Many firms find out too late they are not prepared for partners to leave or retire as they thought. Here are some helpful things to review to ensure your circumstance is different.

How many interactions will there be – and how many are necessary – to get the clients and their new assigned partner acclimated with one another?

• Are you firm’s clients “partner loyal” or “firm loyal”? Smaller firms often have “partner loyal” clients as the partners typically are more hands-on therefore the transition time needs to be longer than for the clients that are firm loyal.
• What role and responsibility does the partner retiring have to the firm and to the clients? Does the partner, or soon-to-be partner, have the skill set or experience to replace the role and responsibility of the retiring partner? An example of this might be a tax manager is not necessarily a good choice to replace an audit partner just because they are “due” to be a partner.
• What level and/or amount of work performed by the retiring partner can be absorbed by current partners?
• If a person or persons currently “in-house” were to be promoted to partner or absorb certain roles or responsibilities, is there capacity to accept the responsibilities of the individual or individuals replacing the retiring partner?

Is there adequate time and opportunity to create a smooth transition?

• If you believe you have an internal succession solution, what is the amount of time the person or persons will require to be ready to replace a retiring partner or partners?
• How often are clients seen in person by the partner slowing down? If it is only once a year that means 3 years is only 3 visits!
• Are your firm’s clients “partner loyal” or “firm loyal”? This is necessary because each partner may have a different level or type of client relationship within the same firm.
• Is there an inclusion in the partner or operating agreement that addresses a retiring partner giving insufficient notice, without cause, such as death or disability, to have an efficient and effective transition of both role and responsibility?
• Is there an effective and on-going mentoring program within the firm to accelerate a manager or other individual in the event of an unforeseen or immediate need to replace a partner?

How many billable and non-billable hours does the outgoing partner devote to the firm?

• This question speaks to the need to identify the roles and responsibilities of specific partners within the firm as you determine the probability of replacing both as well as instituting a smooth transition

Does the firm, especially the new or replacement partners taking on these responsibilities, have the capacity to absorb the additional workload?

• There is no question there is a ripple effect within a firm of any role and/or responsibility reallocation. This ripple effect can reach all the way down to the clerical level in some circumstances and can negatively affect everything about a firm including but not limited to its workload, quality of life, financial resources, client services and or service models, future expansion or growth pursuits and many other factors. It is critically important a ripple effect analysis be performed to the lowest levels in the firm when determining a firm’s ability to exercise an internal succession solution. Many firms have done this analysis only at the partner or senior staff level and soon discover the internal succession solution may have been reasonably successful at the highest levels in the firm but created chaos beneath that level.
• What is the overall expectation level of the ability of the new partners to completely “fill the shoes” of the retiring partner(s)? And what is the ripple effect if the expectation level is not, understandable so, to step in and immediately assume 100% role and responsibility?
• What is the lead time your firm feels is necessary to groom a successor partner? Many firms identify that a minimum two year window that is required to give both notice of retirement and for the “replacement partner” to begin this timing is reasonable and usually works well.
• Can the “Productivity Capacity” be reallocated? If so, what is the ripple effect on the person or persons to which it is reallocated? Replacing a partner’s leadership role or client relationship responsibilities is one necessary act, and replacing the productivity capacity is another. To identify the productivity capacity it is not just a question of “what is his or her book of business?” or the fees associated to that partner. Identifying productivity capacity is a series of questions focusing on “Who, What, When, Where, Why & How Much?”

Does a retirement-minded partner have any specialties or licenses that a firm would lack once the partner leaves?

• If in fact this issue exists, it is often a very challenging situation, and goes back to our suggestion that both the role and responsibility must be replaced. It also supports our suggestion that a two year notice allowing ample time for role reallocation or role succession be enforced. Having too much time is better than not enough.
• The two-year notice period we recommend will also allow time to conduct an external search if the solution is not currently in-house. Depending on the role you are replacing a two year window may not be enough. It may take a year to find a suitable replacement and then the transition itself may need an additional two years.
• On the other hand, it may be perfectly acceptable to a firm to allow a certain responsibility or service formerly provided by the retiring partner to cease to exist if the impact is small and the benefit of replacing that role or responsibility is negligible to the firm. This decision can be a sound business decision and one that is good for the firm, under certain circumstances.

For more information:

• How to Manage Internal Succession by Joel Sinkin and Terrence Putney, Journal of Accountancy, c2014
• Making the Transition-Has Your Firm Got What It Takes For a Successful Succession? by Joel Sinkin The Practicing CPA, c2011
• Planning and Paying for Partner Retirements by Joel Sinkin and Terrence Putney, Journal of Accountancy/AICPA, c2012