PenChecks Blog

How to Develop A Capable Management Team
By Charan Singh, APA

With the passage of ERISA in 1974, retirement plan options and the regulations protecting them became much more complex. Shortly thereafter, the retirement plan TPA industry was born as plan sponsors began turning to specialists who could provide the expertise and services to help manage their plans.

Nearly 50 years later, the industry is once again at a turning point, as many founders of the first TPA firms approach retirement age and begin looking to exit their companies. For most, this will mean selling the business – either to a competitor that wants to grow through acquisition or to someone looking for an entry into the industry. Others may opt for an ESOP (employee stock option plan) as a way to cash out while rewarding employees for helping to build the company.

Either way, the ultimate value of the business will depend to a large extent on the quality of the management team you leave behind.

Building Value Through Leadership
Often, the founders of TPA companies are the business. In other words, they perform most or all of the major functions of a small business, including human resources, finance, information technology, and process design and improvement. When potential buyers see a TPA business that depends entirely on the owner for its success, the value of that business significantly declines.

Realizing full value for your business requires having a strong manager or management team in place that can keep the business running smoothly after you leave. To begin the process of building this team:

  • Look for internal talent. Evaluate your staff to identify individuals with leadership potential. These tend to be solution-oriented people who communicate well and have a knack for influencing other employees.
  • Start off small. Select one or two individuals for development and assign some type of minor leadership task or role. For example, have them lead a small team that involves supervisory tasks, such as managing other’s time cards or reviewing their work.
  • Mentor your emerging leaders. If the individuals show promise, begin exposing them to the four management functions, beginning with process design. If they succeed with this task, move on to IT by putting them in charge of basic tasks such as software updates, performing daily backups, etc.

Building Trust
Developing leaders in the areas of HR and finance can be more complicated, as it involves exposing employees to sensitive information. At this stage, engage the emerging leaders in non-sensitive HR activities such as conducting performance reviews or assisting with screening and interviewing job candidates. When moving on to finance, begin by involving them in tasks that typically do not expose sensitive information, such as sharing revenue information, seeking assistance with billings and collections, and participating in vendor negotiations. As you build trust, you can provide access to more financial information such as employee salaries and company profitability.

Depending on your time frame for exiting the business and the talent level in your company, you may need to look externally to find the right person. This involves a more complex and subjective process because you’re looking to hire someone who already has the experience and leadership skills.

First, get clear on their role inside the company. Do you want to hire a vice president, chief operating officer, or maybe just a CFO who can also handle the HR and IT functions? Next, make sure the person will also fit your company’s culture. To find the right mix of skills and values, talk to many different candidates. Other TPA firms can often provide a good source of potential candidates.

Developing leadership internally can often take five years or more. In contrast, hiring an outsider can be accomplished within two years if the candidate has the right skillsets and is a good cultural fit. If you’re planning to exit your business within the next five to 10 years, now is the time to start developing your successor leadership. Doing so will significantly increase your chances of receiving full value for what you worked so hard to build.

Charan Singh, APA, is Vice President and National DB Operations Manager for United Retirement Plan Consultants, a leading provider of retirement plan design, consulting, and administration for small to mid-size employers. He has more than 15 years of management and consulting experience in the pension and retirement services industry.

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