The Mandatory Retirement War – A Reader’s Response

Marc Rosenberg, CPA / Aug 29, 2016

Mandatory retire Pt 2Last week, we received several comments to our post on mandatory retirement, evidence that this concept is indeed controversial. This week, let’s drill down further.

Firms’ positions on mandatory retirement vary widely.  According to the 2016 Rosenberg Survey, 88% of firms over $20M have mandatory retirement compared to only 60% of $2-10M firms.

My mother Florence was legendary in our family for uttering phrases oozing with wisdom, though she rarely created them.  One was:  “If you saw a bunch of people jumping off a skyscraper, would you?”  Well, just because the “big” firms have mandatory retirement, does that mean your firm should blindly follow suit?

Last week I defined the two camps in this war:

What’s-best-for-the-firm camp:  Firms need an orderly transition of clients and firm management to new leaders, and this progression is unlikely if the young talent sees senior partners hanging on too long. Mandatory retirement helps firms achieve seamless succession planning.

It also formalizes firms’ commitment to continuous leadership development and succession planning. The lack of such a policy emboldens the resolve of unproductive, aging partners to stay as long as they want and makes it awkward and difficult for younger partners to gracefully retire them.

Mandatory-retirement-is-wrong camp:  Small business owners have the inalienable right to decide when and how they retire.  They don’t want to be forced out. They reason “as long as I’m healthy, sharp and productive, why should I retire before I’m ready?”


CPA Firm Partner Retirement / Buyout Plans addresses ►What CPA firms are worth ►What ‘s required of partners to get their buyout ►Valuing goodwill ►6 methods of determining an individual partner’s buyout ►Vesting ►Notice and client transition requirements ►Mandatory retirement ►Non-compete and non-solicitation covenants ►Prevent your plan from becoming a Ponzi scheme


We received a comment from the MP of a successful $10M in the Midwest that is profitable, growing and progressively managed, which does not embrace mandatory retirement.

The MP explains:

You frame the use of a mandatory retirement age as being “good for the firm.” I respectfully disagree in that in it not necessarily good for the firm. The use of mandatory retirement promotes short-term thinking and an unwillingness to invest in recruiting, staff development and infrastructure to build a sustainable firm. One of the biggest problems and biggest turn-offs to younger partners and staff is that the accounting profession is often dominated by short-term thinking. It’s all about making money today at the expense of tomorrow.

My opinion is that partners should work as long as they are productive and held accountable for their performance. A better approach is to transition firm leadership to the younger partners. Senior partners should be required to transition clients as well.

One cannot categorically say that having mandatory retirement is automatically good for the firm.  There are negative consequences to mandatory retirement that firms often fail to consider.

In our firm, we do not have a mandatory retirement age.  I have already identified my successor (this MP is in his mid-50s) and probably will transition a large part of my client responsibilities in the foreseeable future.  At the same time, we admitted new, internally developed partners with zero buy-in, bought firms where the real payoff is years away and made investments for years that are now paying off handsomely.  We made these investments all along.  We don’t need a mandatory retirement policy to make the right decisions for the future.

A mandatory retirement policy alone may be an ineffective succession planning strategy.  In order for mandatory retirement to work as a tactic it should be part of an overall succession planning strategy.

One might think the term progressive could never be applied to a firm that lacks a mandatory retirement policy, but as this MP’s remarks attest, the two are not mutually exclusive. Well said, my friend!

 

1 Comment

  1. Anonymous on August 30, 2016 at 3:23 pm

    The reader’s response is very well written. But most firms are not managed that well. That likely includes us.

    I agree we have all seen, (some of us firsthand!) partners staying too long and milking the firm’s good will and capital. Often the partners are really semi-retired for years and complain about how difficult it is to find capable help. That’s not accurate. We’ve found some exceptionally talented employees, managers, and near term partners.

    The best prospects for management and succession become frustrated and leave, and may take clients and staff with them. Those unable to leave are the least qualified and capable of eventually running the firm when the partner(s) finally retire.

    I personally am not ready to retire, but will continue to transition management, client responsibility, and ownership. By design my personal income will continue to be reallocated to others and will slowly decline. I don’t want to stay too long, both from a business perspective and a personal family life perspective. I hope that I’ll be aware enough to know when it’s time.



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