IN OUR OPINION, PERSPECTIVE #77 — FEBRUARY 18, 2019
(A Continuing Series for Leading CPA Firms)
TOO MANY “SLOT SHOTS” AND EXPERIENCED LATERAL HIRES
CAN BE HAZARDOUS TO YOUR HEALTH
“Great vision without great people is irrelevant “.
— Jim Collins
Quality human capital (i.e., talent) that has the ability to perpetuate small and mid-sized CPA firms is a very big challenge that is, perhaps, best exhibited by:
- admitting new partners just because of needs as opposed to qualifications. We refer to these admissions as “slot shots” and while we understand why “slot shots” occur, taken to an extreme, this practice truly undermines the future of a firm, and
- the heavy dependence on contingent and retained fee search firms (very expensive and usually a very poor ROI) for experienced lateral hires. And while we understand why firms depend on search firms, going to the outside for talent can be very addictive and distracting when it comes to building bench strength from within a firm.
Let’s dissect both dimensions of the talent drain which create short term gains but usually result in long term pains.
Admitting “Slot Slots” as New Partners:
When it’s time to making decisions about new partner admissions, here is what senior leadership at many small and mid-sized CPA firms often hear:
- “If Mary doesn’t make Audit Partner this year, she will leave the firm. We can’t afford to lose her as she gets all the work done at ABC Manufacturing Corporation who pays us over $300,000 a year. Without Mary, this client will leave the firm” and
- “We need to make Joe a Tax Partner this year because he is the only one in the firm who understands “C Corps.” Without him, we will have a big hole in our Tax Department capabilities. It could put a big hurt on the firm”.
In their guts, these leaders know that, while both Mary and Joe are solid professionals, there is little chance that either of them will develop into outstanding client service partners. They have not exhibited, and probably will never exhibit, strong relationship and business development skills —- prerequisites that demonstrate outstanding client service and the potential for the next generation of senior leadership. Nevertheless, the firm has client service partner needs to fill because of retiring baby boomers, organic growth, acquisitions, etc., so senior leadership agrees to make Mary and Joe new partners even though they both are “slot shots” that will become good partners but not great partners.
After the meeting, senior leadership looks in the mirror and, once again, acknowledges that they are failing to develop home grown talent who have the potential to be their future CEO, COO, or other senior executives.
Heavy Dependence on Search Firms:
Unlike larger CPA firms that have long ago figured out that it is smart business for them to make significant investments of both money and time in growing their own future leaders (long-term strategies that require a personal commitment of senior leadership), today’s leaders at small and mid-sized CPA firms instead are heavily dependent upon contingent and retained fee search firms to find them experienced lateral hires who hopefully will fill their internal players void.
Unfortunately, lateral hires 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 these unsuccessful, or, at a minimum, dicey strategies of unsuccessful lateral hires and “slot shot” new partner admissions, the next generation of senior leadership 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 (a self inflicted wound) who have the potential to become your future “C Suite”.
In Our Opinion, it’s time for small and mid-sized CPA firms to become less reliant on “slot shots” and executive search firms and do a much better job in“building” their next generation of talent. One very effective management technique used by many of the larger firms is their offering manager and partner development “academies” to their home-grown all-stars and potential all-stars. It’s smart business that requires firms to make serious commitments of time and money as these academies require 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.
Developing home grown future leaders pays 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 the 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.
- Promotes a positive morale that has a lasting impact on both client service and firm profitability.
- And last but not least, reduces the dependency on lateral hires or “magic bullets” to perpetuate the firm.
Why do so many firms fail to get to the next level? Arguably the principal reason is the lack of a quality partner group that can perpetuate the firm and that all begins by the quality of your bench and who you select to be your partners.
It is acknowledged that launching and maintaining development academies is a major undertaking that cannot be taken lightly. Having said that, experience tells us that these academies do help firms reduce involuntary turnover of all-stars and create better quality next generation partners — some of them candidates for the future “C Suite”. It’s long overdue at small and mid-sized CPA firms. Is it time for your firm to shift paradigms when it comes to future partners?
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 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 email@example.com or 203.292.3277.