Professional services CEOs: Focusing on assessments, agility, and benchmarking to make transitions effective now and in the future

If you work in professional services, you may well be seeing a new name at the top of your business’s organizational chart now or in the near future, especially at one of the big audit and strategy consultancies. There have been numerous CEO and managing director successions or succession battles at well-known firms including McKinsey & Company, Bain, AT Kearney, PwC, EY, and our own firm, Heidrick & Struggles.

While succession is inevitable at any business, and often goes smoothly, it can be a challenging, fraught process in the services domain these days. Part of the motivation for the rise in successions is simply scale and stakes. Services firms have scaled dramatically over the past decade, with annual revenues growing well into the tens of billions for the Big 4—Deloitte alone is at nearly $65 billion—and leading strategy consultancies such as McKinsey & Company. Boutique firms have expanded quickly, too.

Of course, the number of consultants at these firms has grown over the years to match the rising work volume. Many consultancies are seeking to adjust their ranks to shifting market conditions, but nonetheless their current scale means a lot more money, operations, people (especially partners/owners), and complexity to manage, requiring a thoughtful approach to leadership and succession, especially at the very top.

But new expectations and challenges for services firm leaders aren’t coming from scale alone. We see three main new dimensions that top executives in this space must also manage capably.

1. Structural complexity, private equity, and new ownership structures. These businesses are managing complex new business structures including but not limited to geographic structure, matrixed service lines, and shifts related to a rising rate of M&A, joint ventures, and alliances. Moreover, as private equity becomes more common across the business landscape, consulting firms have become targets for full or partial acquisition, especially those in the smaller and midmarket segments. For example, a PE firm recently purchased majority interest in audit/accounting firm Grant Thornton, dramatically changing the ownership structure; it’s the largest such firm to have PE ownership. In general, this means leaders of services businesses must be able to think strategically about entertaining and negotiating offers from such acquirers and, if the firm is acquired, how best to work within the typical expectations and practices associated with PE ownership—such as improving growth and operational efficiencies with exit in mind. It’s part of a broader trend toward new ownership structures for many such firms, including PE acquisition, IPOs, and employee stock ownership plans.
2. Impact of AI. The advent of AI—and especially its generative form—has accelerated the pace of technological change in all industries. In services this has meant potential transformation of business models, such as the automation of RFPs and general “productization” of services—as we’ve written about before—representing opportunities to maintain or grow value with a smaller consultant workforce, such as by enhancing business operations and client experience. For example, one boutique consultancy is working with Catalant Technologies to blend more traditional human-based consulting offerings with the scaling and automation AI can provide for staffing, analysis, and other processes, for what they call “Consulting 2.0.” Meanwhile, large players including PwC, Accenture, and IBM have announced large investments in AI technologies. In general, top leaders must be sufficiently knowledgeable and savvy about new technologies to make the right investments to leverage these for sustainable advantage.  
3. Regulatory and governance challenges. Amid these trends is the ongoing need to anticipate and manage regulatory dynamics and challenges. For example, the Public Company Accounting Oversight Board (PCAOB) has mandated changes for services businesses that offer both audit/accounting and advisory services, such as Deloitte and EY, creating potential for additional tension between those arms of firms and requiring careful navigation by leaders. Internally, with the total number of partners reaching the thousands worldwide, it is becoming increasingly difficult to enforce governance structures regarding how “entrepreneurial” each partner be in efforts to win large contracts. With ESG-related stakes rising globally, CEOs and managing directors of services businesses must craft strategic responses to new legislation and expectations, harnessing the full resources of the firm to anticipate change and ensure compliance and ethics while maintaining profitability and growth. 

Getting succession right

Professional services businesses, including many of those noted here, have had a longstanding tradition of black-box-like succession practices—arcane, secretive voting processes much like their governance. In some, only senior partners vote on the next top executive, whether globally or for a specific market; others have a Senate-type process, where thousands of partners are represented by an elected subset for succession and other decisions. In general, services firms tend to go internal for succession, often with a “lifer” who grew up in the organization’s culture and values and has proven themselves as a market-maker and practice-builder.

But with the increased scale and complexity noted above has come internal and external demand for greater transparency and, in some cases, fairness. Moreover, consulting firms have attracted greater public scrutiny, including from the press. The media has been particularly keen to expose their darker, more fallible sides such as the coverage of the rocky McKinsey succession process and questions of the general effectiveness of consulting services. 

Based on our experience, we offer three considerations that will help firms get succession right. 

1. Leverage leadership science: Use well-supported research and tools comprehensively and systematically to assess all leaders who are potential successors—not only when there is an imminent transition but as an ongoing practice throughout the senior ranks of the firm, including selection for other leadership roles. This approach can provide a much broader perspective of the whole leadership bench and will ensure the organization remains prepared for the future. An objective, data-driven, structured leadership assessment—including executive assessment, psychometrics, 360-degree feedback, and other tools—can provide an independent, objective view of fit, minimizing the risk of choosing based on internal popularity or default. For example, leadership science will help you weigh myriad factors and reveal potential blind spots related to candidates who are already well-known. This approach will also benefit the whole slate of candidates by providing a developmental perspective on why individuals were selected or passed over. This is particularly important and tricky in a partnership culture and may well require meaningful cultural change to make it work.
2. Prioritize agility: No one would question that consultants are agile, routinely having to switch their focus among problems across industries and clients. But the large-scale, complex nature of industry shifts today—truly tectonic changes—requires an even higher order of agility, such that leaders can think and execute nimbly on new types of challenges, including internal ones the business may never have handled before, such as those related to consolidation. Emphasizing those skills in assessment of candidates is critical, as well as the pace of external change in many factors. 
3. Use benchmarking: Do at least a minimum of external benchmarking to see how other, similar firms—or even those in other domains—are handling leadership succession and what might be transferable from those processes. Part of successful leadership is recognizing there’s always more to learn, and looking outside can be the best approach. Even the best consultants can learn from others within and outside of their field, and being open to this will help make for the most effective, value-creating succession process. For example, even if your firm is committed to an internal candidate, it’s a smart exercise to benchmark candidates against the leadership counterparts of direct competitors. We recommend taking the following perspective: “If this were an external search, where would this internal candidate land in the process?”

We hope you find the perspectives and ideas here helpful.