PERSPECTIVE #9—IN OUR OPINION, MAY 23, 2016
(A Continuing Series for Leading CPA firms)
HOW EFFECTIVE ARE YOUR GOVERNANCE AND OPERATING MODELS AND DO YOU HAVE THE RIGHT PARTNERS ON THE BUS?
IN OUR OPINION, it is absolutely critical that your firm, regardless of today’s size, has both effective governance and operating models and the right partners on the bus. Without these essential ingredients (often times easier said than done), your firm will find it very difficult in achieving growth at an acceptable rate (6% to 8% per year). As you read our perspectives on best practices for governance and operations, think about your firm’s future and where you want to be three, maybe, five years from now because with growth comes larger and more complex governance and operational models. And when you read our perspective about the right partners, please understand that while we understand that this is not easy to accomplish, firms must always be looking to attract and retain the highest performing partners and rising stars because without them, you will eventually stagnate and ultimately die.
By way of background, today more often than not, larger firms (and those that aspire to be larger firms) look to one partner group to govern (usually referred to as an Executive Board, Partner Board or Executive Committee) and a second group of partners, the Senior Operating Leadership Team, to drive strategy and to oversee to day operations. To be most effective, these two groups need to complement each other. In fact, in many firms, these two groups have to be comprised of different partners to foster healthy checks and balances within the firm. Unfortunately, all too often, at many of the small and mid-sized firms, we find that these two groups and their responsibilities are vested with just a single governance and operating committee appointed by the CEO. While we understand that it is easy to fall into this trap, we don’t believe that this is a very healthy way to run a firm. Sometimes it creates a mentality of us versus them. It also creates a good old boys club that becomes very inbred. This unhealthy environment often creates favoritism (which is terrible for morale), hampers revenue growth (which is terrible for partner wallets), and makes it very difficult to nurture future leaders (which threatens the viability of a firm).
Operationally, the audit and tax compliance business, service lines with thin margins, is driven by geography because it requires boots on the ground and long term relationships in the business community. Nevertheless, the audit and tax compliance practices usually identify opportunities for high margin services (generally delivered by advisory and consulting partners).
This high margin advisory or consulting is not necessarily driven by geography. Instead, this work is project driven and, in many cases, it’s agnostic to geography. The projects tend to be short in duration and are awarded on skills, credentials, the ability to deliver within a certain timeline at a reasonable price. It is imperative that your operating model reflects this environment.
So let’s take a look at our view of effective governance and operations and getting the right partners on the bus.
THE EXECUTIVE BOARD
Effective governance at any sized firm can be achieved by an Executive Board that is comprised of both senior partners and more junior, high potential partners — perhaps five to nine in total depending on the size and complexity of your firm. Generally, the CEO or Managing Partner is an appointed member and other members are elected by the partners at large to rotating three year terms with a limit of two years. The Executive Board usually meets one day a month (twice when it gets close to compensation time). In the interim, between face to face meetings, the Executive Board holds a video conference or conference call to discuss matters that can’t wait for the next regularly scheduled meeting. Responsibilities of the Executive Board usually include: (a) approving the firm’s strategic plan and holding the CEO and other firm leaders accountable for the plan’s implementation, (b) approving mergers, acquisitions or a firm name change, and (c) overseeing successful resolution of partner matters (compensation, lateral hires outplacements and new internal admissions).
THE SENIOR OPERATING LEADERSHIP TEAM
Depending on the size of your firm, effective day to day operations are best accomplished through a Senior Operating Leadership team comprising of the CEO, Chief Operating Officer, Regional Managing Partners, Office Managing Partners, Audit, Tax and Consulting Leaders, and a Go to Market Leader. Again, some of these positions may not be appropriate in your firm today because of its critical mass, number of service lines and/or number of locations. Nevertheless, regardless of size, in addition to the CEO, we highly recommend that every firm, at a minimum, have an Office Managing Partner, both an Audit and a Tax Leader, and a Go to Market Leader (many firms do not have this position today). While all positions are important, we very much want to emphasize the importance of a Go to Market Leader who is typically responsible for driving industry and consulting strategies both at the operating office and individual partner levels. This partner, who generally has a small client load and a reduced number of billable hours when compared to other partners, is the partner shepherd who leverages his/her strategic skills into others. If you don’t currently have such a partner in your firm, we highly recommend that you consider one.
The Senior Leadership Operating Team usually meets one day a month. These meetings create subtle peer competition and promote the sharing of best practices. In between face to face meetings (typically held to handle an opportunity that requires quick collaboration), the operating team usually holds a video conference or a conference call. The operating team’s responsibilities usually include reviews of key management tools that enable a firm to execute success.
HAVING THE RIGHT PARTNERS ON THE BUS
A talent war is taking place as competition intensifies for quality high-level positions. The time to react to this marketplace crisis has become significantly shorter, especially for baby boomer partner firms. Talented, creative and innovative professionals are in high demand for pivotal positions, for not only replacing the “old guard” but also to deliver new and more innovative services. The rules of the new game dictate that CPA firms seeking to remain independent must attract game-changer types of partners and move quickly to bring them aboard. Firms may also have to revise the multi-faceted, traditional one-partner-per-client approach and more frequently use multi, hyper-specialized partners who perform small aspects of client service. How many of these partners are on the bus in your firm today? Odds are, that without adding more to your ranks, you will be falling behind your competition.
Dom Esposito, CPA, is the CEO of ESPOSITO CEO2CEO, LLC — a boutique advisory firm consulting to leading CPA and other professional services firms on strategy, succession planning and mergers/acquisitions. Dom, voted as one of the most influential people in the profession for two consecutive years by Accounting Today, authored a book, published by www.CPATrendlines.com., entitled “8 Steps to Great” which is a primer for CEOs, managing partners and other senior partners. In Our Opinion, is a continuing series for leading CPA firms where Dom shares insights, experiences and wisdom with firm leaders who want to “run with the big dogs” and develop their firms into sustainable brands. Dom welcomes questions and can be contacted at either firstname.lastname@example.org or 203.292.3277.