Three Obstacles to CPA Firm Succession Planning

It’s common sense that the key to succession planning is developing future leaders, a practice at which the vast majority of CPA firms under $15M struggle. 

Here are three tactics for developing future leaders:

1.   Partners must be accountable for personally developing specific future leaders.  It doesn’t take a rocket scientist to tell us that the only way a firm will develop future leaders is if the partners play a major, continuing role in staff mentoring.  In his book “Jack,” the legendary former chairman of General Electric taught us that the #1 performance criteria for GE executives during his reign was the extent that they developed leaders under them.  This is what is missing at CPA firms.  There is virtually zero accountability for partners to mentor and develop staff into leaders.

How can this obstacle be overcome?  The effort and success of individual partners mentoring and developing future leaders must play a meaningful role in how they are evaluated and ultimately compensated.  

2.   Partners must change their productivity model.  The long-cherished model for evaluating a partner’s productivity is a combination of three factors:  Originating new clients, the size of a partner’s billing responsibility (aka, “book of business) and billable hours.  This applies both to firms that allocate income by the compensation committee as well as compensation formula methods.  The partners, being smart people, know this, and thus, strive to perform in ways that maximize all three of these factors.  This is a major problem because maximizing performance in these three areas leaves the partners with virtually no time for important intangibles such as firm management and leadership development.  So it should come as no surprise that most firms under $15M in annual fees are weak at firm management and leadership development.

How can this obstacle be overcome? Smaller firms need to learn from the Top 100 firms, who routinely discourage partners from amassing high levels of billable hours and endorse the practice of partners moving client management responsibilities around to other partners, if this is in the best interest of the firm and/or the client.   Another factor for evaluating partner productivity should be the extent that partners achieve goals that are linked to the firm’s strategic plan.

3.   Firms must have strong, effective leadership from their managing partner and his/her management team to drive #1 and #2 above.   To achieve success at items #1 and #2 above  requires a substantial time investment by the MP.  Without strong, effective leadership from the MP and his/her management team, firms are doomed to fail at succession planning.

How can this obstacle be overcome? Partner groups need to abandon management styles typified by a “herding cats” mentality, a silo approach to teamwork or disregard for accountability.  Until this happens, it’s unlikely that management will be effective.

For a comprehensive discussion on this topic order our Monograph:
CPA Firm Succession Planning: A Perfect Storm.