Editor’s note: This is the third article in a series. For a series overview and links to previous articles, see the sidebar, “Building a Better Firm.”

At James Moore & Co., firm leaders first began considering governance transformation when they found themselves trying to determine who was responsible for hiring and termination decisions in each of the Florida firm’s five offices and with remote staff. Suzanne Forbes, CPA, CEO of the 250-person firm, remembers questions being raised about whether the responsibility for those decisions lied with the service line leader or the partner in charge of the office.

The firm ultimately launched a complete revision of its governance model to bring clarity, responsibility, and accountability to its strategic direction, Forbes said.

In a time of rapid and disruptive change, many firms are reconsidering their business models. Concurrent with those conversations, firm owners would be wise to also examine the practice’s form of governance, i.e., who makes critical decisions on defining issues such as strategy and policies, assigns accountability, and generally safeguards the organization’s value and legacy — and how those decisions are made.

This assessment of firm governance doesn’t have to be directly related to new funding needs. However, the level of mergers-and-acquisitions (M&A) activity and outside investment in the profession has brought added capital into many firms, forcing others to consider if and how they can best remain competitive and successful with their current business models.

“I think right now it’s critical to look at your governance model and decide what’s the best choice for your firm,” Forbes said.

For starters, here is what firms should consider as they map out their own paths forward.

THE PARTNERSHIP MODEL

Traditionally, CPA firms have operated under a partnership structure, with the entity owned by equity partners who vote on or at least have some influence in decision-making. Often, a managing partner — and perhaps an executive board of partners — handles governance, sets the firm’s strategic direction, and manages the partner group. These firms are generally but not always free of any outside ownership or investment.

An issue for many firms approaching governance transformation is that they have evolved over time — intentionally or by default — into a silo model, in which some or all partners act as the de facto CEO of their own practice area and may set their own policies and procedures for that group. This can make it difficult to streamline practices and create greater efficiencies, among other issues.

Seeking to strengthen her firm going forward, Forbes prioritized clarifying governance roles and responsibilities. The move was the result of a two-year research project that she undertook to examine changing governance structures in the profession. Forbes interviewed roughly 25 managing partners of firms that had undergone transformations and about 10 or 15 consultants to the profession. Her firm’s leadership also performed an analysis of the firm’s strengths, weaknesses, opportunities, and threats (SWOT) to determine how well the practice was growing and if its current governance approaches remained valid to fulfill the firm’s vision and strategy.

KEY QUESTIONS TO ASK

Firms should understand that governance and business model transformation are deeply interconnected. According to business consultant Gary Thomson, CPA, firms often treat business model transformation and governance as two separate conversations, undertaking transformation first and then figuring out the appropriate governance later.

Instead, firms should include oversight considerations as soon as they consider any type of business model transformation, said Thomson, founder and principal of Thomson Consulting in Richmond, Va., because governance is a critical concern in answering important interrelated questions such as the following:

What’s the ‘why’?

What strategic priorities support the firm’s vision for the future? That conversation should include considering whether potential new plans align with the firm’s values and overall mission.

Firms might alter their tactics for responding to economic opportunities and competitive dynamics, but Thomson encourages them not to tinker with their mission and values frequently. “They form the cornerstone of governance and also of a firm’s culture,” he said. “That doesn’t mean we can’t and shouldn’t from time to time challenge our culture,” he said, but continuing alignment will be needed between a firm’s structure, strategy, and culture.

Looking ahead, there’s also an important process element involved in transformation, Thomson said. A proper governance structure can lay out exactly what processes and procedures will enable the firm to transform, encouraging leadership to consider priorities, time frame, and other key considerations. A proper governance structure also brings accountability and oversight to enable monitoring of how well the transformation process is working and make adjustments if needed.

Can or should we maintain our ownership model?

A fundamental question a firm must consider is whether it has the financial resources to keep pace with rapid changes in the profession and the economy.

To fund many goals, firms can turn to internal capital sources, such as direct investments from owners. Another option is traditional lending sources, such as banks, where CPAs have often built strong relationships because of their work with clients on capital concerns. Firms may have approached banks in the past for their own lines of credit, but many are now considering taking longer-term loans to drive change, Thomson said.

Firms may decide, given their strategic priorities and capital needs, to pursue or accept an upstream merger with a bigger practice. Another option is employee ownership, such as an employee stock ownership structure, in which ownership shares are available to all employees.

An outside investor, such as private equity or a family office, provides another path firms can choose. These investments require the firm to adopt an alternative practice structure, the most common being one in which the outside investor purchases a part of the firm except for the attest function (attest firm), which must remain under majority ownership by CPAs and have no outside or commercial investor that is not actively engaged as a member of the firm. The outside investor then owns some percentage of a separate advisory entity, which performs nonattest services for clients and contracts to provide services to the attest firm.

In an alternative practice structure, the partners of the CPA firm have the ultimate responsibility for the attest services, including the requirement to maintain independence with respect to attest clients, in accordance with the AICPA Code of Professional Conduct.

At the same time, CPAs often launch or join firms because they relish having a stake in the firm’s decision-making and its success, so whether or not to shift to outside ownership is a serious consideration for many practitioners. Even a downstream acquisition or merger of equals can alter a firm’s hierarchy and partners’ individual influence, making a significant change for CPAs used to running their own shop, or at least part of one.

As part of this conversation, firms should carefully consider what their strategy priorities will cost in terms of financial resources, leadership time, and capabilities. No matter how beneficial transformation may be in the end and what practice structure they adopt, firms will have to find the resources to make it work, Thomson noted, particularly financial ones.

In considering an outside investment, firms should begin by envisioning how governance will change when partners are no longer making final decisions. They should be aware that this transition will happen quickly, too, with private-equity investors often making changes and selling the firm within three to five years.

“You can’t take a year to get used to new governance,” Thomson said.

How do we communicate the purpose?

Communication, whether it takes the form of a document or one-on-one or group meetings, plays an important part of governance transformation at all stages in the process, Forbes said. As a first step in getting buy-in, she presented her research on different governance models to her executive committee and spent time answering their questions so that they would fully understand how change would work. Forbes knew that the process would not be perfect right out of the gate, but she believed the initiative would gain greater acceptance if partners understood upfront why transformation was important. She emphasized the need to reassure partners about areas in which they would always have a say, such as admitting a new partner. “You want to identify the non-negotiables,” Forbes said.

Even given extensive preparation, transformation is not always easy. In her firm, “it is definitely a change from an ownership model where partners have a say in everything,” Forbes said.

Some areas may require ongoing effort. Forbes believes the firm has been 90% successful in getting the process right, but she would rate success on the budget process at around 60%. “It has been a heavy lift,” she said. “It’s a big ask to get people to accept change in their authority and get them to collaborate going forward.” However, Forbes believes that leaders are now more aware of how their decisions affect their budgets and of their own spending authority. In making decisions, the authority over the budget component comes up as a guide.

AN ITERATIVE PROCESS

Forbes will meet with the partners this month, when her firm’s effort will be nearly one year along, to assess what the firm intended to do, how well it has accomplished its goals, and whether any fine-tuning is necessary.

That type of review is important to long-term success, according to Thomson.

“We tend to think of strategic planning as an episodic event” in which leaders come together with a facilitator and make plans for the next several years, he said. But in the current, rapid-fire economic environment, firms should focus on constant evolution of strategy rather than on planning what only suits the firm today, Thomson advised. As part of that process, firms will need to assess and perhaps transform their governance processes to enable necessary change.

Building a better firm

During the past decade, CPA firms have been caught up in changes and challenges from within and outside the profession, including the disruptions during the COVID-19 pandemic, evolving client and staff expectations, and rapid advancements in technology.

The “Building a Better Firm” series is based on the transforming your business model resource initiative that the AICPA and its Private Companies Practice Section launched to offer firms insights and to address the difficulties and opportunities that these changes and challenges present.

The six articles in the series provide an overview of the initiative and lay out the five key areas in business model transformation:

• Overview: “Building a Better CPA Firm: Transform Your Business Model.”
• Strategy: “How to Develop Your Firm’s Transformation Strategy.”
• Governance: “Getting Governance Right.”
• Service offerings: September issue.
• Technology: October issue.
• Culture and talent: November issue.

About the author

Anita Dennis is a New Jersey-based freelance writer. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.

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Articles

“Firm Governance: Restructure to Match Changing Profession,” AICPA & CIMA, April 2, 2025

“Governance Lessons From Two Firms Along Their Journeys,” AICPA & CIMA, April 1, 2025

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“Corporate Governance Model Transformation,” Transforming: Tales of Business Evolution podcast, Nov. 8, 2024

“Evolving Governance Structures for Business Success,” Transforming: Tales of Business Evolution podcast, Oct. 4, 2024

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