Passing the torch of succession

We all know that our time is finite; sudden succession is traumatic for everyone. When death and disability sneak up on you, it creates uncertainty and angst for everyone around you: customers, teams, family, shareholders, everyone. We all crave certainty, and few achieve a certainty we welcome.

While sitting at the top of the business, the others below you also become anxious or impatient for their turn. How often have we seen or heard of the unceremonious removal of leaders with serious opposition and emotional turmoil? Gee, would it be better to avoid the unnecessary noise and mutilation? Having exited many CEOs over my business career, the only ones who have come close to avoiding such harm are those with high trust and respect.

Many of my generation are heading into their 60s and 70s and their mates are getting sick or dying. We’re beginning to realise that passing on the torch is inevitable. It is best to plan it, consciously grow your teams, and passively groom the next generation of leaders. Internal succession is infinitely better than external succession if you believe you have built a team and culture you care about. Instead of the theoretical, let me tell you my own story.

Firstly, in 2025, Gilligan Sheppard will celebrate its 40th birthday.

Since its inception, I have led it either directly as CEO or as one of two managing partners. It has grown to a team of around thirty in New Zealand and ten in India, from a sole trader to four partners and one salaried partner, and indeed no less than seven other extremely capable team members who could run the ship if they had to.

Around eight years ago, I adopted a corporate structure with corporate titles. I mirrored in GS the best that I had seen, with respect to my other businesses, and launched an employee share scheme on the back of our bonus plan. The bonus plan pivoted five years ago from a mixture of targeted direct and indirect incentives to just team-based incentives. In corporate speak, the bonus and share plans were not intended to be short-term and long-term incentive schemes when run together. We turned the bonus plan into a long-term and short-term scheme combined using bonus banking, which allowed the share plan to be a pure ownership plan.

We also became disciplined about partner salaries; we aggregated the market worth of the four partners and split them equally. Yes, we are a bit socialistic. We treat ourselves as team members, the same as we treat every other member of our team. Partner bonuses are paid on the same basis as team bonuses. In short, I attempted to get rid of the them-and-us culture, so often evident in many businesses.

Having dealt with the unbundling of reward from effort and investment, we then set about establishing better governance processes. For the last eight years, we have had a non-major shareholder director who also took on the role of chair. My reporting to a chair, who in turn reported to me as CEO, didn’t work well. I had hoped it would, but it didn’t. At that point, we appointed our first independent chair, Rebecca Thomas, who retired this year to focus on her main business, Mint Asset Management, a couple of large board positions, and her family. In the meantime, Nigel Scott, who I have known for a while and am in business with elsewhere, left Hobson Wealth and took a desk in our office. He got to know our team, and they him. He sat in on our corporate finance team and then progressively took up roles mentoring and growing a few team members. Thus, when Rebecca signalled a wish to retire around twelve months ago, a seamless induction occurred, and Nigel was appointed our new independent chair last month.

A few years ago, Marion Garlic retired, and we all agreed she could retain her shares until they were needed for future ESOP issues to the team. We had our first non-working team member as a shareholder! In the meantime, three years ago, I handed over the running of GS finances to Yi Ping, and she took up the title of CFO. We also outsourced the COO role to Bill Bain, who grew his successor in Amy Street. At the same time, Joshna and Richard focused on building the corporate finance and tax teams and international connectivity through AGN, our global network. Joshna had the hardest gig, as I reported to her in the corporate finance team, and she had to learn some useful skills to make that work. But we made it work.

I thought I was clever, laying the groundwork for my own departure as leader. I hoped to create something that my family could, if they wanted to, continue to own after my death or exit from the business. I also wanted to create the ‘challenge culture’ necessary to be true problem solvers and creatives, so that I could stay on for a while when we handed over leadership to one of the four viable candidates. Guess what? They knew exactly what I was doing and chose not to call me out. So nice of them, really! I guessed that if we could pull this off over time, everyone would have the option to retain ownership, pursue whatever they wanted, and continue to work in some role after passing their own torches on.

Anyway, the last ten years of succession planning, passively on my part, was designed not to optimise the business for sale at the highest price but to build its resilience and a culture that would remain and be an investable asset.

18 months ago, I signalled to the leadership team and the Board that I would be stepping down as CEO no later than 1 February 2025, GS’s 40th birthday. They had a year to think about that and would need to announce a choice on internal succession in early 2024 to ensure an orderly and pleasant leadership transition by 2025. Why did I choose that time? Well, I am 65, and by 2026, I will be 67, one of the most common ages to die if you are male. I did not want to run the chance of sudden succession for a team of people I care about, nor my clients and community. Further, I am mindful of the fact that my partners are 45 in Joshna’s case and early 50s in Richard and Yi Ping’s case. If I don’t hand over soon, they too will be getting old, so it is better to change the leadership while they have the energy, drive, and courage to take risks and take the next wave up for GS.

I spent the intervening time mentoring and growing a couple of the leaders, and now, finally, we have unanimously picked Joshna Mistry to become CEO in January 2025. This year, she and I will co-lead. However, this does mean that any choice I make that the future will have to pay for, I will defer to her decision. All the partners have grown after clarity on succession occurred, and the next generation of leaders is also stepping up.

So, what has the new leader said she wants from me? I did say that if she wanted me out of the business, I was fine with that. I have several other places I could be, but that would not be my preference. Well, it couldn’t be better. The team wants me to keep growing them and helping our clients solve their problems and grow their businesses, which is what I love doing.

As usual, I have told a story, but the key changes are that GS will turn 40 in 2025 and have a new CEO. I hope the story of how this came to pass, and the collaborative approach, gives you all a sense of confidence in the capability and total alignment we have achieved around our values, vision, and purpose. I hope to still be coming in in 40 years—if I am still breathing!

If others are in my position, the key message is to believe in the people who believe in you, set the groundwork early, and be clear when it is time.

This article from the Gilligan Sheppard newsletter was originally published on Thursday, May 23, 2024. If you would like to receive our monthly newsletter straight to your inbox, subscribe here.