After working together for 35 years, four equity partners in a boutique New Orleans law firm are preparing to transfer ownership of the business to their younger associates. One of the partners intends to start a solo practice, while the other three will stay on as consultants. The handoff isn't exactly going smoothly.
"My partners are having trouble letting go, and the associates are nervous about taking on so much responsibility," says one leader, who requested that neither he nor the firm be named due to the sensitivity of the situation. "Everyone is kind of dragging their feet."
The partners—all in their mid-to-late 60s—are part of a wave of Baby Boomers who soon will be deciding what to do with the businesses they have built as they reach retirement. Twelve million Baby Boomers own their own companies, and 70 percent of them will retire over the next two decades.
Yet, according to a study of 200 privately held businesses by Wilmington Trust, nearly 47 percent of business owners over age 65 do not have a transition plan for themselves. Reasons vary from "senior leaders are having too much fun" to "founders aren't ready to leave."
Developing a strategy for small and midsize businesses (SMBs) is especially important because, in many cases, there isn't a deep bench of talent with the ability and/or desire to take over the enterprise.
It's not just top executives who need successors, though. SMBs with long-tenure Boomer employees in key roles must address how they'll handle the departure of decades' worth of knowledge and skills that may be lacking among remaining staff.
"If business owners want a company to continue to have value, they must have an exit strategy" for themselves and for their top Boomer talent, says Chris Cancialosi, founder and partner at gothamCulture, a New York City-based management consulting firm. "You have to plan for what happens when you're not there—that's your responsibility as a leader."
Most small-business owners don't know the best way to leave the organization they built, says Edward Webb, a partner in the advisory group of BPM, an accounting and consulting firm in the San Francisco Bay Area. "They have been the creator, manager, cheerleader and boss; their identity is completely wrapped up in their business. ... Small-business owners face a sense of loss, and the 'grieving' has to be recognized and processed."
Cancialosi recommends that, as part of their exit strategy, owners and leaders switch from working in the business to working on the business.
Stan Schneider is doing just that as he contemplates his departure as president of Metis Associates, a New York City-based research and consulting firm that specializes in educational institutions and nonprofits. The 71-year-old no longer works on client projects and is focused solely on marketing and oversight of the firm.
Schneider is giving himself three years to make a retirement decision, though that is subject to change. He's considering his options: selling the business or merging it with an outside firm that shares its mission, or transferring ownership to the organization's more than 30 employees. He's currently leaning toward the first scenario because he doesn't think anyone else is currently ready to run the company.
"Our value is in our clients and client relationships," Schneider says. "We want to be as honest and transparent with them as possible. We want to make sure they know there will be continuity in service, regardless of who is in charge."
One advantage the company has is a very loyal workforce—the average tenure among employees is 19 years. Before individuals retire, they tend to partner with the company to tailor transition strategies that accommodate their needs as well as the business's.
When one senior leader announced that she was ready to retire, she reached an agreement to phase out of her employment slowly. She began by taking Fridays off, though she offered to be available if needed. Her plan is to gradually transfer her responsibilities to two of her team members. When that process is complete, she will say her goodbyes.
Riding the Retirement Wave
Here are steps your organization can take to help develop a plan and process to manage the departure of retiring workers.
|Determine your organization's goals. Extensively survey all levels of the corporate hierarchy. Conduct focus groups to delve deeper into the company's needs and employees' desires.
|Define what you want from employees. Is your organization trying to incentivize long-term employees to stay full time? Part time? As mentors? Or do you want to make it easier for them to leave?
|Make sure senior executives are committed to the plan. Changes will be enacted more easily if employees understand that management considers the policies a priority.
|Promote the plan vigorously. Publicize it internally. Hold educational meetings. For example, if you decide to offer phased retirement, send clear signals to older employees who may be reluctant to reduce their work hours that their contributions are valued.
|Be specific. Outline exactly who is eligible for each program to avoid conflicts and misunderstandings. If you opt to offer phased retirement for only certain segments of the workforce, for example, explain the rationale to everyone. Conversations about age and retirement are fraught with potential liability issues. Choose your words carefully.
Passing the Torch
Unlike other forms of turnover, retirement is usually predictable, which gives employers time to prepare for departures. However, while companies may develop strategies for C-suite transitions, they often don't consider how the loss of other talent can affect business operations. Marie Pawlak, principal at Plainfield, Ill.-based consulting firm Planning 101, strongly recommends that smaller, privately held companies create multilevel succession plans that allow them to identify and develop talent at every tier of the enterprise.
"All succession plans need to be in alignment with the long-term strategic vision of the organization," she says. "Succession planning is not about moving people into management but about helping them develop the skills, knowledge and attributes that get them to the next level of their careers while benefiting the company long term."
When there isn't an internal candidate to replace a retiree, it's smart to encourage the outgoing Boomer to overlap with his or her successor. How long the arrangement lasts depends on a variety of factors, including the complexity of the job, the retiree's timetable, and the successor's skills and experience.
When a senior accountant at Kreischer Miller signaled her desire to retire, a replacement was hired immediately even though the accountant wasn't planning to leave for two years.
"We wanted her successor to work with her for a full calendar year so they could experience what our busy season is really like," says Mark Metzler, director of audit and accounting at the Philadelphia-based accounting firm.
While not every business can afford to do that, Metzler says his company saw it as an investment.
"When valuable employees retire, we need to have their successors waiting in the wings," he says. "It's our way of making sure that our clients continue to have confidence in us."
"Companies need to treat intellectual capital like any other kind of capital," Cancialosi says. "Knowing who knows what, who needs to know what and how to transfer that knowledge is critical. Developing an effective way to transfer knowledge can save you headaches and even save your business."
Management expert and Harvard Business School professor Dorothy Leonard says employees at SMBs with critical, experience-based institutional knowledge and subject matter expertise have "deep smarts." When they retire, she believes, it is important for them to be able to mentor their replacements for a period of time.
"Ideally, you are not waiting until someone is on their way out the door before you start transferring deep smarts," says Leonard, co-author of Critical Knowledge Transfer: Tools for Managing Your Company's Deep Smarts (Harvard Business Review Press, 2014). "It's best if there is a culture of learning that makes knowledge transfer part of everyday work."
Yet some older workers employed at SMBs would rather hoard knowledge than pass it along. Leonard cites three main reasons for such behavior:
- Financial incentives.
- Personal ego.
- Discontent or frustration with the company.
Pawlak says that when she consulted for a midsize construction company, the chief executive had an "aha!" moment when he realized that he had fostered an environment where employees didn't share their knowledge.
The problem surfaced when a machinist who had been with the company for more than 30 years told his managers that he planned to retire in three months. Management assumed that someone on his team could easily move into the position, but they were mistaken. The machinist hadn't taught his colleagues what he knew because he was afraid if he did, he'd be replaced before he was ready to retire.
That's a common concern among older workers, Pawlak says.
"When you don't value your employees, you only begin to realize everything they do after they're gone," she says. "You should know what they do before they leave."
The CEO in this case took the unusual step of apologizing to employees for creating a culture of secrecy and mistrust. He then worked with his HR director to create job-shadowing and cross-training programs to instill a new mindset.
Another way to rid your organization of knowledge hoarders is to incentivize knowledge sharing. Some SMBs do that by doling out bonuses based on a team's performance instead of an individual's accomplishments.
Others find that employees are more often willing to share their knowledge if they are also learning.
"While you're training your replacement, you're also being trained to replace someone else," Metzler says.
Who's Ready to Step Up?
It's estimated that by 2020, 31 million jobs will become available as Boomers retire, and another 24 million new jobs will be created. However, the population of younger workers with education and skills to replace Boomers isn't large enough or growing fast enough to make up for the shortfall, according to a Georgetown University report.
SMBs and the Boomers that own and manage them will increasingly need to look to Millennials, who now make up a plurality of the workforce, to replace departing employees. That's making some business leaders nervous given the younger generation's penchant for job hopping. In fact, Millennials are nearly twice as likely to quit a job as those from other generations, according to a report from Visier, a San Jose, Calif.-based business analytics software firm. However, it's worth noting that Millennials who were provided career-growth opportunities were more likely to stick around than those who weren't.
Millennial managers who have not received a promotion resign at a rate 5.2 percentage points higher than average, the Visier study found. Meanwhile, Millennial managers who have been promoted in the past 24 months have a resignation rate that is 3.1 percentage points lower than average.
"Our analysis confirmed that Millennials change jobs significantly more often, but it also uncovered the power of promotion as a key factor in motivating Millennials to stay," says Visier CEO John Schwarz. "Our recommendation is … give your brightest prospects places to go within your organization."
Careful planning and a thoughtful transition process can ensure your organization remains strong for generations to come.
Arlene S. Hirsch is a career counselor and author based in Chicago.
Illustration by James Fryer.
SHRM provides a wealth of resources to help companies plan for aging and retiring workers:
|Book Blog: The Making of a Modern Elder
Young CEOs and managers can benefit from experienced employees' insights, emotional intelligence and leadership skills. Learn how organizations can tap into the wisdom of these so-called modern elders and recognize their value.
SHRM HR Q&A: How Does the Use of Trend Analysis Fit into the Overall Workforce Planning Process?
Use trend analysis to identify the human capital that will be needed to meet business objectives.
SHRM Survey Report: The Aging Workforce—State of Older Workers in U.S. Organizations
This research examines current demographics and discusses what actions, if any, organizations should take to prepare for an aging workforce.
AARP’s Life Reimagined for Work Project
AARP works with job seekers to learn what they're looking for and connects them directly with employers looking for talent.