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Is Denial A River In Egypt Or Is Denial The State Of Your Firm?

Silly question – we all know that denial is not a river in Egypt but how many of us know that denial is the state of our firm?

In his 2008 book entitled “Strategy and the Fat Smoker”, David Maister wrote that we often (or even usually) know what we should be doing in both our personal and professional life. We also know why we should be doing it and (often) how to do it. Figuring all that out is not too difficult. What is very difficult is actually doing what you know to be good for you in the long-run, despite short-run temptations. And therefore many leaders, and by extension small and midsized CPA firms, live in denial.

More often than not, what needs to be done by a firm’s managing partner (or Chief Executive Officer) is obvious. While not easy, in the best interests of the firm, he or she needs to make those tough decisions. But many leaders are in denial and fall short of what is required, and, in many cases, it is the principal reason why so many firms can’t get to the next level or, worse yet, can’t perpetuate themselves.


Presented below are the obvious but not easy things that a managing partner needs to do in today’s world of public accounting to be viewed as an effective leader who sits on top of a firm that is not in denial:

  1. Walk and talk both the vision, mission and strategy of the firm. Lead by example. “Do as I do, not as I say”.
  2. Create an environment that breeds trust, persistency and consistency.
  3. Shepherd senior partners and potential all-stars.
  4. Create a firm-first (our clients vs. my clients) culture.
  5. Be open to service diversification — move away for the traditional accounting firm model to a professional services firm model.
  6. Address ineffective partners on a timely basis.
  7. Realize that size (with quality and profits) matters and explore a merger or two if that is in the long-term best interests of clients, staff and partners.
  8. Deliver on the client promise of being trusted advisor.
  9. Create goal setting, accountability and discipline — first and foremost with the partners and then with the staff.
  10. Drive industry specialization, the undisputed vehicle to drive client distinctiveness and value.
  11. Implement a partner compensation plan that is fair and equitable, incentivizes high performers and potential all-stars, and avoids “sprinkles”.
  12. Get value from non-billable time.
  13. Create a balanced approach, that’s neither too lenient or too overbearing, to partner and staff utilization.
  14. Insist that a strategic plan may require a “no” when an idea doesn’t conform.
  15. Develop an effective “farm system” for talent particularly future partners.
  16. Gain market permission from the gate keepers such as investment bankers, attorneys, and bankers that will enable you to move upstream with clients.
  17. Grow for strategic purposes not simply for volume.
  18. Require the proper mix of clients or marquee clients (credential builders) and other clients that help pay the rent and train the staff.
  19. Have corporate governance and operating models that work for the overall firm.
  20. Always have the desire (and the ability) to invest in the future.
  21. Help partners and staff realize that quality work doesn’t necessarily mean quality service.


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By a quick review of the above, it becomes very clear that a managing partner is the heart and soul of a CPA firm and is the one that must do what needs to be done to avoid denial and to ensure success. Having said that, many firms do not have effective managing partners and here are four very common mistakes to avoid when selecting managing partners:

1. Don’t Ask the Firm’s #1 Biller to be Managing Partner:

While a successful managing partner usually carries a very small client load to stay grounded in client service and to remain credible with the partner group, billings and chargeable hours are truly a very small part of the job. In our view, a managing partner’s clients are the partners; giving them the opportunity to maximize their strengths while minimizing their weaknesses. A managing partner has to be readily available for big opportunities or problems.

2. Think Hard and Long Before You Ask Someone from the Outside to be Managing Partner:

Without a lot of due diligence and partner buy-in, an “outsider” is too risky, particularly if someone comes from outside of the professional services firm environment. An outsider obviously doesn’t know the firm’s history or culture or the partners’ individual strengths and weaknesses. An outsider also isn’t attached to the firm’s vision, mission and strategy. Please stay away.

3. Don’t Ask Two Partners to Function as Co-Managing Partners:

Oftentimes, in the spirit of political correctness, it is not unusual for firms to select co-managing partners. It’s a safe decision that doesn’t offend quality partners who compete for the position.

While from time to time, we have found that this kind of arrangement works, many times it doesn’t and is therefore a step that we believe should be taken with lots of caution. Too often firms with co-managing partners are plagued with inaction or conflicting directions with little, if any, consistency on strategy. If co-managing partners could be avoided, we encourage firms to take the bold step and the tough decision --- select the right person for the job today and make sure that you do the best to retain the other contender(s).

4. Don’t Ask a Part-time Committee to be Managing Partner:

Firms can’t operate by part-time committees. A firm needs to make decisions and move on. Sure, a firm needs oversight committees such as a management committee or an operations committee to drive day-to day activities. A firm also needs an executive committee for corporate governance, partner matters and strategy. But a firm can’t easily do what is obvious if the key leadership role is delegated to a part-time committee who reacts to situations if and when time permits. It’s a recipe for disaster. No one is thinking about strategy and the future while, at the same time, making sure that the necessary blocking and tackling is being tended to.


In Conclusion

So, why do some firms continue to live in denial and lack an effective managing partner? In many cases, it comes down to trust and security.

Many firms select a new managing partner from their ranks at an age somewhere between 45 and 53. Candidates are usually excellent client relationship partners with substantial client service responsibilities. The thought of giving up a substantial portion, if not all, of the client relationships that have been developed over years of service is very scary to many. For sure, there is a risk in being a managing partner. Candidates ask:

“What happens if I’m not successful? In the spirit of trust, I lose most, if not all, of my client responsibilities and begin to lose touch with my outside referral sources. I’ll have nowhere to go but to exit the firm when I’m no longer managing partner”.
Selecting a leader

This is a very real concern and we have found many firms do not want to recognize the severity of the issue. Instead, firms say, “trust us” and while that is easy to say, history has found that this trust has sometimes been misplaced. As a result, for the overall good and welfare of a firm, we recommend that a managing partner be offered an agreement that addresses what if he or she is no longer the leader of the firm. Such an agreement can address what happens to future compensation, what happens to employment and what happens to retirement benefits or deferred compensation arrangements. To us, it is obvious and pays huge dividends down the road for everyone.

The article as seen In Accounting Today
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