Each week, The Zweig Letter features commentary from top-flight leaders of AEC firms. Here is a compilation of their thoughts on maintaining the leadership pipeline.
By The Zweig Letter Staff
Nic Andreani, president with W&M Environmental Group, LLC One thing we didn’t expect is the significant impact it has on the firm’s culture. Not only does it communicate that there’s a plan in place, but it shows everyone in the firm that there’s opportunity and recognition for hard work and perseverance.
Al Barkouli, Chairman and CEO of David Evans and Associates, Inc. Ownership transition is crucial, especially for privately held firms in our industry. A lack of internal ownership and inability to transition ownership are key reasons why small and mid-size firms disappear. We had some ownership transition challenges when a few large shareholders retired during the recession in 2007 and 2008, when the markets were declining. In a downturn, buying back shares can be a significant stress on the balance sheet of a privately-held firm. In good times, ownership transition can be a little easier. Either way, firms need to have a funded internal ownership transition plan. The plan must address how a firm will attract or create the next generation of owners.
Mike Cooper, president of HED, Inc. Start now and begin to engage the next generation of owners. Involve them in leadership and develop a reasonable timeline for transition. This should be an ongoing process so that long-term, ownership transition becomes a natural process. Retirements and such should not create undue burden on the organization.
John Hiltz, president of OHM Advisors Several years ago, we identified that our future ownership transition needed to be staggered to minimize volatility while also encouraging the next generation to come to the ownership table. Identifying and empowering the next generation of owners is critical, and we’re fortunate to have 36 partners, all at various stages of their careers. We recommend that firms continually train and develop the next generation of talent, and in doing so, they strengthen their firms and reduce the volatility around ownership transitions.
Ramesh Gunda, Founder and president of Gunda Corporation I once heard from a veteran in the field that you only have three options for ownership transition: transition ownership internally, sell the firm to an outsider, or close shop if you didn’t plan for either of the first two options. Unless you’re comfortable with the third option, it’s crucial to have a strategic/ownership transition plan in place, even for firms that are young or small. The plan will help your team understand where the firm is going and what opportunities are available to them.
Gary Dahms, president, CEO, and chairman of the board for T&M Associates Start now, it’s never too early. We’re wholly owned by company employees. Our stockholders are the owners and leaders. The program we have in place maps out the criteria and steps that need to be taken from any stage in their career to become a stockholder. Regardless of age, our stockholders range from millennials to baby boomers and they must be motivated to improve, innovate, and grow the business. A clear vision and strategic plan for the future helps us to identify those next generation leaders who will help lead the firm to those goals and beyond.
Mark Smolinski, principal at G2 Consulting Ownership transition is a long process that requires planning over a period extending up to a decade. Start early and engage the firm’s future leaders.
Dave Fabianski, CEO of Apex Companies, LLC The value of your company is based on how well positioned it is to deliver sustainable performance and value creation in the years ahead. Succession planning needs to start years before transition planning.
Kevin Honomichl, Co-founder and president of BHC Rhodes It’s a long runway. We’re a first-generation firm and have a stock ownership plan in place. It’s different for every firm. Focus on leadership development. I don’t think ESOPs are the end all. It takes careful planning.
Grant Gibson, founder and CEO of GATE Ownership is the key ingredient for our business. We do this via restricted stock grants and options. The plan was developed more than five years ago and is still in progress. We are just coming out of an oil price crash and that has presented an opportunity for us to issue options to our staff that will see more upside. My advice is to start early and hire some advisors to help you make good decisions.
Ellen Long, President of Long Engineering, Inc. You need to determine an ownership transition timeline first to judge how long you have to invest in new talent. Begin to identify internally if you have potential owners you can mentor and enable them to be financially capable to invest in the transition. In our opinion, it takes eight to 10 years to fully transition leadership and ownership. If you don’t have any options, you may have to consider an acquisition route.
Sepideh Saidi, President and CEO of SEPI Engineering & Construction, Inc. You have to have it – whether internal or external. Leaders need to prepare mentally and emotionally. They need to “have the conversation.” When it’s time, the transition needs to happen quickly. Once that’s realized, the planning can begin to maximize the value of the company. Show potential leaders the opportunities that can be available and then get them ready for that financial commitment.
Jim Tippmann, CEO of FRCH Start early. Create an entrepreneurial culture that encourages leaders and feeds successors to take on new responsibilities. An individual will grow as a person and as a professional in this type of culture.
Lawrence Armstrong, CEO of Ware Malcomb My advice for firms that have not taken steps to identify the next generation of owners is to start the succession planning as soon as possible. Succession planning has been an important part of our culture for more than 30 years. Ever since we transitioned Ware Malcomb from the original ownership, Bill Ware and Bill Malcomb, we’ve been in constant planning for the next transition. It takes a lot of hard work and planning to identify the next leadership team. The succession plan needs consistent consultation with trusted advisors such as lawyers, accountants, and insurance agents. At Ware Malcomb, our succession planning is also tied to the vision for the company. It has never been about the current one or two owners; we focus on the bigger picture. The vision set for the company focuses on building a 100-year business and beyond. To make that happen you must embrace ownership and leadership transitions.
Doug McKeown, CEO of Woodard & Curran Ownership programs need to reflect the ownership goals of the firm. If internal ownership transition is desired, the program should be designed to enable that outcome. Waiting until an owner decides that she or he now wants to sell, might result in the inability for the internal leaders to afford to buy down the founders. Decide what you want to accomplish, design the plan to do that, and work with your team to gain the thoughts and support for the program.
Will Schnier, CEO of BIG RED DOG Engineering & Consulting The secret to an effective ownership transition is to have a plan and strategy for an effective ownership transition. And you’ve got to have that plan in place and executable five to 10 years before the transition is set to be finalized. If that plan is not in place, then you’re looking at an external sale or closing the firm. Nearly every week I speak with a firm owner about an acquisition. We have around $18 million of annual revenue, so our acquisition targets generally tend to be half our size or smaller with a single owner or very small ownership group. Almost without fail, they tell us that they have a plan to sell their firm internally to their next generation of leaders. Of course, when I ask to review that plan, there typically is nothing documented. For owners in that situation, an external sale becomes their only option. With no plan, there is no transition. There is only an external sale or a closing.
Christine Franklin, President of Comprehensive Environmental, Inc. I think it’s a big mistake not to have a plan in place – formal or informal. Time flies when you’re having fun so you don’t want to be caught without a good plan in place. Start identifying your replacement at least five to seven years ahead of your planned exit date and begin the mentoring and guidance necessary to help that person develop the confidence to step into the role. This should be done for all key firm positions.
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