Who Will Take the Reins?

Some tips for solving the partner-admission crisis.

BY STEPHEN WEINSTEIN
August 1, 2004

EXECUTIVE SUMMARY
MORE THAN 50% OF PARTNERS AT CPA FIRMS are over 50 years old, and a significant number of firms now are run by baby boomers who will seek retirement during the next five to 10 years. There is a shortage of partnership candidates to take the reins.

GROWING A FIRM AND RETAINING CLIENTS requires drive and rainmaking skills in addition to attributes such as loyalty, dependability, technical competency and devotion to quality. Potential partnership candidates should be able to inspire and manage people, bring in new clients, serve a vital role on client advisory teams and be motivated to be highly successful.

SMALL AND MIDSIZE CPA FIRMS (the ones that most need new partners) have not provided a floodgate of opportunities. Instead of investing in creating a successor generation, many haven’t hired the entry-level people they would have in the past.

OWNERS OFTEN SEEK AND HIRE people who are productive in delivering high chargeable hours but don’t give them comprehensive leadership training or career counseling. As a result the best people don’t get the opportunity to develop their potential.

FIRMS MUST TAKE THE INITIATIVE TO FIND, attract and nurture the best people from a relatively small pool of possible candidates. A firm should designate one of the local colleges or universities as a “farm club” for new recruits.

THE KEY TO A SUCCESSFUL RECRUITING effort is to make it a top priority and invest the money to do it thoroughly. Firms should designate one or two partners to focus on it and reward them for achieving the desired results.

STEPHEN WEINSTEIN, CPA, is a Branford, Connecticut, consultant who helps CPA firms and other professional companies deal with critical practice matters including the development and resolution of buy-in and buyout/retirement issues. His e-mail address is swadvisor@comcast.net .

he dreaded alert “We’ve got a problem” applies in more realms than NASA command control. For the CPA profession it pertains to a looming predicament: finding and developing strong entrepreneurial young partners so established firms can continue to thrive after their founders bow out. Many owners say the successor drought has been growing over the past several years and likely will worsen in the future. Forward-thinking firms are taking steps today to address the challenge with a mixture of short- and long-term programs designed to keep the leadership pipelines flowing. This article will describe some causes of the future-partner scarcity and offer CPAs specific approaches to use to get the best people as well as motivate current staff.

WHY DO WE HAVE THIS PROBLEM?
The reason for the shortage of successors in public accounting firms is a complex matter that no one explanation covers, but understanding the contributing factors may point owners toward a solution. This is what partners say:

Over the past 10 to 15 years, fields such as finance, technology and law have captured the imagination of many of the brightest and best business-oriented students. Meanwhile, although the nature of public accounting has evolved, many young people in our society remain unaware of those changes and the possibilities an accounting career offers.

Small and midsize CPA firms (those most in need of new partners) have not provided a floodgate of opportunities. Instead of investing in developing a successor generation, many firms haven’t hired the entry-level people they would have in the past, largely because technology has increased productivity and let them use fewer people to perform the work. That means fewer CPAs enter the firm’s college-graduate-to-partner pipeline—which the five-year program in accounting schools has further slowed.

The number of women entering the accounting profession has jumped to 56% in 2002 from 45% in 1982. Once rare, women CPAs now represent more than 50% of the workforce of local and regional firms, but a mere 14% hold the position of firm partner, shareholder or owner. Many “old guard” male partners who have seen the workplace change say women’s aptitude is undeniable, but the vote’s not in on whether they will strive in greater numbers to become owners.

Partners focus so exclusively on client matters, new business development and “churning out the product” that they don’t nurture the talented people who enter their firms. While owners often seek and hire people who can deliver high chargeable hours with low write-downs, they don’t give those same employees comprehensive leadership training or career counseling. As a result their best people don’t get the opportunity to develop their full potential. After a while many leave (see “ Case Study: Career Counseling Vs. the Annual Review ”).

Top Five Issues
Respondents to a practice management survey ranked these the five most important issues for their firms:
Finding and retaining qualified staff.
Succession planning/developing future owners.
Marketing/practice growth.
Seasonality/workload compression.
Fee pressure/pricing of services.

Source: PCPS “Top Issues in Practice Management” survey of 535 respondents, AICPA, 2002.

LONG-TERM SURVIVAL
The shortage of young people who are partner material has become a crisis. Upwards of 50% of partners are more than 50 years old, and a significant number of firms now are run by baby boomers who will seek retirement during the next five to 10 years, sources say. Many senior owners aren’t confident their staff CPAs are strong enough to guarantee the viability of their firms and the solid retirement buyout packages they want future partners to deliver.

Growing a firm and retaining clients require more than the conspicuous virtues of loyalty, dependability, reliability, technical competency, devotion to quality, moral character, a productive nature, a strong work ethic and an agreeable personality, firms say. Owners who don’t want to lose people with just those qualities sometimes promote them even when they’re not truly partner material. So what’s the missing ingredient to make a successful principal? An individual must be able to “grow the pie” through a unique combination of characteristics including

Leadership skills. Partners must have the ability to inspire and manage people. That requires the vision, skills and personality to motivate employees and obtain strong support from every member of the firm.

Rainmaking potential. Partners should be able to bring in clients from existing-client referrals and from contacts and organizational activities. Strong candidates will have shown interest in doing this early in their careers; they are people with engaging personalities, who are “out and about” with others and already starting to build a track record of bringing in new business.

Entrepreneurial skills. A true business adviser is someone clients look to when they are going to make a major financial decision. CPAs with genuine business acumen generate client loyalty not just because they work on the account (and do the accounting, audit or tax work) but because the client experiences them as a vital part of his or her team.

Ambition and drive. A strong desire to become an owner is essential. This usually is combined with a willingness to do whatever it takes to “make it.” Such people drive themselves, and often those around them, in their quest for partnership status. Many people work hard, but few really are motivated to be highly successful, owners say.

Other key attributes. Occasionally, a person without the above characteristics may have a specific talent that can add significant business in the future. For example, he or she may have become a “known expert” in a technical specialty the firm can market to achieve substantial financial benefits.

CASE STUDY
Career Counseling Vs. the Annual Review
J ohn, one of ABC & Co.’s better staff members, had just completed his fifth year with the firm. He had joined ABC on graduation from college. Each June he had had counseling sessions with a partner. These meetings were fairly routine; the partner would review John’s performance for the past 12 months and commend him on his high chargeable hours, his staying within budget and his positive client and staff relationships. The partner then would tell him his salary increase for the coming year. In their most recent meeting, the partner said John was doing well at the firm and was pleased with his assignments and salary increase.

Three months later, John submitted his resignation. He said he had always loved technology, and since ABC & Co. did not have a technology department or niche, he had decided to join another firm that was building that specialty. The partner who had counseled John had had no idea he wanted to pursue this career track. The partners were quite upset because John was one of the few staff members who had “partnership potential.” Furthermore, they would have been interested in building a technology niche and were upset to lose a talented individual to a competitor.

This is a classic example of what firms do wrong. Accountants generally are not well-trained in staff development, either in college or through subsequent CPE or training, and their expertise and level of comfort in dealing with these matters may be limited. Too often, they focus on performance reviews and salary adjustments instead of on what employees want to achieve in their own careers (see “ Career Counseling Guide ”).

FIND, ATTRACT AND NURTURE
The situation is unlikely to change rapidly, so for the next few years CPA firms must take the initiative to find, attract and nurture the best possible candidates. Taking long-term actions today to develop quality contenders over the next several years, and short-term actions to solve your immediate needs, can keep the pipeline of potential leaders full. Recognizing the crisis, the AICPA is investing $25 million in an ambitious student recruitment campaign, now in its fourth year. The Web site www.StartHereGoPlaces.com is the “hub” of the campaign.

On a long-term basis, consider one of the local colleges or universities as a “farm club” for new recruits. This is especially useful for local or regional firms that are large enough to project the image of being an alternative to the Big Four. Start an internship program (see “ Road to the Future ,” JofA , Jul.04, page 41). Institute a program that combines campus activity such as speaking in accounting classrooms a few times a semester; create a working relationship with one or two key professors; get involved in other activities to make the firm’s name familiar to the business school’s students and faculty. Encourage partners and managers to raise the firm’s visibility through writing, public speaking, advertising, public relations and volunteer work, all of which contribute to strong image development.

Small firms can attract ambitious college graduates by
Putting up an eye-catching job opportunity notice in a local school’s career counseling/placement office.
Becoming active with the state society committee on colleges.
Speaking at a college career night for accounting graduates.

On a short-term basis, to get the word out to the most promising candidates, initiate a series of basic steps such as running advertisements, using placement agencies and executive search firms and networking aggressively. The key is to be willing to invest the money to find and attract the best talent. Many local and regional firms consider advertising ineffective and shy away from paying potentially expensive fees to agencies, but that attitude may be counterproductive. Spend the money to develop really unique ads, place them in a wide variety of print media and on Web sites and offer attractive compensation packages. Bringing in a talented prospective principal in the current tight recruiting environment may require significant compensation and incentives. If you need to pay partner-track people a lot more than existing staff, do it.

Another, more radical approach is to widen the search outside the realm of accounting. Dynamic people who weren’t accounting majors in college but who have been working in specialized (niche-oriented) fields such as finance, technology, law, real estate or law enforcement may be good candidates, especially for firms with industry or service-niche practices.

The key to a successful search and recruiting effort is to make it a top priority. Designate one or two partners to focus on it and reward them for achieving the desired results. A recruiting partner’s responsibilities should include developing and placing ads (and/or establishing an arrangement with headhunters), quickly responding to all leads, overseeing the interview schedule and process and promptly answering candidate inquiries. Firms can measure their success by evaluating the quality of the people they hire.


RESOURCES

CPA Career Center,
www.cpa2biz.com/Career/default.htm

AICPA members can search job postings, locate candidates for open positions, assess personal strengths and development needs and access other career-related resources.

Competency Self-Assessment Tool (CAT), www.cpa2biz.com/CAT

CAT provides guidance for staffing, training-needs analysis and job redesign. The tool is free to individuals who are AICPA members.

For more information see www.aicpa.org or www.cpa2biz.com or call the Institute at 888-777-7077.

DEVELOP EXISTING STAFF
Because firms push employees to be production-oriented (that is, to deliver high billable hours and get work done on time and within budget), they do not typically devote adequate time and resources to bringing out staff members’ leadership, human resources or marketing skills. Most firms merely pay lip service to those areas by talking up certain practice-development activities.

Instead, use a step-by-step, long-term approach to developing the future partners in your firm:

Write out a list of personality characteristics and other attributes that you and your partners see as necessary for future owners. Start with the attributes listed on above and add qualities important to your organization. This is your qualifications wish list, against which your firm will gauge potential candidates.

Perform an in-depth review/assessment of each member of your staff. Your goal is to recognize who in the organization may have the potential to become a principal.

Initiate career counseling with each staff member who shows any promise. Many partners do not understand how to perform an effective career counseling session. Partners can ask questions such as those found in the “Career Counseling Guide.” The counselor’s primary objective is to really understand the interviewee, to learn his or her long-range goals and plans and then to develop specific short-term (one-year) and long-term (three- to 10-year) goals.

Monitor, at least quarterly, the goals and progress of all future partners. To expand their capabilities, partners need to be willing to send these potential successors to a wide range of educational and training courses in marketing, human behavior, leadership and management. Some of the best programs may be offered outside of the accounting world and can be quite expensive. Recognize that money spent on partner development is an investment.

Establish a mentor program. An existing owner responsible for the development and nurturing of specific prospects should hold monthly, one-on-one breakfasts or lunches with them. The partner’s role is to “get inside the candidates’ heads” to know about (and care about) their personal and business lives.

Regularly take staff to client, practice-development and proposal meetings. It’s also important to acclimate younger workers to handling significant client issues. Ask for their opinions on how to deal with challenging situations. For example, if a client is exploring an opportunity to acquire another company and is faced with a difficult financial feasibility analysis, ask a candidate to draft this analysis prior to the meeting, present it to the partner, be involved in its conversion into a final document and attend the meeting with the partner and client.

Provide information to candidates regarding the financial and other benefits of being an owner. Very often, prospects are unaware of the virtues of becoming an owner in a CPA firm. This can be covered effectively during the career counseling sessions. How much information a firm is willing to share is totally discretionary; it can be quite detailed or very general. In addition, communicate with staff about the firm’s goals and planned activities. Have certain candidates attend part of the partners’ retreat or hold semiannual “state of the firm” staff meetings.

Be a great role model. Show a positive and enthusiastic attitude; avoid negative comments about other partners or staff; be a team player. It is not uncommon for the unhappy, negative behavior of existing partners to destroy staff interest in firm ownership. Being a cheerleader for the firm goes a long way toward increasing candidates’ desire to become partners.

PRACTICAL TIPS TO REMEMBER

Develop a relationship with a local college or university. Have existing partners speak in accounting classrooms a few times a semester, create a working relationship with one key professor and pursue activities to make the firm’s name familiar to the business school’s students and faculty.

Raise the firm’s visibility through a program of writing, public speaking, advertising, public relations and volunteer work.

Spend the money to find and attract the best talent. Develop unique ads and place them in a wide variety of print media and on Internet sites.

Offer attractive compensation packages. If you need to pay partner-track people significantly more than existing staff, do it.

Make partner recruiting a top priority. Designate at least one partner to focus on it.

Perform an in-depth assessment of each member of your staff. Your goal is to recognize and develop existing staff who may have the potential to become an owner.

Establish a mentor program. Acclimate younger workers to handling significant client issues.

Provide more information to candidates regarding the financial and other benefits of being an owner. Be a cheerleader for the firm to increase candidates’ desire to become partner.

INCOME VS. EQUITY OWNERS
Many owners still have no idea how to admit people into the upper levels of their firms. There generally are three levels of promotion to consider for existing managers: principal or director (a nonowner title), income partner and equity partner. Offering people a promotion to a high-level nonowner position such as principal or director is the first option to consider. Firms usually reserve that position for people they want very much to retain but who don’t possess the four key criteria listed earlier. Make the position very attractive by implementing a significant benefit package and conferring prestige similar to that associated with becoming an owner.

Another position, often described as the income or nonequity partner, is the next level to consider. Generally, income partners share in the firm’s income, although not necessarily as part of the equity owners’ compensation system. They are recognized as partners in the eyes of staff, clients and the public (providing the status that many people want). They generally have no stake in the firm (although in some states they might own a fraction of 1% of stock to satisfy legal requirements for shareholder status). Such partners may not participate in the same ways as equity owners, for example, in the management of the firm, the owners’ compensation system, voting or having full access to all firm information. Being a nonequity partner provides an opportunity for all parties to operate together at the partner level without making the more complex commitment of an equity interest.

There’s no definitive system for bringing in someone as an equity owner. Many firms require a buy-in, while others give people credit for their years of service or the new business they have generated over the years (see “ Add a New Owner to Your Firm, JofA , Aug.03, page 43, for more details about how to add equity owners).

PEOPLE, PEOPLE, PEOPLE!
Finding, developing and retaining the best—especially those who can lead and grow the firm in the future—is the most important issue many firms face. Stepping up the search for potential successors and developing those presently on a firm’s existing staff are critical steps.

There are no overnight solutions, but the future success of many firms will depend on whether their owners take immediate and comprehensive action. Those firms that commit the time and money now will be in the best position to outlast competitors and go on to have a thriving future.

Career Counseling Guide
I deally a partner should counsel a promising young staff person, or the firm should hire a human resources employee to perform this important function. To develop key people firms need to learn more about the interests, concerns and ambitions of promising staff members. Ask candidates probing questions and document the responses. Provide advice and feedback to let them know more about the firm and the benefits of becoming a partner. Such sessions will help motivate the person to seek advancement and will help the firm learn what it might do to further his or her success.

At the first career counseling session, discuss basic information. The objective is to find out about the candidate’s academic and work history and, as much as possible, about his or her private life so you understand the context of this person’s performance. (Have a human resources expert or a lawyer check your questions in case some have to be reworded to comply with federal or state laws.) Typical questions are

What do you enjoy doing outside of work (for example, family activities, hobbies, personal interests, sports or reading)?

What have you found you like most about our firm?

What have you found you like least about our firm?

What type of work do you most enjoy doing?

What type of work do you least enjoy doing?

What personal characteristics would you list as your strengths?

What personal characteristics would you list as your weaknesses?

Rate the morale of the staff: high, low, middle. Explain.

How would you describe your ambition/drive? What do you want to achieve in your life? What are you willing to sacrifice to get there?

What are your long-term plans/goals? (What type of work do you think you want to be doing in five to 10 years?)

Do you want to be a partner in our firm? (Why, why not?)

What are your specific work-related goals over the next 12 months?

What questions do you have about the firm and its future?

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