UK200 Group - Autumn Succession Survey Update

Dains Managing Partner Richard McNeilly gives an update on the inaugural UK200 Group succession survey.

Dated: 17 December 2019 Author: Richard McNeilly, Managing Partner

The inaugural succession survey, completed in autumn 2019 by a cross section of UK200 firms highlights some key areas for action for progressive legal and accountancy firms.

The survey canvassed opinions on people succession and business succession and there are some significant trends emerging.

Notably, 88% of all firms surveyed believed that the traditional lock step model to achieve partnership has become out of date. The reasons behind this are not straightforward but work/life balance, attitude to debt and personal financial stability are all contributory factors. Moreover, in a digitised, competitive environment, non-technical skills, such as digital awareness and business development are more highly valued and there is anecdotal evidence that there are highly effective and profitable staff emerging at a younger age in practice. In some cases an individuals' market value may belie their time served experience, which causes problems given the traditional model, operated by many firms.

Just 27% of respondents would choose a partnership model, were they starting up in business today. Whilst this is no particular surprise, it does add weight to the growing argument for those commentators, myself included who believe that there will be a shift towards employee ownership over the next few years. This trend is already prevalent in other 'people' industries and one only has to look at the success of John Lewis, Mott McDonald and Arup, under this model. 50% of all Employee Ownership Trusts are engaged in professional services and they now account for 4% of UK GDP. Employee Ownership will not be the only alternative model and in Q3 of 2019 professional services dominated the IPO market and there have been notable transactions, particularly in the legal sector, such as Gateley Plc and Knights Plc.

There is a recognition amongst most firms that millennials are typically looking for more flexible work schedules and improved work/life balance but in return they are more prepared than earlier generations to change location or even industry to find the right role. Savvy firms aren't wrestling with these trends, they are embracing it but nevertheless there is still work to do in terms of planning succession and people development. Almost 60% of firms have no formal succession plan but 75% expect to appoint new equity partners in the next 5 years. Interestingly only 4 in 10 firms have developed structured leadership training and one wonders how future leaders are supposed to develop their skills?

On the whole, firms are not under pressure from Managers and Directors to create partnership opportunities, with only 31% of firms citing this as an issue and there are concerns over the preparedness of new equity partners to take on risk - less than half of respondents felt that new equity partners freely accepted risk of business ownership - another red flag for the future perhaps? The majority of firms still see future ownership in the hands of upcoming partners, which suggests there may still be life in the partnership model yet! 

Approximately 1/3 of respondents cannot see a future as part of a consolidated model and are not open to the prospect of a sale and almost 60% of firms remain steadfastly independent. This also suggests that many firms will continue with their existing structure, albeit 45% are acquisitive and many UK200 firms have already engaged in growth by acquisition. The evidence suggests that there is room in the market for consolidation but that most firms have a healthy scepticism, which is not uncommon in high performing businesses. 

I am certain of one thing, the demand for talent will grow and the issue of succession will remain a feature in high performing businesses for some time to come. Artificial Intelligence will transform the market in years to come but people are our lifeblood and operating in a modern structure, meeting the needs of all stakeholders is something that all firms should keep on the agenda.