August 19, 2019

IN OUR OPINION, PERSPECTIVE #90—AUGUST 19, 2019

(A Continuing Series for Leading CPA Firms)

IS YOUR “FARM SYSTEM” DEVELOPING THE NEXT GENERATION PARTNER WITH THE “RIGHT STUFF”?

“I want to be the bridge to the next generation” —Michael Jordon

CPA firms have been thrust into a new and different complex business dynamic that requires them to think out of the box and respond. Consider the following:

• An uncertain economic future riddled with tariffs and instability and little, if any, prospects for improvement in the near term.
• Lots of predatory pressure on fees and billing rates.
• Baby boomers retiring at a rapid rate.
• Many firms looking at alternative strategies to “going it alone”.
• A talent dearth — particularly in the tax area.
• Quality firms position themselves to get “A” type services but lose out to larger national firms on brand recognition, presence and market permission.
• The merger frenzy with the Top 100 firms gobbling up smaller firms succumbing to their inability to keep pace.

The Next Six firms (RSM, Grant Thornton, BDO, Crowe, CliftonLarsonAllen and CBIZ) have figured out (or are in the process of figuring out) that the way to respond to this changing environment is by providing consulting and trusted business advisory services to Corporate America as they outsource key business processes and special, non-recurring needs to boutique and larger consulting firms. And Corporate America is willing to pay a premium for the expertise and timely delivery of these services. These high margin lines of business are generating roughly 20% of revenues at the Next Six and more than 20% to their bottom lines. Isn’t happening by accident — it’s all designed to go where the opportunities lie.

Concurrently, shrinking compliance margins have helped the Next Six to realize that it’s time that they capitalize on their recurring compliance relationships by delivering on promises of being trusted business advisors. Up until now, the Next Six have not been able to develop their partners into trusted business advisors who deliver value added services such as metrics benchmarking, best industry practices, observations about EBITDA and working capital improvements and ways for owners/operators to create, enhance and preserve their wealth.

To strengthen their advisory capabilities, the Next Six are beginning to move away from the traditional accounting firm model to a new professional services model with different leverage and performance metrics. They also have begun to modify their training curriculums. Most of all, as they look to the future and their next generation of partners, they are placing added emphasis on the importance of advisory and business development skills.

Is your CPA firm responding to this changing environment? Have you noticed these shifts at the Next Six? In Our Opinion, if you want to “run with the big dogs”, go after greater margins, and perpetuate a sustainable brand, you need to take a hard look at your next generation of partner and ask: “are we developing partners with the “right stuff”?

In addition to the traditional core competencies of:

• client relationships and client service,
• technical capabilities,
• personal attributes,
• staff development, and
• communications,

we suggest that senior management make sure that their next generation of partners possess the necessary advisory and business development skills. Larger firms have focused on thisissue by launching a Partner Candidate Development Academy that requires active participation by the firm’s senior management and partner candidates.

Presented below is a framework of a Partner Candidate Development Academy at several Top 100 firms:

Partner Candidate Development Academy’s Objective:

To develop high performing managers into high performing partners within two or three years. Criteria for acceptance into the Academy includes a recognition that candidates have the basic raw equipment that, more than likely, will translate into strong consulting and trusted business advisory skills. The focus is on the personalized, developmental needs for each participant.  Below is a description of the program’s curriculum, which can span three years.

Development Planning :

The creation and execution of an individual development plan is the foundation for the Academy’s curriculum.  Below are the steps for first-year participants:

• Developmental assessment.
• Debrief of assessment results with senior management.
• Creation of a personalized development plan.
• Ongoing program participants update their plan goals the new year.

The purpose of this process is to help participants leverage their strengths and address development needs based on feedback from their developmental assessment.   Below are the five steps:

Ongoing participants repeat steps four and five in years two and three.

Review Meetings:

Participants meet with senior management to review status of their development plan.  The deliverable for each quarterly meeting is the updated plan identifying actions completed since the last meeting and planned actions for the next quarter.

Coaching:

Coaching to support the development plan is provided as follows:

• In review meetings.
• By the participant’s leader and firm senior management.
• Through external coaches and consultants selected based on development needs.

Group Workshops:

The purpose of the workshops is to provide learning and development on selected criteria for partner skills, as well as an opportunity to collaborate with other Academy participants.

Project Team Assignment:

The purpose of the project team assignment, which is completed by first year participants, is to develop strategic thinking and team skills that serve as the foundation for value added client service. It is designed to develop recommendations to senior management on a current firm strategic, operational or corporate governance issue.

Completion of Annual Cycle:

Participants are eligible for consideration for partner at the conclusion of the program’s year.  An assessment, including progress towards the participant’s development goals is discussed with laser focus. The participant and senior management review the results of this assessment and identify next steps, including, if appropriate, a recommendation for partner admission.

IN CONCLUSION  

Today, many small and mid-sized CPA firms are realizing that the largest CPA firms continue to get bigger and stronger — making it nearly impossible for them to compete for quality clients and quality talent. It’s a reality of business but not necessarily a forgone conclusion for those firms who want to “run with the big dogs” and, through strong management, are perpetuating their firms for the next generation. One of their secrets is their ability to develop a “farm system” of quality future partners. It requires active involvement by the firm’s Chief Executive Officer and other senior management. A Partner Candidate Academy is a great tool to ensure success. In Our Opinion, you should try it. We would be surprised if you don’t see improvements in the quality of your next generation of partners.

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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 desposito@espositoceo2ceo.com or 203.292.3277.