Panel: Construction Contractor Firms Keep Succession Planning in Mind

By:
Chris Gaetano
Published Date:
Oct 19, 2017
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As in CPA firms, leaders in the construction industry tend to skew older, which means many are wrestling with questions of how they can best ensure continuity of leadership and a continuing flow of high-quality younger employees interested in working that field. The Foundation for Accounting Education, during its Oct. 19 Construction Contractors Conference, hosted a panel of three CPAs in the industry to discuss where they have seen success in this arena and where there's still work to be done. 

For Amy Albrie, controller at Almar Plumbing and Heating Corp, the nature of her company can make succession planning a little more complicated. City regulations say that the company must have more than 50 percent of its stock owned by licensed plumbers in order to perform work in New York City. One of the principal's sons is a licensed shareholder. She said that the company has worked with him to transition some stock to his own son, which would ultimately result in a father-son team acting as the two licensed plumbers, thus enabling the company to continue doing work. The other principal has no children, she said, and so she said they are trying to work out a buy-sell agreement for his stock shares as part of his estate planning. 

In terms of the accounting and finance team, she said that she has four people who are 100 percent part of the finance function, and other people who are in their purchasing and estimating departments. The average age is in the mid- to upper-40s, and so she said they're not getting ready to transition out of the company, which means there are still years to go before succession becomes a worry in this area. 

"We anticipate having active conversations with staff when it is time for people to transition out. We will have ample time to bring in new people to assume their roles," she said. 

Michael Brescio, CFO of Hugh O'Kane Electric Company and ZenFi Networks, noted that his own company has gone through succession three times before, the most recent of which was seven years ago, when the third generation took over. He said the second generation was very aware that the third-generation transition is risky, and so they had a lot of time to read books and consult with estate planners to focus on the key factors of planning an effective transition. 

First, the company needed to make sure the second generation had genuinely stepped down. While they may still have been capable of staying on in some capacity, such as  chairman, Brescio said that such a situation tends to cut the legs out of the next generation, so it's important to make a clean break. On this point, there was also an agreed-upon purchase of the company, with the price established through an internal note between the second and third generation. He said that because there was a secondary sale going on with one of their other businesses, liquidity was not much of an issue. Second, they wanted to make sure the next generation was really committed to the company, so the family had a standing policy saying anyone who wants to go into the business must work there for five years with check-in points along the way. Also, the family explicitly said no spouses or in-laws. With these things set up in advance, he said, it freed people up to think about bigger things. 

"You want to keep people backed up not just for succession planning but so someone can take a vacation or take over if someone gets sick!" he said. 

Richard Gavin, CFO of CAC Industries Inc., noted that his circumstances were a little different, since the company is 100 percent owned by one person who happens to be in his 40s. So he and his colleagues aren't that concerned with what they will do when he retires, which likely won't be for a while, but what they would do if anything happened to him, which he said is more like a disaster plan. 

"So something happens. Do they come to work? Do the know what to do? We have to answer all those questions," he said. 

He said they are in the process of putting a plan together. Some of the things they're considering is who the key people are and whether they will commit to staying if anything happens to the owner. Also, what happens to the people who stay: Will there be an ownership transfer, or will the company go into liquidation? This is not an easy question to answer because it will depend on what management wants at the time it happens, and no one can really predict that. One manager might be all right with becoming an owner, but another might be older and be planning to wind down his or her assets. And even if someone in management does continue the company, in what form will it continue? And how will the company manage its relationships with other institutions like the bank, the union or the bonding company? 

"We have to have the plan in place, and once we have that, we have to communicate that to people so everyone in the company, including the field labor, knows that if something happens to [the owner] we have a plan. The company will go on. We'll finish the work and keep bidding. And I think that will give them some confidence and comfort," he said. 

The succession planning, he said, will derive from discussions taking place further down the road. Until then, though, he said the company currently has a deferred-compensation executive plan for certain key figures at the company. This allows people to retire with a buyout but, he said, in order to get that buyout, they need to provide their own successor. 

"So when they start getting ready to retire, it's planning to identify and train that person so it's a smooth handoff when they retire," he said. 

But outside succession planning, construction firms are also challenged with getting younger people involved in the industry and ensuring a consistent talent pipeline. Brescio said that the union has actually been very useful in this respect. The union hall, he said, provides a deep bench, and so if the company needs to ramp up activity, they have a ready supply of workers. The ones who perform well are then kept around when work gets slow, thus making sure they have high-quality employees. 

"Our foremen keep an eye on who's good, and when it's time for them to flex back down, the guys who aren't as effective on the job would be the first in line to go back to the [union] hall, so you have this natural upping of our game out on the field. We work with the union to have guys that are able to run a crew, talk to a client, understand how to run a project: We'll make sure those guys move up the ranks into more leadership roles within the firm," he said. 

The union may not be perfect, he said, but the company seems to attract "some of the better folks" when working with it. 

Albrie also spoke to how the unions help her company with bringing in fresh talent. Her company works with Local 1 Plumbers to run a comprehensive five-year apprenticeship program. She said that there's a great demand for these classes, with people lining up well in advance to be considered for the program. People want a good job and a good education, and she said the union knows that her company is a good employer that pays people on time and treats them with respect, so she is generally not worried about finding enough plumbers. Like Brescio, she also spoke highly of the quality of workers who come from these programs, saying her firm gets the cream of the crop. 

"So I don't think there is an incredible shortage of people interested to still do these jobs," she said. 

On the other hand, she said, it has been a challenge finding younger people who want to work in the office. This, she said, is because they need to have high qualifications, given the necessary knowledge base to, say, estimate the costs of a plumbing job. She said they have seen success, though, in looking to nontraditional candidates and being willing to put the time and effort into training them. For instance, one person had a background in math, but has become an integral part of the finance department. 

Gavin said that his own company has needed to change with the times to attract younger people, adding that millennials now outnumber boomers in the workforce. So, he said, his company is looking at improving technology because young people want to work in more high-tech places. They have started offering benefits such as  flex time and evaluating performance not so much on hours spent at the office but results. He said this has been easier because they have a younger owner who's open minded, and that it's the senior managers who are a little more hesitant to adjust. Still, he said, if companies want to survive they will need to adapt to the new reality. 

"It's a millennial world, and we baby boomers have to start adjusting to their world. It's not our world anymore," he said. 

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