Contributed by The AIA Trust
Leadership succession IS the future. Recruiting employees who have the potential to take the firm into the next generation is imperative. Fostering staff development, identifying and grooming future firm leaders requires long-term planning to achieve successful continuation of a firm based on a productive, thriving, and successful staff. Succession planning has long been a measure of good management – and it involves an investment of both time and money.
Ed Hord, FAIA, founder and senior principal of Hord, Coplan, Macht in Baltimore, emphasized in his article, Architecture Firm Ownership Transitions, that running a firm that is successful and profitable is not enough. If one wants to create real value in a firm that could in later years fund a founder’s retirement, then great attention needs to be paid to the development and retention of the next generation of leaders. And once a firm invests time and money in mentoring and training ambitious, intelligent young professionals, one must ensure that they are well compensated – including firm ownership – to share in the financial success of the firm as an incentive to continue building value in their current firm.
As summarized in the article, Principal Interest by Scott Simpson, FAIA, LEED AP, becoming a firm principal requires new responsibilities that one may not yet have acquired the knowledge to perform. It also means taking on risk, financial and professional, when firm ownership is considered, with an opportunity to share in the profits and the losses. Incoming leaders need to embrace an entrepreneurial motivation and an understanding of and tolerance for associated risks.
He adds that not everyone is cut out for becoming a firm principal, which is fine – but for those who are ready to take it on, becoming a principal can be enormously rewarding. However, it will change almost everything – from work relationships to work responsibilities to workload. But becoming a principal will open new doors to leadership and influence, including in shaping the future of the firm’s projects, their staffing and production. Simpson advises one to assess the potential objectively since becoming a principal is essentially a business transaction. Since most architects are not trained in business management, there will be an ongoing and steep learning curve and associated risks.
Simpson also advises before taking the plunge that one consult a lawyer to fully understand the structure of your deal and your ultimate exposure. This should also include researching firm prospects, legal issues, staff qualifications and stability, etc. – all of which may affect future success, determining how you will be able to meaningfully advance the mission of the firm.
The Cameron MacAllister Group, an A/E/C business consulting firm, conducted a benchmark study in 2017 about how architecture firms from all over the country with a “high quality design orientation” handle the ownership succession process for one or more founders nearing the end of their tenure. From their study and their consulting engagements, they identified six important steps in successful internal ownership transfer summarized in an article Advice to Potential New Principals, by Mark A. Cameron, Hon. AIA.
Both Simpson and Cameron underscore the importance of understanding one’s financial commitment. Simpson suggests careful review of the firm’s past financial statements and relevant partnership agreements with special attention to liability issues and executive decision-making. Cameron notes that one can expect to bring one’s own money to the initial purchase – which may require a loan or equity line of credit on one’s mortgage. He adds that one can expect to forego bonuses for a few years but that the long view is important and while it may take several years to become fully vested financially, there will be future financial rewards of being an owner.
It is also critical to understand that as a new firm principal, relationships will change. They note that as a “rookie”, it could take up to several years to prove yourself and become involved in executive decision-making. Managing risk effectively comes from business experience as well as aptitude. Proving oneself means working to develop trust with new partners as well as staff. Cameron points out that since you won’t be able to choose your partners, you will need to make a concerted effort to establish trust and rapport with them.
Being sensitive to the firm culture, laying the groundwork for upcoming changes, and communicating in a transparent manner all contribute toward smoothing firm transition. Incoming firm principals need to work on developing clear and authentic communication skills to handle difficult decisions and avoid misunderstandings. As Cameron notes, “becoming a principal is the beginning of a new chapter…moving from the top rung of the staff ladder to the bottom rung of the principal ladder…will take time, work, and patience to become truly effective at leading others.”
Cameron notes that developing a broader skill set and taking on additional responsibilities are also key. Skills development needs to include handling staffing and operational details, managing financial aspects of running a firm, winning new work, and handling clients effectively. Taking university-level business classes may be in order, as well as AIA continuing education courses. A sincere commitment to work harder than ever to attract new business, learning as much as possible about effectively marketing the firm, and serving as a firm ambassador throughout the community are all paramount to future success.
Being an owner-principal in an architecture firm “is a sought-after goal of many architectural practitioners,” Cameron concludes. With hard work, Simpson states that eventually you will “be in a position to select the next generation of principals to lead your firm, and if you have done a good job, they will be better and smarter than you are. The ultimate measure of success is to leave the place in better shape than you found it.”
For more resources on this topic, see the AIA Trust webpage of Ownership Transition Resources by clicking here.
Letter from the Editor + Resources >