In June 2004, Steve Haskell met with his four partners at Irvine CPA firm Haskell & White. As managing partner, he told the group that the firm’s top priority for the next year would be succession planning — “because I’m not going to be managing partner of this firm in five years. No, make that three years.”
None at the meeting realized how quickly this precautionary action would become an urgent need.
Three weeks later, Haskell was diagnosed with lung cancer.
He died Sept. 6, 2005, at age 53.
Although Haskell & White lacked a formal succession plan, it had the philosophical foundation and 14 months to plan a smooth transition to new leadership without financial strain.
“We had the advantage of knowing that Steve was sick,” says current managing partner Wayne Pinnell, 42. “I got an extra year of learning from him.”
Most privately owned companies aren’t nearly as well prepared. An estimated 85 percent have not made adequate plans for who will take over when the current leadership is gone, according to Authoria, a human resource management consulting firm in Massachusetts.
A vacuum in leadership can leave such companies vulnerable, perhaps even lead to their financial ruin after the abrupt loss of a key owner. For example, after Reginald F. Lewis, chairman and controlling shareholder of TLC Beatrice International Holdings Corp., died of a cerebral hemorrhage at 50 in 1993, a three-member committee ran the office of chairman. Then Lewis’ half-brother headed the food company briefly. Within a year, Lewis’ widow took over as chairman and two years later started selling off parts of the company.
To avoid such problems, Haskell & White made perhaps their most important decision affecting succession planning in the early years, says Dave White, now 68, who semi-retired in 2003. He and Haskell had been partners in another CPA firm since 1975 and formed Haskell & White in 1988.
“We had been approached by national accounting firms that wanted us to join them,” he recalls. “That would have been more lucrative for us. But Steve and I always wanted a firm that would continue after we were gone. Our succession planning was driven by that.”
When selling is business owners’ exit strategy, they typically build their companies by developing a solid local client base that will entice a buyout offer from a larger competitor, White says. In contrast, to build a legacy firm like Haskell & White, owners focus on hiring younger talent that values independent ownership and can develop leadership skills.
Haskell & White was known for its strength in the real estate industry when in 1995 the partners hired Pinnell, an audit partner at a second-tier national accounting practice, to attract clients in other industries and eventually to replace White. In 1988, Pinnell took over the audit side of the practice from White.
“By hiring partners who could replace us, when (Steve died) we all grieved, but there didn’t seem to be much concern by clients about the level of service,” White says. The role of managing partner was not Pinnell’s goal when he came to the firm, he says. However, because five partners had left the firm in 2001, Pinnell was the logical successor when Haskell’s illness was diagnosed.
Haskell stepped down as managing partner in late July 2004, and the firm’s partners immediately chose Pinnell to take over that job.
“Wayne was the person ready for this spot,” White says. “Another reason he was chosen was his moral compass. The No. 1 company value is ethical conduct.”
Pinnell and Haskell worked closely for the next 13 months to strengthen the firm for its next phase of development. For example, they and the other partners set goals through 2009, identified gaps in the staff’s expertise, and tried to anticipate potential departures and retirements. One partner, for example, is in his late 50s, so a younger person needs to be groomed to replace him.
The firm started a strong recruiting effort, bringing in four more partners and 15 employees, which expanded the staff to 70. Pinnell expects the staff to double in four years.
“We’re continually looking at where people, either outside our firm or inside, are in their careers,” Pinnell says. “Our focus is getting the right people. As they say, hire for character, not hire characters. Internally, we focus on training and coaching … to develop and retain people.”
Pinnell faced typical challenges of a leadership transition.
“I was hit several times with ‘Steve wouldn’t do it that way.’ Well, I’m not Steve,” he says. “Change happens, especially when you grow, and people hate change.”
As Haskell’s illness became known in the community, competitors warned Haskell & White job applicants that the firm might be shaky.
“I have heard that (the public) thought we were hurting financially because of Steve’s death,” Pinnell says. But that wasn’t true, he adds. “We had the finances in place, so we’re fine.”
Life insurance on partners is affordable if locked in over a long period of time, he adds. For example, a $1 million, 20-year policy on him costs $850 a year.
Employees tended to express their concerns to their managers, not to Pinnell, so he met personally with managers to answer the employees’ most frequently asked questions: No, the company wasn’t going to close. No, it wasn’t in financial trouble. No, it wasn’t going to change its name.
The process persuaded the Haskell & White partners that they need even better planning for the next succession whenever it comes. As part of that effort, the firm is in the process of reviewing the partnership agreement related to retirement and disability to make sure it contains no hidden pitfalls.
Pinnell is already looking for his own replacement.
“All the partners are my age or older, so it’s likely that the next managing partner of Haskell & White is not a partner right now,” Pinnell says. “Sixteen months on the job, I’m already asking who’s going to take over for me.”
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