IN OUR OPINION, PERSPECTIVE #59 — MAY 29, 2018
(A Continuing Series for Leading CPA Firms)
YOU’RE OUT OF TOUCH, I’M OUT OF TIME
“If we keep doing what we’re doing, we’re going
to keep getting what we’re getting.”
— Stephen Covey
It is obvious to us that the Top 20 or so firms have long ago figured out that it is smart business for them to pass the baton from senior partners who have successfully transitioned client relationships to the next generation and to make significant investments of both money and time in growing their own future leaders (a long-term strategy that requires a personal commitment of senior leadership). The proof is in the pudding. Look at the brands that these larger firms have built. Look at the quality and demographics of their partner groups and to the quality of their client lists. Look at partner compensation levels and retirement packages. All very impressive!
The Daryl Hall and John Oates song “You’re out of touch; I’m out of time” on the other hand, reminds us that too many small and mid-sized firms continue to do a less than adequate job in passing the baton from senior partners to junior partners. It is also obvious to us that these firms haven’t grappled with the basic fact that the depth and quality of their future partners is the lifeline that will perpetuate their firms. Without future partners, a firm eventually dies or merges-up.
So why aren’t many more firms doing a better job of blending their partner group with a healthy mix of senior and junior partners? We believe that the answer is embedded, at least in part, in the following factors:
- Many senior partners are narrow-minded — looking out for their own best interests and not the firm’s. They want to hold onto client relationships too long even though they know that their responsibility is to transition those relationships to junior partners. This is an unhealthy environment that prevails at many firms.
- While there are, at times, good reasons to extend a partner’s employment, this should be done only on an exception basis and only when the firm believes it is appropriate. Not because the senior partner holds the firm “hostage” by not letting go of client relationships.
- Managers and senior managers who have the potential of becoming partners look up the totem pole and come to the conclusion that there is little, if any, opportunity for admission to the partnership. As a result, they leave the firm after all the years that the firm invested in them. It is very expensive to replace that investment.
- Firm management lacks the discipline to enforce provisions in the partnership agreement that address retirement and obligations to transition client responsibilities.
- Firm management plays lip service to developing the next generation of partners. Instead of building and growing their own future partners, today’s leaders at many small and mid-sized firms usually turn to contingent and retained fee search firms to find them lateral hires who hopefully fill their internal players void.
Lateral hires, while sometimes necessary, are big risks riddled with morale, cultural, quality, ethical and other problems and expensive management lessons. Simply speaking, history shows us that many lateral hires don’t make significant senior leadership impacts on firms. Some last for only short stints and only create disruption to client service. After all, every firm is looking for high quality talent and no firm is going to let it walk out the door to join the competition. As a result, using search firms to find “free agents” oftentimes is like pouring hard earned dollars down the proverbial drain. Arguably this unsuccessful, or, at a minimum, dicey strategy of “buying vs. building” the next generation of partners, particularly those with senior leadership potential, is the # 1 shortcoming of many small and mid-sized CPA firms and it’s a major reason why many are merging-up into larger, more established brands. And while there is nothing wrong with merging-up for the right reasons such as attracting and retaining larger clients, leveraging off a better-known brand, and monetizing your asset, it can, could and should be avoided if the driver is a lack of next generation talent who can become your future “C Suite.”
Is your firm straddled with an aging partnership and with clients that might drop off the client roster because they haven’t been properly transitioned to the next generation? And is your next generation saying the senior leadership at the firm is “out of touch so we’re out of time?”
In Our Opinion, it’s time for more small and mid-sized CPA firms to do a better job of both succession planning and “building vs. buying” the next generation of talent. Don’t take your eyes off the prize which is passing the baton from the current generation to the next generation. When it comes to building your future leaders, one very effective management technique used by many of the larger firms is their offering partner development training to both all-star senior managers and managers. This training is usually packaged in what is often referred to as a partner development academy or university that is dedicated to improving soft skills, maximizing strengths, and minimizing weaknesses. It’s smart business that requires firms to make serious commitments of time and money as this kind of training requires active participation by firm’s senior leadership and the hiring of professional outside coaches. Designed to help high potential professionals demonstrate a proven track record of steady and increasingly improved performance, these development academies provide real time training in soft skills such as:
- Long-term client relationship building.
- Peer-to-peer team building.
- Resilience and agility when operating in dynamic environments.
- Selling skills that result in new business originations and cross sales.
- Strategic thinking.
- Strong written and oral communication skills.
- Dressing for success.
- Addressing personal life issues that may be distractions to professional development.
- Impressive presentation skills when meeting with clients and potential clients.
- Positive influencing of staff.
Successfully passing the baton from the current generation to the next generation of partners and developing home grown future leaders pay dividends to firms as the strategy:
- Creates a proud culture in the firm that is admired by both existing and potential clients and employees.
- Develops the necessary “glue” between leaders of today and tomorrow. In many cases, these academies form mentor/mentee relationships that are long lasting.
- Reduces dependence on expensive search firms.
- Demonstrates to younger staff that sticking with their firm of choice can, in fact, be their pathway to financial success as smart and hard work has paid off for home-grown professionals.
- Reduces the need to make “slot shot” client service partners with limited potential for upward growth. How many times have we heard that “we must make Mr. or Miss Accountant a partner. If we don’t, we will lose our largest client.”
- Promotes a positive morale that has a lasting impact on both client service and firm profitability.
- Reduces the dependency on lateral hires or “magic bullets” to perpetuate the firm.
- And last but not least, minimizes the loss of clients during partner transition.
We would be happy to share an outline of what a partner academy looks like and how it is rolled-out within the firm. If you would like a copy, just send us an email request.
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 firstname.lastname@example.org or 203.292.3277.