What’s the Impact of PE on Staff? Top 200 Firm Leaders Weigh In

Is private equity an asset or a detriment to staff? In June, Rosenberg Associates collaborated with INSIDE Public Accounting to research the impact private equity is having on the accounting industry. We got a robust 163 responses from mostly senior firm leaders representing firms of all sizes. I revisited that dataset to find out how private equity is impacting staff specifically, since they are critical not only to doing the work at an accounting firm but also represent the long-term future of our industry.

I’ve segmented the data to look at responses from senior leaders (mainly managing partners) from top 200 firms (over $26M in revenue). Private equity has disproportionately impacted the largest accounting firms, so these senior leaders should have the best vantage point for observing the real-time impact of PE. Some of these firms have proceeded with PE investment, and many have remained independent.

After carefully combing through this data, I was surprised to see how different the responses were. These leaders expressed both positive enthusiasm for the impacts of PE on staff and negative sentiments.

Here were some of the points raised about the benefits of PE on staff:

• It makes our profession more entrepreneurial, which we think is a main reason young people haven’t been interested in entering and staying in the profession.
• PE increases opportunities for more than partners to participate in value creation at the firm.
• A PE-backed firm commented that they had not observed many of the negative impacts; others felt that the fears around PE were overblown and stemmed from not understanding the model.

Here were some of the points raised about the negative effects of PE on staff:

• Concerns about losing key employees.
• Multiple firms commented that the biggest benefit of PE is the near-term financial benefit for retiring partners, with the implication that the model will have less benefit for those left behind longer term (e.g., staff).
• When asked to rate the impact of PE on staff specifically, most of these leaders felt it was negative, almost a third felt it was neutral, and a minority rated it as positive.

In my past, I specialized in business valuation. One thing I learned is that a business model is essentially a series of bets about what will happen in the future and how that business will take advantage of it (to generate revenue, growth, profits, etc.). These top firm leaders are seeing the same landscape but making different bets about how it will play out. Some see PE as a force for more staff opportunity – and some see staff left holding the bag. Some of that may be influenced by the specific culture, competitive position, and team at a firm. More entrepreneurial, growth-oriented firms may indeed see staff benefits from PE, while firms that value autonomy and aim for a slower growth goal may not.

What to do from here?

I would advise firm leaders (and staff) to keep your mind open based on this data. The divergence in how firm leaders are thinking about this tells me that misunderstanding may be part of the equation. Some PE fears about staff may be overblown or the benefits underplayed.

I would also advise firm leaders (and staff) to keep your eyes open based on this data. Since a lot of firm leaders are leaning towards a negative PE impact on staff, monitor your team closely and listen to their concerns. A key tenet of succession planning is that you can’t get bought out (under any equity arrangement) if you don’t have a team behind you. Keeping a finger on the pulse of staff and keeping them happy is critical both to firm success and the long-term success of our industry.

What do you think? Let me know in the comments – I value your opinion.