With 41% of the current U.S. construction workforce expected to retire by 2031, many of them owners of engineering and construction (E&C) firms, the industry is experiencing a massive generational shift. Even if you’re just beginning to dream of your post-work years, now is the time to start planning since transitioning ownership is a long-term, continuous process.
The aging population continues to drive mergers and acquisitions (M&A) activity, and business owners focused on their legacies need to address the impending ownership transition and management succession of their firms. Preparation for this is critical. Developing the future through defining the strategy, instituting operational improvements and financial discipline, and addressing leadership talent development is vital to successfully transitioning ownership.
Many departing baby boomer owners developed experience and business acumen through various economic cycles, including periods of prosperity as well as economic challenges such as the Great Recession and the COVID-19 pandemic. These learnings, among other leadership skills and knowledge, are critical when passing a business to the next generation.
Of more than 300 executives surveyed for FMI’s 2023 talent study, about half said they had some plans for how to transition key roles.
From a talent gap standpoint, in the 2023 first quarter CIRT Sentiment Index, members indicated that 4 of the 5 top risks for 2023 are related to either the supply or retention of labor. Notably, slightly more than half of members plan increased hiring levels as compared to 2022, and roughly half of members believe their current labor force is low as compared to backlog needs. These findings outline an existing talent gap between hiring needs and labor availability alongside a lack of transition planning, furthering the need for defined succession planning.
Addressing Succession… Getting Started
Business succession planning impacts all facets of the company – people, culture, governance, operations and financial capacity. Successful transitions of E&C companies take time, thoughtful planning and a willingness to address critical questions early in the process.
1. Be Proactive
It is never too early to start, and, frankly, the time will never be right. Succession takes time and, given the cyclical nature of the industry, requires a level of inherent flexibility. A best first step is to ask a few priority questions:
What are my primary objectives?
Factors to Consider:
- Maintain family ownership
- Institute broader ownership
- Create value or maximization
- Ensure legacy and/or enduring organization
- Mitigate risk
What is my timeline?
Factors to Consider:
- Stepping away from the business
- Fully transitioning ownership
- Ceding control
How strong is my next generation?
Factors to Consider:
- Identified vs. in place
- In place and executing vs. development needed
- Risks associated with ownership
- Strengths and weaknesses
As you ask yourself these questions, also think about what you will do in the next phase of your life. Many owners find that determining what will happen after ownership is transferred is one of the hardest parts of starting the process. It is wise to consider how you will be actively engaged outside of the business after you leave. The more clearly this is defined, the better your chances for success.
These questions are for you to address; however, understanding the goals and aspirations of your next generation is important for informing the future. Ultimately, the answers to the above questions will allow you to create goals for planning.
2. Envision the Future
Based on key objectives, owners should ask themselves what the most effective organizational structure is to manage operations, mitigate risk and institute governance. This informs the steps the company and leadership need to take to achieve the stated goals.
Topics to address include: