Everything an Employee or Jobseeker Needs to Know about Succession Planning

If you're a mid or even senior level investment banker or trader, you may think "succession planning" is above your pay grade. Well, it's not. Just ask anyone who works for Citigroup, who recently saw their CEO Vikram Pandit ousted and replaced by a relative unknown, Michael Corbat, a Citi veteran who was working in the company's London office at the time.

The swift change at the top of Citigroup put everyone in the firm on notice, that anyone is expendable and that changes can happen at a moment's notice. This hurts morale and puts every employee under a cloud of concern over who will go next. Jobseekers who are interviewing for positions at Citigroup are facing similar questions.

Pandit’s sudden departure the day after reporting quarterly earnings sparked a "chorus of commentary about the board’s handling of this high-profile leadership transition," writes Susan Battley, the founder and chief executive of Battley Performance Consulting.

In an article for Forbes Forum, Battley writes: "Couldn’t the groundwork have been prepared better? Couldn’t a fuller explanation of the board’s rationale have been included in the initial announcement? Probably. The real question is this: Did the Citigroup board demonstrate effective CEO succession planning? And, more broadly, can we infer that corporate boards as a whole are getting better at CEO succession planning."

Succession planning, or what is considered a smooth and orderly transition of leadership at the top, is critically important to the long-term survival of a financial services company.

A recent survey conducted by the American Institute of CPAs found that 79 percent of CPA firms with multiple owners expect succession planning to be a “significant issue” in their businesses in the next decade.

“The accounting/financial practice owners who fail to plan - can plan to 
fail,” says Walter Zweifler of Zweifler Financial Research.

Here are some strategies for effective succession planning:

Start early

“Five years is good. Ten is better,” says Jason Smolen, a business administration attorney in Vienna, Va. “Involve your children and relevant family members in the process. While you know what you’re giving, you don’t always know how it’s being received. So it’s best to ask, and make sure the next generation buys into the arrangement.”

Prepare your clients

“In the financial services arena, personal relationships are one of the keys to business success,” says Richard Lehrer, founder and president of Cambridge Life Brokerage LLC, a New York city financial services company.

Develop a sensible plan

Lehrer says he started laying the groundwork for succession planning at his 23-year-old firm seven years ago.

He says: “I developed a plan including,
first speaking to major Insurance carriers, professional planners, CPA's  and letting them know I was looking for a young person who wanted the opportunity to take over a profitable business in a 10-year time frame.  The person needed to have some experience in the industry, have integrity, intelligence, and sales acumen (and) some knowledge of how a business runs.”

Work out the logistics

Together with their lawyers, Lehrer says, he and his successor met with their lawyers to draw up an agreement.

“We funded the buy out over a period of years in order that he could still afford to hire a top sales executive (to replace me) and still … payout my share of the business,” Lehrer says.

Be thorough and realistic

“Examine the strengths and weaknesses of all possible successors before making a decision,” adds Smolen. “Realize that sometimes the only answer to keeping family harmony is to sell the family business to an outside buyer.”