Word on the street > The Death of CEO Succession Planning as We Know It; Why Future Leaders Struggle to Let Go
Word on the Street: Issue 217
Weekly real-time market and industry intelligence from Morrissey Goodale firm leaders.
The Death of CEO Succession Planning as We Know It
Private equity (PE) has upended the AE industry since it arrived on the scene in earnest in 2016. It is rapidly becoming a preferred capital model for the industry’s largest firms. One-quarter of the ENR Top 100 designers now have PE in their capital stack—a six-fold increase over seven years. Four-in-ten deals today involve either a recapitalization by PE for a new industry platform (as of today there are 120 of these platforms and counting in the AE industry) or an acquisition by a PE-backed portfolio firm. This is up from two-in-ten just six years ago. Since 2016, the share of transactions involving PE has been increasing annually, while that of employee-owned acquirers has been declining at a similar pace. Simply put, PE continues to crowd out the industry’s traditional employee-owned model.
PE has been changing the industry in so many ways. More business jargon, less talk about multi-disciplinary capabilities. Fewer black turtlenecks and berets, more fleece vests. And the death of CEO succession planning. Wait, what? Yes, as PE assumes a greater role in the industry (and it will because for many leading employee-owned firms the question is not “if’ but “when” they will recapitalize with PE), the traditional approach to CEO succession planning will also be upended. In fact, it’s already pretty much DOA.
- The Way We Were: Pre-2018, succession planning among the ENR Top 500 followed a well-traveled path that produced remarkably similar results. There’s a reason the average industry CEO (and there’s a 90% chance he’s a dude) has been with his firm 27 years. (For some perspective, that’s BEFORE the introduction of the Blackberry. For comparison’s sake, that’s 20 years longer than the average Fortune 500 CEO.) When most firms were employee-owned, tenure and “living the firm’s values” were the most prized characteristics when it came to choosing the “next CEO.” Sure, there was plenty of discussion about the necessity for “leadership and management” skills and having the next CEO be someone who was not only smart but had a high “EQ” and was respected by staff. And for these reasons firms sent their next CEOs off to exotic places like Cambridge, Massachusetts, to the Harvard Executive Leadership Program or the ACEC Senior Executives Institute, so they could “learn” about leadership and become more “self-aware.” Which they dutifully did. But, at the end of the day, the real deciding factor for CEO succession was one of trust. “Can we ‘trust’ him with our firm?” And that trust was born out of familiarity. And that familiarity came from tenure. And thus, the average industry CEO has spent most, if not all, of his career with the firm he now leads. He started as an intern, converted to a full-time designer, then made the leap to designer II, then project manager (which coincided with receiving his five-year “service pin”), then senior project manager, then VP for the office that was underperforming, and when he “turned that office around” became regional VP, then head of “important business unit” while also serving on the firm’s culture committee, then executive VP, and now CEO. Hiring CEOs from the outside was—and continues to be—a rarity for employee-owned firms (“How could we trust an outsider; he doesn’t know us or our values!?”) And that is the playbook that most employee-owned firms are still using today in anticipation of the next transition from Gen X CEO to Gen Z CEO.
- The Replacements: (Great band. And a not-too-shabby Keanu Reeves/Gene Hackman gig.) In this brave new PE-infused world, “CEO succession planning” is still important, of course. Leadership and management skills—developed from within (see Mark’s excellent article below) and incorporated from the outside world (through other portfolio companies of the PE sponsor)—are valued highly. But tenure as a highly valued characteristic for the next CEO? Meh, not so much. PE seeks—nay, demands—superior performance than this industry has traditionally delivered. So, a whole new mindset is needed from the new CEO. And thus, the old model of succession planning is being thrown out faster than a buggy whip from the driver’s side window of a Model T in 1908. And in its place is the quest for bold, ambitious, business-savvy CEOs who can convert existing brands into fast-growth ones—quickly. Why quickly? Because PE typically has a five-year window of investment (in many cases in our industry it’s closer to three years) before selling the firm. These types of leaders are few and far between in our industry. And so, “succession” is being supplanted by ‘replacement.” A quick scan of the PE-backed firms in the industry shows that the average CEO tenure is just 8.5 years, with three-quarters of those having been hired from the outside. And not just from outside the firm, but also from outside the industry. The PE sponsor doesn’t necessarily care if the next CEO knows how to size a pipe or pick the correct color palette for a hospital foyer. They DO care about the ability to grow a top line and bottom line FAST, through organic and inorganic growth. So in that regard, non-industry, business-savvy executives are more likely to be the next CEO of the next employee-owned firm that recapitalizes rather than the 25-year veteran who has ticked all the “loyalty” boxes in his career with said firm. In our new PE-infused world, years of tenure doing the “right thing” for your firm are no longer a ticket to leadership.
The era of CEO succession planning is coming to an end. No longer is there a “10-year” window to train and develop the next CEO. Instead, the era of CEO replacement action is here. The king is dead, long live the king.
To contact Mick Morrissey, you can email him at [email protected] or call/text on 508.380.1868. If you’re going to be in Houston later this week for our Texas and the South M&A and Business Symposium, drop him a line to set up a time to connect in person.
Why Future Leaders Struggle to Let Go
Leadership succession has never been more complex. Mid-level talent remains scarce, clients expect miracles on a daily basis, and good luck catching up to technology. You’d have better luck pinning down an eye floater. It’s no wonder our next-generation leaders are caught in a paradox: They need to delegate more to focus on growth and strategy, but they often struggle to do so.
Some claim they have no one to delegate to, given the talent shortage, but that’s not the whole story. Perfectionism, fear of mistakes, and the sheer pace of industry change make it hard to let go, even when there are capable hands. The pressure to deliver in a fast-moving, unpredictable environment causes leaders to hold on tightly, worried that delegating could cost them control or quality. So, is the lack of delegation purely about missing talent, or is it also rooted in a reluctance to release control in a chaotic landscape?
Why it feels impossible to delegate
Mid-level employees—those seasoned enough to take on leadership tasks but not yet in senior roles—are often missing. Firms everywhere continue to scream about it, calling it the “middle management drought.” As firms push forward with high-profile, complex projects, the pressure to deliver on time, on budget, and at the highest level of quality mounts. All this while the drumbeat of commoditization gets louder and louder, technology disrupts design workflows, and clients demand more sustainable, innovative solutions. These are modern pressures, today’s pressures, and they seem to whisper to next-gen leaders, “Do it yourself. You can’t afford to drop the ball.”
So, yes, there’s some truth to the “no one to delegate to” excuse, but is it really as bad as it seems? Or is there something else at play—something in the psychology of emerging leaders who have risen through the ranks and are struggling to transition from “doer” to “delegator”?
The fear of letting go
Let’s start with the obvious: Delegating is hard. For many leaders, especially in AE firms, delegating feels like giving up control. After years—sometimes decades—of executing projects, managing every detail, and being the one everyone relied on, stepping back is terrifying. What if the job isn’t done right? What if a mistake slips through? What if we let down the client?
But it’s more than just perfectionism. Emerging leaders are often the product of cultures that reward hustle and hands-on work. The expectation has been that the harder they worked and the more they handled themselves, the better positioned they’d be for leadership roles. And now, having finally arrived, they find themselves with a new mandate: Stop doing the work and start managing the people who do it. It’s a shift that feels antithetical to everything they’ve been groomed for.
Is the talent drought excuse actually a legit reason?
Yes, the AE industry has a talent issue. Firms across the country are facing a 15% to 20% vacancy rate in mid-level positions, and recruitment pipelines are thin. This means fewer experienced professionals are ready to step up and take on significant responsibilities. So, when leaders say they have no one to delegate to, there is some merit to that claim.
But let’s not forget that leadership isn’t just about waiting for the perfect person to show up; it’s about developing the talent you do have. Leaders who bemoan the lack of talent often overlook their roles in creating it. Waiting for the perfect mid-level manager to fall into your lap isn’t leadership—it’s luck. And luck is not a strategy.
The most successful firms aren’t the ones that have perfect people waiting in the wings. They’re the ones that build systems for delegation and develop talent through mentorship, coaching, and responsible autonomy. It’s not about finding a perfect team—it’s about creating one.
The fixes
So, how do you break the cycle? How do you go from being the person who does it all to the person who trusts others to handle the heavy lifting? Here are four key strategies that can shift the delegation needle:
1. Develop and invest in people
Delegation starts with building trust in your team, and trust is built through investment. If you don’t feel confident delegating because your team isn’t ready, then the problem is with development, not the delegation itself. Firms need to invest in training, mentorship, and skill-building programs that prepare their people for greater responsibility.
When AE firm leaders invest in developing their employees’ project management, communication, and problem-solving skills, they’re not just solving a delegation problem—they’re creating a pipeline of future leaders.
What it looks like in practice: A Boston-area-based AE firm suffering from a talent gap invested in a formal mentorship program, pairing mid-level managers with senior leaders. Over a year, the program not only developed more capable mid-level staff but also fostered greater trust among teams. Leaders who had previously micromanaged found themselves confidently delegating key tasks.
2. Create accountability structures
Delegation doesn’t mean dumping work and hoping for the best. Leaders who struggle to delegate often fear that handing over tasks will result in chaos. That’s where accountability structures come in. Establishing clear expectations, timelines, and feedback loops ensures that even when you hand off a project, you can still monitor progress without getting bogged down in the details.
What it looks like in practice: At a California engineering firm, leadership developed a project ownership model. For every major project, a designated “project owner” was given full responsibility, including regular check-ins and reporting metrics. The result? Projects ran more smoothly, and emerging leaders who would normally be strapped to such projects could actually focus on higher-level strategy.
3. Delegate the right things
Not all tasks are created equal. Many next-gen leaders hold on to work that isn’t critical for them to manage. The key is identifying which tasks are strategically important and which can (and should) be handled by others. The most successful leaders delegate operational tasks so they can focus on strategic ones—growth, business development, and client relationships.
What it looks like in practice: A New York-based architecture firm implemented a delegation matrix that divided tasks into categories: “Delegate,” “Mentor and Delegate,” “Retain and Manage.” This framework clarified what leaders should focus on and what they could let go, allowing them to delegate more confidently and effectively.
4. Start small, build confidence
If delegation feels overwhelming, start small. Pick one or two tasks to delegate and build from there. As your team succeeds, your confidence in them will grow, and you’ll find it easier to trust them with more responsibilities. Building trust in your team isn’t an overnight process—it’s incremental.
What it looks like in practice: At a Midwest engineering firm, the CEO began by delegating one business development meeting a week to his VP, with clear expectations and a debrief after each session. Over time, the VP was running the majority of business development meetings, freeing the CEO to focus on M&A initiatives.
Think about it
Delegation is hard for next-generation leaders, but it’s necessary for growth—both for the firm and for the leaders themselves. The “no one to delegate to” excuse may have some truth, but it’s not a reason to cling to control. With the right structures in place—development programs, accountability systems, smart task management, and a gradual delegation process—leaders can build teams they trust and empower them to take on more responsibility.
Let go. Trust your team.
Call or text Mark Goodale at 508.254.3914 or email [email protected].
Market Snapshot: State Revenues
Much of the recent so-called “revenue wave” experienced by states was temporary in nature and will likely not be sustained. The boost in tax collections, driven in large part by federal stimulus during the pandemic, has now ended.
States might not have a good grasp on the nature of revenue swings, which can challenge policymakers’ abilities to forecast and manage budgets in the upcoming fiscal year and beyond.
Key questions posed by recent Pew research on the matter can put things into perspective: “For how long will revenue drop or stagnate? Do tax cuts or spending increases enacted in recent years rely on growth that may not materialize?”
Almost 38% of new tax revenue from 2020 to 2022 exceeded pre-pandemic levels. For some states such as Mississippi and New Mexico, for example, there may be a more significant adjustment as new growth reached over 90% above pre-pandemic trends. In 17 states, the potentially temporary revenue accounted for more than half of their total growth. However, in addition to tax cuts and spending increases, states also took measures such as paying down debt and strengthening reserves.
To learn more about market intelligence data and research services offered by Morrissey Goodale, schedule an intro call with Rafael Barbosa.
Weekly M&A Round Up
Congratulations to Fleis & VandenBrink (Grand Rapids, MI): The multi-disciplined engineering and architecture firm acquired Curry & Associates (Danville, IN), a firm that provides engineering services on projects such as drinking water, wastewater, and stormwater for communities across Indiana. We feel privileged that the Fleis & VandenBrink team trusted us to initiate and advise them on this deal.
Eight other domestic transactions were announced last week: It was another busy week for industry consolidation, with a total of nine new domestic deals, including two transactions in the Lone Star State. Overseas, we reported five deals in Australia, Mexico, Spain, and the UK. You can check all the week’s M&A news here.
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