Practise what you preach

The nature of our role as trustees means that we spend a considerable amount of time warning families of the perils of not implementing an effective succession plan.  In spite of this, and quite ironically, too many trust companies fail to consider, or properly implement, plans for their own internal business succession. 

This is especially surprising when taking into account the scale of some of the trust companies in the developed finance centres.  This is arguably due to the short term horizons involved in decision making, with many firms not having the need or wish for a long-term succession plan due to a short term sale plan. In the past, by contrast, many firms were either bank-owned, with a committed owner and a structured employee progression plan, or owned by a partnership or through an ownership model that was very much akin to one (allowing future business leaders to buy into the business).

There are now more trust businesses pursuing a short-term ownership objective (in stark contrast to the structures they implement and the relationships they seek to maintain with families).  Owners are seemingly making decisions focussed around the sale of their business to larger industry consolidators or they are seeking to list their business on the Stock Exchange. Fewer businesses seem to be considering the merits of combining internal development programs together with succession plans that allow their future leaders to acquire meaningful stakes in the business (not just through Long Term Incentive Plan Programs). Implementing a robust succession plan means investing in staff with ability and ambition and perpetuating a distinct culture and a sustainable business model based primarily on steady organic growth.     Businesses with such ownership models are able to ensure that shares transfer to existing staff and minority shareholders. 

The ownership model can be structured to trigger the sale of all or part of an equity owner’s shareholding on retirement thereby ensuring that all members actively contribute to the business’ success and strategic decisions are made by persons active in the business.  This helps to incentivise future generations of business leaders who are tangibly rewarded with a participation in a business to which they have materially contributed and have a shared vision for the future.  Longevity of service has historically paid dividends to such companies, with individuals becoming ingrained in the business’ mission, vision, culture and processes. 

Equally important is the mutual benefit enjoyed by clients and their families.   An internal succession plan provides families with the desired continuity and stability which is increasingly important, but also rare, in recent times.  Families can establish dynastic structures safe in the knowledge that the trustee and its key staff members will be available to provide guidance and assistance for them and future generations for decades to come.   This reinforces the importance and benefit for trust professionals and clients alike of a succession plan being built into the business and illustrates what a trust company should strive to achieve.

For this plan to be effective it is important for a business to invest in its staff, encouraging and supporting their professional and personal development.  Future leaders must be identified and receive ongoing mentoring to assist with their progress.  It is also essential to ensure that a future leader of a business subscribes to and lives by, the values and culture of the organisation. 

The identification and mentoring of future leaders, and the implementation of a succession plan, will have financial and non-financial costs with, significant time spent by management and other staff in implementing, monitoring and reviewing the plan.  This is a decision that has to be taken by the business and adhered to over time.  The expenditure should be considered as an essential long term investment by the business and not seen by the owners/managers as an added overhead. 

The size and growth of a business can naturally restrict the effectiveness of its succession plan and managing such a plan in a smaller business can be difficult if opportunities for people to progress do not exist or become available.  Being held back on account of a glass ceiling and only progressing once another individual leaves, can be demoralising for a future leader, as well as staff generally. With this in mind it is important to manage people’s expectations and not overpromise. If a businesses is limited in its ability to meet staff expectations then, it should not be surprised if staff seek a role elsewhere. 

An effective succession plan is a key component for any trust business that is serious about delivering enduring relationships, continuity of service and providing families and their wealth with care and protection for the long-term. 

Published in STEP Journal, April 2018

Michael Giraud
Client Services Director | Jersey Board Member
T: + 44 (0) 1534 512 588
Legal Director | Board Member
T: + 44 (0) 1534 512 516

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