Almost all organisations have felt the effects of record employment on recruitment, which is why supporting existing staff to move into senior roles has never been so vital to prevent a talent drain at this level. Elizabeth McEneny focuses on professional services firms and what they should consider in succession planning.
An increasingly common misconception is that the next generation are ready, willing and able to join a partnership. While certain firms may have a steady stream of talent chomping at the bit to join them, an increasing proportion of firms find this is no longer guaranteed.
The next generation of staff face unique challenges: many no longer see their lives on a straight trajectory; have not saddled themselves with traditional ties such as home ownership; are more aware of their work-life balance; and are more attuned to the potential issues caused by working in a high-pressure environment.
With the UK in the grips of a skills shortage, it is more important than ever to identify talent young and have a transparent and clearly-defined route to partnership. This should involve open conversations, a clear appraisal system and mentoring schemes to ensure candidates understand what is expected and the relevant timelines. This will ensure they do not become disillusioned by the process and seek greener or entirely new pastures before reaching partnership.
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A firm that doesn’t have a suitable internal talent stream must recruit in time to be able to build the skills needed and should ascertain a candidate’s interest in partnership at the interview stage.
Do not take leadership skills as a given: in many legal and accountancy firms, individuals have trained for years to obtain relevant qualifications, but can too often be expected to become strong leaders without receiving any leadership training. Accordingly, firms need to provide talented individuals with the tools for the next step in their career. A fear often voiced by junior partners is that they suddenly need to be all things to all men, which can be exceedingly daunting. Assistance in the form of mentoring and professional training could help make an easy and effective transition.
Making partnership attractive
Firms should review their partnership agreement to see whether it is understandable and attractive to potential new partners. Many traditional partnerships still have annuity plans for many of the original partners. Entering a partnership where the fruits of the new partners’ hard labour is paid out for years to retired partners is often deeply unattractive.
Firms should also consider how much capital a new partner will be asked to contribute. The next generation have high levels of debt – many having had to pay for university – and the thought of taking on further debt may be daunting, especially if the firm is unable to back the loan.
Many larger firms will have a partner capital loan scheme with a bank, which is usually unsecured and often at competitive interest rates (when compared with personal loan rates). If this is not the case, the firm can retain profits for a period to accumulate a capital pot, but this gives rise to a tax liability for the individual on profits they have not had the benefit of receiving. Unfortunately, there is no easy fix, but an early open dialogue about partnership track and potential capital requirements for entry can ensure the individual is able to plan for this eventuality.
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Initiatives to assist female employees or junior partners when returning from maternity leave should also be considered. Professionals generally reach equity partnership in their mid- to late thirties, the age at which many start a family. Consider flexible working or part time arrangements but ensure that leaders are trained to make sure this does not mean squeezing a full week’s work into reduced hours. This is a common reason why many women leave their partnership shortly after returning from maternity leave.
Introducing a retirement age for partners might also be beneficial, otherwise junior partners may be unable to progress up the ranks if there is no space at the top. However, care needs to be taken over setting a retirement age to ensure it does not fall foul of discrimination legislation. The firm would need to be able to show that setting a retirement age is a necessary means of achieving a legitimate business need.
Careful thought also needs to be given to the effect on the firm of losing a senior partner or figurehead. Do not just throw out the old and replace with the new – consider transitioning valued partners into consultants. A small firm may realise too late the financial impact that their figurehead’s departure will cause, particularly if their charge out rate is several hundred pounds more than the next most senior partner. This can leave a sudden hole in the firm’s profits. Ensure time for an ordered handover that makes them feel valued – don’t make the process feel like a last-minute attempt to download their years of experience in an afternoon, which may cause hostility and resentment.
Effective succession planning involves having a strategy that is implemented and communicated at an early stage, to ensure those earmarked to take over senior positions understand what is required of them. This will prevent them feeling disillusioned and avoid potential partners from seeking opportunities elsewhere.