Partners: Get a Hobby!
Warning: This article may be very difficult for partners over 55 years of age. It could trigger high levels of anxiety and even tears.
A journal article I wrote about 15 years ago (yes, before blogs!) was “Partners: Get A Hobby!” I got as many compliments on this article as on any of the 500 I’ve written. So, I thought I would take this article out of the closet, dust it off and refresh it to reflect my experiences since then.
The Backdrop: Mandatory Retirement
To set the stage for the rest of this blog, mandatory retirement needs to be explained.
- Mandatory retirement has its roots in the one-firm concept: the interests of the firm should always be more important than the interests of any individual partner.
- Barry Meloncon, long-time President and CEO of the AICPA, says: “Mandatory retirement allows for a predictable progression of lesser tenured, and often more diverse, individuals into the firm and facilitates the orderly transition of a firm’s clients from senior partners to those who will succeed them. This policy serves the public interest by protecting both the firm’s largest asset – its client base – while meeting the clients’ needs by assuring them of continuous service without the disruption that might be caused when their lead partner leaves the firm.”
- When aging partners stay around “forever,” it sends a message to younger partner potentials that their opportunities to assume leadership roles in the firm may be limited because these older partners cling to their clients. It will become difficult to retain these stars because they see a limited future.
- Partner buyout payments are made for one reason: to facilitate the firm’s retention of the retiree’s clients. It is not a reward for longevity or for being a “good partner.” No firm would pay significant buyouts to retired partners if they knew for sure that their clients would all leave. The longer a partner hangs around, the more likely it will be that their clients will gradually peel away. So firms don’t want to be in a position of paying $1M or more in retirement benefits to a partner whose clients leave the firm. Mandatory retirement provisions are designed to provide for the orderly transition of clients from older to younger partners. This increases the likelihood that clients will stay after partners retire.
- Sad to say, when partners reach an advanced age, their skills diminish and many are unable to fully perform partner duties. I’ve seen this repeatedly throughout my career.
The Rosenberg MAP survey shows that 78–91% of all firms over $5M have mandatory retirement provisions.
CPA Firm Partner Retirement / Buyout Plans is a must-read for firms that need to update their existing plans or write a new agreement. The book addresses ►what CPA firms are worth ►what partners must do to get their buyout money ►how to value a firm’s goodwill ►the acid test of a well-conceived retirement plan ►6 methods of determining an individual partner’s buyout ►vesting ►notice and client transition requirements ►mandatory retirement ►non-compete and non-solicitation covenants
What triggered my original article?
I was facilitating the retreat of a 10-partner firm. Succession planning was on the docket. When we got to this topic, we discussed whether or not the firm should retain its mandatory retirement policy. I shared with the group why firms have mandatory retirement provisions in their partner agreement.
This firm had one partner who was weeks away from reaching its mandatory retirement age of 65. This partner had a solo practice that was acquired by the firm ten years prior. Unfortunately, this partner, who had performed well – but not great – during her earlier years with the firm, had been on the decline. It was time for her to retire.
At the end of the discussion, not surprisingly, this partner begged her partners to waive mandatory retirement for her. Accounting had been her life for 40 years, and she couldn’t imagine not doing it. She said she didn’t know what she would do with herself because… she didn’t have any hobbies.
It was a sorrowful moment which was painful to observe. Right then and there, I thought to myself how important it is for partners to have other things to do with their lives besides accounting. In other words, all partners should have hobbies to fall back on when they retire. And they should be passionate about those hobbies.
A real dilemma
This scenario plays out at many, many firms. Partners have gotten so enamored at the prospect of getting two to three times their compensation upon retirement that it has caused them to overlook other important things.
Many firms have retirement-age partners who are staying on, or want to stay on, despite the fact that it makes sense for the firm for these partners to retire. This creates a difficult position for the firm. CPA firm partners are, if nothing else, genuinely nice people who don’t want to feel like they are “throwing” aging partners out the window against their wishes. So an unspoken stalemate occurs – the remaining partners want the older partner to retire but the older partner wants to keep working. I have seen this at many, many firms, and it is a gut-wrenching situation for all involved.
So, my advice to partners of any age – get yourself a hobby!
If you need inspiration, here are some examples:
Recreation: golf, traveling, gardening, hiking
Family: spending time with children and grandchildren
Professional: volunteer on boards, mentor college students or young professionals, be a small business mentor with the Service Corps of Retired Executives (SCORE).
Community: volunteer at civic organizations (not necessarily on the board), participate in fundraisers
Don’t become that aging partner who, seemingly in the blink of an eye, sees their life change from being a young whippersnapper to a partner in the twilight of their career. Take the time to cultivate other interests. Start early, so that when you reach retirement age, you have choices for what to do with the rest of your life. Don’t be a burden to your other partners.