Insight Blog

Succession Planning for AEC Firms

Succession Planning for AEC Firms
How do Architecture, Engineering, and Construction firms prepare for a transition as their owners and principals plan for retirement?
According to a recent New York Times article, 2.9 million workers ages 55 to 70 left the labor market since March. It is easy to attribute the surge in early retirements to the current pandemic. The Centers for Disease Control and Prevention state that adults over 65 are at higher risk of severe illness from the coronavirus than those of other age groups. Because Medicare eligibility begins at age 65, and social security benefits activate within one year, it may be economically feasible to heed health warnings and opt out of the workplace if remote work is not a possibility. However, some firm owners and principals within that demographic are staying put as they attempt to make up for lost profits or stalled returns on retirement investments.

Architecture, Engineering, and Construction firms specifically may lack a suitable successor within the organization. Many firms are family-owned businesses and owners would prefer to turn the reins over to the next generation. When adult children or other relatives are not interested nor prepared for a high-profile leadership role, the owner may postpone retirement.

In other cases, owners or principals are not ready to say goodbye. With much of their identity tied to the organization, they may wish to transition to retirement via a part-time schedule or as a retained consultant.

In April, the ACEC Research Institute, in partnership with FMI Capital Advisors, released findings from its annual Ownership Transfer and Management Succession (OTMS) Survey. Responses came from owners of U.S.-based firms valued at between $1 million and $1 billion. With only 15% planning to sell their firm to a third party, that leaves a large majority (85%) eligible for succession planning.

While almost two thirds of firms have an ownership transition plan in place, only half have a clearly defined set of ownership criteria. The criteria is crucial for recruiting and retaining top performing talent. Also notable, of those firms that lack a formal ownership transition plan, 41% have not yet explored any options.

Whether your firm falls into the group that has—or has not—explored the options, the following five suggestions for successful succession planning may be beneficial:

Start Planning Today

Your succession plan is part of what seals your legacy. To allow the firm to capitalize on what you have worked for and the brand and reputation you have built, it is important to document those efforts. As part of a strategic planning process, define the organization as you see it and include your wishes for it. If you play an active role in client relationships, think about how they will be managed. Consider who is capable of maintaining the vision and values of your firm.
If timing permits, allow for an employment overlap with your successor in order to truly communicate and guide the person to whom you will be passing the torch.

Make it a Team Effort

The succession planning and implementation phases may include a committee represented by Human Resources, Marketing and Communications, Business Development, inside or outside Legal Counsel, Accounting, and others from upper management. 

One person may stand out during this process and demonstrate true leadership potential. Even if one of these executives is not ultimately chosen to be the firm’s next leader, the team still knows the business best, and they have unique skill sets and perspectives to lend to the process.

Name yourself (the retiring owner or principal) as the committee chair to prevent a power struggle in a time when collaboration is most important.

Encourage the Team

Discuss the positive implications that the committee can have on the organization long term.

Correlate planning endeavors to performance reviews in order to hold executives accountable for the results of the committee. Consider bonus opportunities for extra hours spent on the initiative as well as for meeting timing goals. By tracking the key milestones of finalizing a strategic plan, determining the steps of a succession plan, and identifying potential candidates, you can generate enthusiasm within the organization. 

Cover Your Assets

Connect with financial advisors, such as a tax and consulting firm or a wealth management solutions firm, to evaluate your financial position. These professionals can assist in putting together a plan to determine the value of the company, prepare for the sale of the business—if applicable—as well as facilitate numerous other steps to ensure the business survives and thrives after your exit. If you prefer to retain a financial stake in the firm while stepping down from a leadership role, communicate that to your advisors, internal committee, and potential successors. The more transparent you are about your plans, the better your team can support them.

Find the Talent

Identifying talent is a key component of succession planning. Developing a strong pool of candidates is important, as is your commitment to a fair and thorough search. Explore talent options both inside and outside your firm. 

Consider utilizing a third party to screen, interview, and assess candidates, especially when internal executives are in the running for the role. Consultants are knowledgeable on how to determine and weight selection criteria. Their fees may be the best investment you make as hiring your successor is crucial to your organization’s future.

If you would like to connect with a Helbling search consultant about these suggestions or other succession planning advice, please contact us.