What To Do When a Partner Doesn’t Want to Retire
A firm on the East Coast with 11 partners and revenue of $28M asked me this:
A long-time partner, a “nice person,” is 69. She has been a fairly good rainmaker over the years, but during the past five years or so, she has slowed down and transitioned many of her clients. She is no longer bringing in much business and is not as sharp technically, as she needs to be. The firm has received some feedback from staff that they would prefer to not work with her anymore. This woman does not want to stop working; rather, she wants to continue working indefinitely. Her firm has encouraged her to create a game plan for retiring with dignity, but she is resisting this.
Note: This firm does not have a mandatory retirement provision in their partner agreement.
The best way to solve a problem is to never let it become a problem in the first place. Here is how this is done:
- Have a written, mandatory retirement provision in your partner agreement. Among other items in this provision is the requirement that partners must retire when they reach a certain age. If partners wish to keep working, the firm (a) decides on an annual basis whether to allow this and (b) specifies terms of the work arrangement, such as clients worked on, when they can work, title, position and how they will be compensated.
- Have written expectations for all partners regardless of age, and hold partners responsible for meeting these expectations. When any partner, regardless of age, is unable to perform partner-level duties, this needs to be addressed.
Two big pieces of information are needed:
- How many of the other partners agree that the older partner needs to stop working?
- How widespread are incidents where staff don’t want to work with the older partner?
One of the best ways to get partners to accept tough personal changes that they don’t want to make is peer pressure. If all the partners feel the aging person should retire and there have been situations where the staff don’t want to work with the partner, she should be told this. Hopefully, the partner will see the writing on the wall and gracefully leave on her own. It’s easier to get her to accept retirement if all the partners feel this should happen. There is safety in numbers.
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
Getting the conversation started
- Be totally honest. This requires tough love. Not being direct makes the issue more difficult to handle.
- Emphasize the health of the firm and what the partner has spent a lifetime building. “Your partners are so grateful for your many contributions to the firm. The firm wants to help older partners retire with the dignity they deserve.”
- Say something like “I’m sorry this upsets you,” but don’t backpedal from what needs to be done.
- “A core value of our firm, which I’m sure you agree with, is for partners to always put the firm before individual interests.”
- “I would prefer to avoid going into a bunch of reasons why we feel it’s time for you to retire because we all feel in our hearts and minds that the time is NOW.”
The conversation may require two layers:
- First, without being really strong with them, make them realize that they must retire, but be prepared to…
- Get tougher, be blunt, and give aging partners some sort of ultimatum. Here’s where the tough part comes in. Firms may wish to consider these tactics:
- Point out that they are double-dipping: being dramatically overpaid before retirement followed closely by receiving generous buyouts.
- “Do you really want this discussion to deteriorate and jeopardize your reputation and long-standing stature as a partner? This would make it difficult for us to orchestrate your retirement with the dignity you deserve.”
Remind the partner why firms have mandatory retirement provisions
- The purpose of mandatory retirement policies, as stated by AICPA President and CEO Barry Melancon, CPA, CGMA, “is to allow for the predictable progression of lesser tenured, and often more diverse individuals into the partnership and facilitate the orderly transition of clients, referral sources and networks from senior partners to those who will succeed them.”
- Provide opportunities for younger partners and managers. The firm can’t grow without giving others these opportunities. Younger partners regard aging partners hanging on indefinitely as a big turnoff and it could cause them to leave the firm for better opportunities.
- Provide the money to better compensate other partners by ceasing compensation to the aging partners, who often are paid at premium levels.
Meeting the requirements for remaining a partner
Reiterate how the older partner no longer meets the requirements to be a partner (doesn’t manage clients, few billable hours, not staying current with technical issues, etc.). The main reason firms allow partners to keep working past traditional mandatory retirement age is that they continue to function at a high level, perform partner-level duties and unquestionably continue to make the firm successful and profitable.
Get these partners to see themselves as others see them
Ask the partner to put herself in the firm’s shoes. How can she ask the firm to do for her something that would never be done for other partners? The health of the firm should always come first.
Point out that well under 1% of all firms with at least $10M of revenue have partners who are in their 70s.
One solution may be to isolate these partners. Keep them away from technically demanding work and staff interaction. Their pay needs to be reduced accordingly. They become a non-equity partner or of-counsel, no partner-sized office, utilizing a hoteling concept for their office, no attendance at partner meetings, and no access to the firm’s internal data and other parts of being a partner.
Design a role for them
It must be a win for both parties:
- Ambassador for the firm, mainly bringing in business and maintaining referral sources.
- Small expense account for entertaining clients and referral sources.
- Spell out what they can and cannot do.
- Some client billable hours, but only in areas in which they are technically competent and have no interaction with staff. Much retired partners’ work is confined to 1040s with long-time clients who are friends as much as clients. Pay 35% of billable time collected.
- Establish a date for total retirement, with a phase down.
- Have a great retirement party.
- Put all of this in writing.
I’ve been consulting to CPA firms for over 20 years. During that period, I have met and gotten to know many firms and their partners (albeit a minority of firms) who disagree strongly with any kind of mandatory retirement. Some of those partners will read this blog and feel angry with me. I can take it! I would love for you to comment on this blog with your opinions.
CPA Firm Partner Retirement / Buyout Plans
The guide to creating a well-written, competitive buyout agreement: the industry's first-ever detailed reference source - an invaluable tool for firms drafting an initial plan or revising and updating an existing agreement.Learn More
Good stuff Marc. Having just retired myself I agree that mandatory retirement is essential. It provides much needed capital to the firm to promote the next generation of leaders. We have been charged with mentoring the next generation in many different areas, showing them that there is a right way to retire is one of them.
Many partners forget they have a big vested interest in the future of the firm if they expect to receive their buyout. We do allow retired partners to work at a very reduced rate and limit the number of hours. They must transition clients however, or it creates a dead zone of accountability. In my case, I chose not to continue to work because I was busy with my volunteer role, but I don’t think I would have anyway. Too difficult to stay up on technical issues and firm procedures.
Bill – thanks for taking the time to make your comments. They are especially good to hear coming from such a distinguished person as yourself. Be well.