“Control your own destiny or someone else will”.
— Jack Welch.
Hard to believe but every year there are a number of mid-sized and small CPA firms that either “die on the vine”, break up or merge up as “damaged goods" if a well-run firm is willing to take them on.
Why is it that so many firms continue to spiral into a slow death?
Post pandemic, four big trends in business are emerging and your senior partners don’t see them coming:
Why do these things happen at a firm? Usually, it’s because the firm management, particularly the managing partner, is unable to make the tough decisions and cut them off at the pass.
Does your firm have some of these symptoms? If yes, there still may be time for you to do something about it. It starts by evaluating the effectiveness of your managing partner because, without an effective managing partner, a firm runs the very real risk of failure.
At mid-sized and small firms, many leaders “grew up” in small firm environments and have little understanding, if any, of what it takes to operate a successful firm and what the managing partner’s objectives and job responsibilities are.
So, let’s begin there. To us, an effective managing partner has to set the tone at the top and, when necessary, make the tough decisions that are required to keep the firm viable. He/she has a very big impact on the firm’s culture, behavior, and compensation of the partner group. Being a CPA firm leader requires a person to walk the talk, to lead by example, “to do as I do, not as I say”. It’s a very challenging and daunting responsibility. As a leader, every word a managing partner says, and every action taken has a tremendous impact not only among the partner ranks but also throughout the firm.
Followed by what an effective managing partner is not, the following summarizes the key objectives and job responsibilities of a firm’s managing partner:
The #1 Biller Among the Partners:
It is someone who also isn’t the partner with the highest billable charge hours. 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 and is someone who creates an environment of trust among the partners.
Someone Who Comes from the Outside the Existing Partner Ranks:
That’s too risky, particularly if someone comes from outside of the professional services firm environment. We don’t know of one situation where such a tactic has been successful at one of the Top 100 firms. The “outsider” obviously doesn’t know the firm’s history or culture or the partners’ individual strengths and weaknesses. The “outsider” also isn’t attached to the firm’s vision and strategic plan. Please stay away.
Two Partners Functioning 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) for the position. We acknowledge retention is not very easy to accomplish. So, the best advice we can give is to avoid a scenario like this completely by being very clear as to the characteristics a firm is looking for in a managing partner — then go for it.
A Part-time Committee:
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 provide oversight and direction to the day-to day operations. A firm also needs an executive committee for corporate governance, partner matters and strategy. But a firm can’t possibly prosper if the key leadership role is delegated to a part-time committee who reacts to situations when time permits. It’s a recipe for disaster. No one is steering the ship, thinking about strategy and the future while, at the same time, making sure that the necessary blocking and tackling is being tended to. This is important to make sure the firm is operating on all cylinders and is delivering on its metrics and performing high quality services.
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:
This is a very real concern and we have found many firms do not want to recognize the severity of the concern. Instead, firms say, “trust us” and while that is easy to say, history has found that this trust has been misplaced. Our advice is that firms consider “protecting” the managing partner with an agreement, with compensation, severance, and enhanced retirement provisions, that ensures employment for two or three years after the person steps down as managing partner. While this is rarely done in today’s world, we suggest that the lack of such an agreement could very well be one reason has difficulties in attracting effective managing partners and, as a result, are unable to remain a viable firm.
Firms need to be very careful in selecting their managing partner. The goal should be to ensure a high probability of success. That’s not only good for the managing partner, it’s also good for the firm and for future managing partners.
Today, more than ever before, the managing partner is the quarterback in a firm. Don’t shortchange the importance of the role. We have seen too many firms fail when the managing partner is ineffective. It’s usually the beginning of a slow and torturous death.