IN OUR OPINION, PERSPECTIVE #49 — JANUARY 8, 2018
(A Continuing Series for Leading CPA Firms)
MY CLIENT, MY BOOK OF BUSINESS VS. FIRM CLIENT,
“…..One-firm firms have a remarkable degree of
institutional loyalty and group effort that is
clearly a critical ingredient in their success.”
— David Maister
It is a very prevalent view that mid-sized law firms are not particularly well-led and well-managed. Many of their partners operate as silos and refer to clients as “my clients” and “my book of business”. Sure, they share space and other overheads but they do not institutionalize clients for the long-term benefit of the firm. Many mid-sized law firm partners look at themselves as “free agents” and at “their books of business” as “portable”. When these law firm partners are either unhappy at their current firm or if they think they can get a better compensation package from the firm across the street, they pick up and leave. They continue to service their clients with little, if any, disruption to client service and without dealing with the ramifications of covenant not to compete provisions contained in partnership agreements. This is one reason why so many law firms are unable to grow and prosper. “My book of business” vs. “firm revenue” are concepts with distinctions and huge differences.
In contrast, it is the prevalent view that mid-sized CPA firms strive for strong leadership and tight management, that their partners look and act as a team and that their clients become “institutionalized”. As such, mid-sized CPA firm work hard at the notion of “firm clients” and not “individual partner clients”. It’s a very visible sign of a well-managed firm.
While many mid-sized CPA firms strive to be well-managed, many fall short of this ideal state and revert to the loosely managed style at mid-sized law firms which allows for operating silos.
When we hear a partner at a mid-sized CPA firm say “my client” or “my book of business”, the hair on the back of our necks stand up because such a reference is code for a partner who operates in a silo. When CPA firm leadership hears one of their partners say these words, they should be very wary. Sooner or later, there is a very good chance that such a partner will financially hurt the firm as he/she is holds the firm back from cross selling the client base and institutionalizing client relationships. Eventually the operating silo mentality hurts a firm’s growth and bottom line. And even though CPA firm partnership agreements contain covenants not to compete provisions in their partnership agreements, with organic growth so difficult to come by, many mid-sized CPA firms are more than happy to bring laterals into their partnerships and, if clients follow (and many often do), pay the liquidating damages due the former firm.
So, how does a mid-sized CPA firm develop a culture that clients are “firm clients” and there is no such thing as “my client” and “my book of business”?
In Our Opinion, it requires a one-firm, entrepreneurial approach to management, which in turn, leads to a well-managed firm. This is easier said than done but, is in fact achievable by those firms with strong and effective leadership. It requires considerable discipline and a strong commitment to partners, staff, clients and the community.
Here are a few examples of a one-firm, entrepreneurial approach to management that create an environment of “firm clients” and “firm revenues”:
- Striving for a shared vision about the future and the strategies (with partner accountability) that will help achieve success.
- Reaching for significant firm loyalty and team effort by placing great emphasis on firmwide coordination of decision making, group identity, cooperative teamwork and institutional commitment.
- Emphasizing that long hours and hard work demonstrate high involvement and commitment to the firm.
- Placing an emphasis on continuous education on firm policies, procedures and protocols.
- Insisting on a sound economic model that rewards consistent performance.
- Insisting on sound corporate governance that “walks the talk” when the rubber meets the road.
- Attracting and retaining first class partners that understand how to build lasting business relationships with clients and contacts.
- Creating a business development culture that includes everyone within their capacity and skill set.
- Making it well known that the firm wants marquee clients that build brand awareness and credentials and not simply volume for volume sake.
- Developing partner goals, holding partners accountable for delivering results, and rewarding compensation when goals are achieved both individually and collectively.
- Understanding that the firm needs to demonstrate that it is different by bringing value to clients that is measurably better than competitors. This is readily achieved when firms institutionalize their approach to client service (client expectations) by consistently provide by-products of compliance services such as EBITDA and working capital improvements.
- Going to market by industry-dedicated client service teams.
- Approaching client service with multi-disciplinary client service teams of audit, tax and advisory professionals.
- Looking for smart mergers and lateral hires that add to a firm’s strength, improves its weaknesses and expand its footprint.
- Requiring consistent and persistent leadership by senior partners with a no tolerance view on individual partners who think that they themselves are “stars” and much more important that the firm collectively.
We believe that many small and mid-sized CPA firms fail to achieve enduring success because their leadership lacks the intestinal fortitude that is required to be regarded as a well-managed firm. Without strong leadership, operating silos eventually creep into the culture. These operating silos break down the DNA or fabric of a firm. In our view, a one- firm, entrepreneurial approach to management is the key to endurance. While it isn’t easy to achieve and/or maintain, it certainly bears considerable fruit.
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 and integration. 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 of perspectives for leading CPA firms where Dom and his colleagues share 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 email@example.com or 203.292.3277.