New Year’s resolutions

While many of them might have flopped, you still have a chance to make the most important one a reality – ownership transition.

Welcome to March! And congratulations on making it through all those resolutions! You’ve hit the gym, worked on your diet, started studying that foreign language you always wanted to learn, joined Toastmasters, and worked on your weekly speech. How have all those worked for you?

Odds are you started out great but your energy and enthusiasm have fizzled.

So how about switching gears and resolving to get serious about leadership and  ownership transition in the next few months?

As you ponder the future of your firm, there are many thoughts running through your head:

  • Do I have the right second and third tier in place?
  • Do they want to be owners? Do they know what that means?
  • How are they going to buy my and my partners’ shares?
  • How am I going to transition our solid leadership team to new leaders?
  • What the heck am I going to do and how am I going to let go of something I’ve been doing for 30-plus years?
  • Will I have a role in the future organization?

Having worked with many senior leaders over the last few years, I know that weathering this uncertain turf can be made much easier by gaining a clear understanding of the issues that you, your partners, and the new partners face. Ownership transition is as much about leadership transition as it is about a seamless transfer of stock and ownership!

It is not too soon to start thinking about this. We have guided firms with 40-year-old senior leadership as well as assisted a firm that had the youngest member of the ownership transition group in their early 60s.

Really assessing the next tier of leaders is a critical first step. Through onsite meetings and interviews with not only the second tier (those who are more senior in experience, may already be partners, and are poised to take on more ownership), but the rising third tier, we gain insight into the roles that the staff want to play. By discovering what each individual’s professional passion is, we gain insight into who is interested, who might be terrified of the idea, and who just wants a little more information.

Oftentimes the senior leaders are stuck, and since they have been doing this all their professional careers, they don’t have the time to step back and objectively evaluate their staff.

With one firm, six older senior partners were convinced that the firm shouldn’t change, that it should operate as it always had. After interviewing a highly dynamic staff with a good deal of talent under 35, the following was our recommendation:

“It is time for a radical transformation. I want to liken what we are about to propose to the cult classic, The Matrix. In the story, the hero, Neo, is faced with the following: ‘You take the blue pill and the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in Wonderland and I show you how deep the rabbit hole goes.’ Allow everything to remain the same or radically transform the firm with a fresh, new approach. I am proposing that a 32-year-old, highly dynamic, well-respected young woman become the new chief vision officer and president and that the board seek to install some of her energetic peers. They will require your wisdom, but it’s time to let them soar.”

After they picked themselves up off the floor, they became interested in the idea and, ultimately, adopted our recommendation.

This was a unique circumstance, and it all worked together and is continuing to evolve. In some cases, we see senior leadership move to gradual transitions of leadership. There is not a one-size-fits-all approach, but our knowledge of senior leadership and their staff and their trust in our ability to assist, coach, and help the younger leaders and their desire to be mentors, allowed this to work.

Once many of the qualitative concerns get addressed, the nagging questions get answered and the staff want to take the firm’s reins. The next step in the process is to review and prepare an in-depth financial review.

The most important part of the next phase of work is the creation of a dynamic ownership transition model that will review the senior leaders’ sale of stock to the future owners. When complete, the model will review the cash flows for sellers and buyers going out 15 years.

What is critical to take into account are the answers to the following questions:

  • How do the new and senior leaders see revenue growth occurring and at what percentage of change over the next 15 years?
  • What capital expenditures will the firm contemplate in the near-, mid-, and long-term?
  • How is the current stock value of the firm calculated? (And if it is not, we can provide our opinion of value in our review.)

Once complete, the firm has a flexible, modifiable model that can be updated annually based on firm performance.

People in firms want to have a clear idea of what is going on. When the senior leaders don’t share their thoughts, keep the staff guessing, tease or spoon feed what their goals and timelines are, they run the risk of watching good people leave, all because they did not communicate the plan.

Don’t run that risk, take the radical step. Transition sounds simple, but it’s not easy. Resolve to make your firm clear on your plans.

Ted Maziejka is a Zweig Group financial and management consultant. Contact him at tmaziejka@zweiggroup.com.

This article is from issue 1191 of The Zweig Letter. Interested in more management advice every week from Mark Zweig, the Zweig Group team, and a talented list of other guest writers? Click here to subscribe or get a free trial of The Zweig Letter.