Different people, of course, are open about their feelings to different degrees. We had a shareholder who for several months was planning on leaving the firm, but we did not know it. And yet this shareholder was involved in long-term decisions—helping craft the buy-sell arrangements, sitting in on client meetings and compensation discussions.

This was clearly not in the best interest of our firm, but the departing shareholder did not feel comfortable talking with us about leaving. The fact that we weren’t having open discussions about the shareholder’s actual career path meant everybody was making suboptimal decisions. While this example is clear cut, there are more subtle ones. Sometimes people’s management responsibilities are shifted and there are questions about who gets to buy what percentage of the shares being offered. If a person is not open with the group about his or her feelings, unhealthy triangles inevitably form.

It’s generally not helpful to talk about who did what, but it is useful to try to understand what the roadblocks are to communication and look at ways to increase a level of shared interests among those who own a firm.

Profit margins change everything. Again, when Wil and I were growing the business, we never paid much attention to them. We simply made short and long-term decisions that we thought would be good for our clients and the firm. I believe that our shareholders today have the same interests, but the profit motive has certainly made things more complicated.

Since Wil and I are selling our shares based on EBITDA, we can get a better share price by investing less in the business. You would think, meanwhile, that those buying into the firm would want lower EBITDA because it reduces their purchase price, but they also need those earnings to help them pay down the bank debt financing their share purchases. The banks, for their part, want to make sure the margins are reasonable so their debt can be serviced.

In other words, profit margins are conspicuous sticking points in succession plans. Creating a strategy around these margins is critical. If they are too high, there is not enough being invested in the business. If they are too low, the partners could face problems sustaining the business.

We’re No Angels

It can also be complicated if you characterize yourself as an angel. In the beginning, we had some rules that we thought would be good for the succeeding generations. We have a no-nepotism policy, for example, because we didn’t want employees to worry they would be treated less fairly than family members. We also decided to sell shares internally at a lower price than a private equity firm would have paid.

But we are not angels. We can believe these decisions came from the right place, but in the end, they are business decisions. We are not giving away shares in our company. If we did, it would be because we have to. A succession plan should be viewed the same way: It’s not the gesture of a saint: It’s best for me because it creates an orderly process for selling my shares to people whom I trust, people whom I know will take care of clients in a way I’m most comfortable with. I am making a decision that blends the rational with the emotional; I don’t need wings to do this.

Be Ready For Departures