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Succession planning best practices for capital markets firms

When it comes to restructuring your firm and passing the torch from one partner to the next, failing to plan is the same as planning to fail. Capital markets firms need to prioritize succession planning, and to treat unexpected partner vacancies as seriously as other risks in the financial services space.


Unfortunately, only 21% of organizations surveyed by the Society for Human Resource Management (SHRM) in 2021 reported having a formal succession plan in place. Neglecting succession planning is a common mistake, even among experienced leaders in the capital markets industry. In Robert Finkel and David Greising’s book The Masters of Private equity and Venture capital, John Canning, Jr., Chairman of Madison Dearborn Partners, describes his own misstep:


We went through our [fundraising] presentation: how much we planned to raise, the industry sectors we thought we would target, the experience of the partners in the firm. As we wrapped up, I turned to French and his partners in the room for questions.

“Now, what are the succession plans?” French asked.

Dauten and I looked at each other. Everyone else looked at us. We had no answer. It was just something that had not crossed our minds.

After this experience, Canning made sure he never neglected succession planning again, and went on to evangelize succession planning best practices for capital markets firms. Here are three best practices your firm can take to smoothly implement a succession plan.


Build institutional knowledge

Build your firm’s institutional knowledge by collecting information about your partners’ activities and learnings. During this process, you’ll gain valuable context about your firm’s network, processes, and goals — and you’ll help protect your firm against the loss of critical information and productivity in the event of a change in leadership.


There are many ways to build institutional knowledge. Traditionally, dealmakers maintained their own Rolodexes. However, storing information in a physical database is cumbersome; for example, David Rockefeller’s personal Rolodex contained 200,000 cards and stood more than 5 feet tall.


Today, most dealmakers use digital tools such as spreadsheets or contact apps — but these can also prove problematic, since any analysis of those records must be manually compiled, manipulated, and examined. Even then, successors and support staff need contextual details to understand every relationship.


Institutional knowledge is only as valuable as the accuracy and accessibility of a firm’s database — which is why dealmakers are now turning to more intuitive tools to store their information. DealCloud is a vertical-specific CRM that manages pipeline and workflow data, helping dealmakers collect, understand, and leverage their relationships. When firms are equipped with these essential tools, processes, and contextual details, leaders can more easily fill unexpected vacancies and execute succession planning best practices.


In other words: The sooner you stop manual recordkeeping, the sooner you’ll stop losing key information, and the more data you’ll have to create and carry out your firm’s new succession plans.


Establish succession plan goals and expectations

The main goal of any succession plan is to maintain a full talent pipeline. Beyond that, you must also determine what you want your successions to look like in 1, 5, and 10 years. It’s important for leadership to define what a successful execution looks like; otherwise, your firm may settle for only partial success and not reach its full potential.


Think about common succession pitfalls and how a succession plan could help your team avoid them. Include short- and long-term goals and celebrate milestones as a team. For example:


  • One fund management firm realized that, in addition to retirement, disability is often a cause of unexpected vacancies. The firm made a short-term goal of obtaining a key-person disability insurance policy in addition to the key-person life insurance plan that its limited partners often required.
  • After witnessing Microsoft’s drawn-out search for a replacement for former CEO Steve Ballmer, one firm decided to develop a well-maintained roster of trained and appointed replacements for 80% of their partners.
  • A buy-side team aimed to have 75% of partners come from in-house promotions within a span of 10 years.


By highlighting your successful transitions, you can build greater trust with your investors. For example, IBM used its 2019 proxy statement to tell investors exactly what the organization’s succession plans involved. Those plans were put to the test when Executive Chairman Ginni Rometty stepped down the following December. Had IBM not already shared their readiness for such a scenario, investors might have been worried by the news. Instead, they were confident in IBM, and — as the 2021 IBM proxy report proudly described — IBM was able to quickly and smoothly execute its succession plan.


Build and execute a repeatable program around your goals

When creating your succession plan, plot out steps that your firm’s professionals can follow — even if the main advocate for that plan leaves the firm. Here are some key elements your replacement plan should include:


  • Name key replacement positions. Determine which leadership roles should never be vacant for long, and clarify why these roles require high-priority replacements.
  • List the technical and soft skills required in each high-priority role. Document the capabilities and characteristics each replacement must demonstrate before moving into an essential role.
  • Evaluate who in your firm currently embodies those skills and talents. Don’t seek outside candidates without first taking an inventory of the people with the necessary skills and traits already at your firm.
  • Use the Academy to Innovate HR (AIHR) 9-box grid to map your current people to current needs. This exercise clarifies critical roles within your firm, then identifies those employees with the greatest suitability. Flag the roles with no matches.
  • Create a development plan to fill gaps. McKinsey analysts recommend the 70:20:10 learning and development (L&D) framework: 70% of your L&D initiatives should take place on the job, 20% in interactive and collaborative exercises, and 10% via formal curricula like classroom training and online courses.
  • Create a hiring plan to prevent similar future gaps. Think more strategically about hiring. Brainstorm ways to prevent future skills gaps by finding professionals who already have a number of the characteristics that your firm needs and doesn’t naturally cultivate.
  • Agree on whether – and how – to communicate your succession plans to clients. IBM chose to publish its 2019 succession philosophy and program for its annual shareholder meeting. You may choose to do the same, or you may wish to distribute your plan via casual phone calls with intermediaries and investors. You can also opt not to discuss your plans at all — but then you risk having others lead the conversation without you.
  • Determine when and how to continually review and improve your process. Things change a lot in the capital restructuring industry, so your team’s succession strategy and tactics should be flexible. Don’t invest time and energy in a new plan just to let it decay. Review it on your own or with your team regularly. We recommend reviewing your plan twice a year.


Investors feel safe when they see a group execute a carefully thought-out succession plan — but they feel even more confident when you build a reputation for successful continuity by demonstrating multiple smooth, successful handovers.


In capital markets, succession planning is success planning

Just as failing to plan means planning to fail, succession planning means planning to succeed in alternative asset management. Take advantage of the most modern succession plan tools for your capital markets firm, and make sure your firm’s professionals have all the information they need when your partners retire.


Technology like DealCloud enables senior dealmakers to feel confident that their ship and crew are in the capable hands of a well-equipped new captain. Take a tour of DealCloud today.


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