For Whom Succession Tolls: Prep Your CPA Firm to Remain Independent

Red Zone Blog by Joe Tarasco, CEO and Founder of Accountants Advisory Group, LLC

Statistics support the number of upward mergers that have swept through the accounting profession and added to the growth of many of the top 100 firms in the country. Many of these upward mergers occurred due to the seller’s inability to attract talent and a lack of succession planning.

The accounting profession is comprised primarily of small firms (less than $10,000,000 in revenue) that are quickly running out of time for succession planning, and now it’s time for a call to action “for whom succession tolls.” The call to action should start with reshaping the culture that was responsible for positioning many firms in their succession crisis mode, such as:

  • A denial concerning the aging of the equity partners who are the rainmakers and are in control of a majority of the client base, together with a scarcity of quality professionals for succession planning purposes. A culture of denial has been rampant in the CPA profession, especially at firms with 10 or fewer partners. Denial is more endemic in firms with older Baby Boomer partners because it often results from a stubborn adherence to a once accurate perception of reality that has become obsolete in a changing and dynamic marketplace. It's difficult to overcome a culture of denial because it usually means avoiding change.

  • There is a scarcity of innovation and creativity regarding services in addressing the needs of clients and the marketplace. In other words, they engage in a factory-like environment of driving profitability with a volume-oriented approach and offer traditional commodity services versus the value approach of  advisory and contemporary types of services.

  • "Comfort Zoners" in the partner and senior manager ranks have failed to add value to client services, neglected to enhance their technical and advisory skills over their careers, and have not contributed to firm growth. They have resisted change within the firm and its culture. Once the up-or-out philosophy became obsolete due to a lack of talent in the profession, the “Comfort Zone Culture” became more pervasive, and top-heavy firms resulted.

  • Procrastination by the partners in making the tough business and strategy decisions to take the firm to the next level of success, such as:

    • adding high-value niches,

    • investing heavily in technology, marketing, and practice development initiatives,

    • establishing formal career development programs for staff,

    • replacing underachieving partners and managers, with contemporary, entrepreneurial, and talented leadership

    • restructuring partner compensation programs and aligning partner accountability to motivate partners to achieve the firm’s strategic plan,

    • pursuing inbound mergers and acquisitions to upgrade talent and service offerings.

Guiding rapid change at accounting firms is a challenging task, and it takes the efforts of exceptional leadership. Fundamental change in a firm is often resisted by the persons it affects most—in this case, the partners, shareholders, principals, and owners. Leading and implementing change in a crisis planning mode is critical if a firm seeks a succession solution other than an upward merger. The first place to implement change when a firm is in a crisis succession mode is at the top.

Most managing partners understand that the firm’s success and internal succession relies heavily on the comprehensive talents of the partners. However, few managing partners and management committee members are willing to take a realistic, aggressive approach to making the changes necessary to position the partners for future success.

Only an aggressive approach can make a significant difference quickly enough to avoid an upward merger. Leaders must be willing to make the tough decisions and replace under-achieving partners with talented professionals as part of the firm's succession plan, either through an inbound merger or by attracting partners from other firms who will be instrumental in the firm's future success.

Many firms tend to avoid confrontation regarding partner performance issues for an extended period, which allows for complacency and enhances the “comfort zoner” culture. Unfortunately, as the need for more capable and innovative partners has heightened, the talent pool is shrinking, which exerts more pressure to act quickly. Managing partners need to manage at warp speed when implementing their short-term goals and objectives while securing a successful strategy for the longer term.

Accountability and talent should drive results at the partner level for managing partners compared to annual budgets that aligned to a compensation and bonus structure geared toward a customized set of performance objectives for the firm and the partners. Great leaders don’t necessarily build a business; they build an organization that builds the business of the future by adapting to change in the marketplace.

It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change. – Charles Darwin

Joe Tarasco