have done this all your life as a business owner; hoping for the best while planning for the  worst. Succession planning is no different.

If you are prepared to knuckle down and do the planning work, you can finish your career the way you had always hoped you would and leave a legacy to be proud of.

Brett Davidson is founder of FP Advance


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