When Experience & Skills are Counterproductive to Equity Opportunities

When Experience & Skills are Counterproductive to Equity Opportunities
As many firms will confirm, succession is a real and present issue.

Statements that we often hear from practices in search of internal succession options are ‘none of our staff wish to be equity holders in this firm’ or ‘none of our staff are partnership material’. That being said, we would like to suggest that if you have professional staff within the age range of late 20’s to mid 40’s, then you do have potential future equity holders, albeit their willingness to become involved or your eagerness to mentor them into appropriate opportunities.

So, what does it take to be partnership material in your firm?

Perhaps if this can be identified and then documented, those in the firm who may have partnership aspirations can work towards such expectations. A major attribute that we often hear is the ability to bring in new clients. Interestingly, when many senior practitioners were asked if they had this skill when they initially made partner, they would agree that they probably didn’t.

Nonetheless, what else is required?

Do future partners require specific skills? Do they require specific qualifications or training? Do they need to be good at managing people? Do they require good leadership skills? How about good administrative skills?

Once you have that list of requirements, look around the firm and ask whether there are employees who already have these skills or could perhaps be mentored to develop these skills? Now for the honesty part. If your firm does have staff who already possess many of the requirements needed to be a partner, why haven’t they been given the opportunity?

Is it the age of the ‘potential’ candidate?

As eluded to above, we are seeing some new partners offered equity as young as 27 or 28 years of age. Some may feel that this is too young and while it is more an exception to the rule, we are still seeing this on occasions.

Now, what about the other end of the scale?

From experience, it’s highly unlikely that someone much beyond the age of 45 years will become a first time equity holder. Why? ….. generally by the time they buy into a practice (often borrowing funds to do so), manage to repay the loan, gain some benefit from profits received and then look to sell out, the available time period for this overall process is too long for parties much beyond 45 years of age. Naturally, some personal circumstances will be influential here, and as our population ages and people need to work longer this top age range may extend a little. However, at present, if your target first time equity purchaser is late 40’s or 50+ years of age, it’s unlikely to be successful from your longer term perspective or theirs. Plus, they’re less likely to accept the offer and may just end up departing your firm.

That said, another factor that may come into consideration is if the potential candidate is in their mid 40’s, possesses all of the necessary qualifications and experience, has been with their current firm for a period of time, and has yet to be offered equity, Why? ….. is there something less desirable about the candidate and that’s why they haven’t been offered such an opportunity?

While the latter reasoning may be far from the truth, it is worth considering. Such candidates may be over qualified and lack some other attribute which doesn’t make them an ideal purchaser of equity. Or perhaps there are simply no equity opportunities currently within the firm. Where so, or where the practice is not perceived as an ideal acquisition opportunity, the candidate should or is likely to be gone reasonable quickly, onto the next more suitable prospect.

In essence, skills and experience won’t necessarily guarantee equity offers.