Succession planning is a dirty word. How can I say this—being that I consult with advisers about succession all the time? Ten years ago, approximately 20% of advisers had a succession plan. Today, despite years of events, articles and software encouraging succession planning; and after every adviser association has cajoled its members to adopt succession planning, or warned them against refraining, guess what? About 20% of advisers have a succession plan. The needle has not moved.
Advisers treat succession planning the way many of their clients treat estate planning. It's something to be procrastinated, if not downright avoided. Advisers are fine; their clients are happy. Why should they worry about something as far in the future as their aging, their retirement and maybe even mortality? That's just overwhelming, and for the to-[never]-do list.
So we must be doing something wrong. Time for a repackaging of this important idea, so essential to the sustainability of a business. To start, I looked at some intriguing definitions — ones that had to do with businesses in general, rather than just financial advisers. Let's start with this one, from the Society for Human Resource Management: “Succession planning is a means for an organization to ensure its continued effective performance through leadership continuity.”
Here's some more detail, this time from Investopedia: “Succession planning entails evaluating each leader's skills, identifying potential replacements both within and outside of the company, and in the case of internal replacements, training those employees so they're prepared to take over. Succession planning is not a one-time event; succession plans should be reevaluated and potentially updated each year or as changes in the company dictate. In addition, businesses might want to create both an emergency succession plan in the event a key leader needs to be replaced unexpectedly and a long-term succession plan for anticipated changes in leadership.”
EXIT STRATEGY
Succession planning is not about death. It's about creating and tending to a leadership pipeline so the founder has an exit strategy. At least that's what the experts say. And the phrase “exit strategy” is much more exciting than “succession plan,” which brings to mind murderous dynasties and an Iron Throne.
“Exit strategy” suggests a secret door behind the bookcase that gives you entrée to the world outside. And there are so many ways to escape: You can simply run your business to the end, and abandon clients and staff when you must retire (the typical approach); you can sell the business to another group of leaders, either inside the firm or outside, who will build on it (a better approach); or you can hand it off to family members who will take on your responsibilities and build wealth for themselves and you as well (also better).
IMPORTANT VS. URGENT
What is it that keeps advisers from creating their exit strategy? Who doesn't want to have the option of saying, “That's all, folks!” and taking a cruise? Most likely, it's because advisers are only human, and, just like clients, tend to focus on the urgent matters that are staring them in the face rather than the important issues that may develop slowly, but are far more important for determining their future.
As President Eisenhower famously said, “What is important is seldom urgent and what is urgent is seldom important.” Urgent tasks call for a reaction. They are tactical, and often can and should be delegated. Important tasks call for leadership and proactivity. They are strategic — and may, occasionally, be urgent — and typically require a coordinated team response, led by the firm's executives.
Your exit strategy is important. By focusing on it early and often, you can maximize the wealth you walk away with. Your exit strategy may, occasionally, become urgent, but that eventuality is best avoided. Selling your firm because you've become too sick or disabled to run it means you'll have to settle for a quick offer, rather than creating the transition you want.
Every entrepreneur deserves an exit strategy. You work hard. You take risks. You worry about your clients, your income and the incomes of your staff. Why shouldn't you get a reward?
Paul Lally is president of Gladstone Associates, a strategic consulting firm for independent financial advisers based in Conshohocken, Pa.
