If your firm is like many small and midsize CPA firms, you don’t have a formal strategic plan and you don’t set goals or hold your partners accountable for converting a strategy into real live actions that drive growth and per partner bottom line improvements.

And if your firm is like many others, you don’t set term limits on the CEO’s tenure and you don’t have a “getting hit by a bus” plan B in case your CEO can no longer do the job.

But one day, you and other executive board members come to the realization that you must select a new CEO. You turn to your bench and can’t identify suitable candidates. Now what do you do? Do you select someone who truly isn’t capable of rising to the occasion and let him or her sink or swim? Not very smart as the stakes are high. Do you search for an outsider? This is high risk because outsiders don’t know the firm’s culture and the strengths and weaknesses of the partner group. Do you start looking for a merger—either upward into a larger well-run firm with a deeper bench or do you do a merger of equals or a tuck-in and hopefully find someone who might be untested, but might have the right stuff to lead a larger, more complex organization?

Does the shoe fit? If yes, you are probably selling your partners and staff short and are headed for a train wreck. Step up to the plate and do the right thing when it comes to this important decision. You need to change your paradigm and start your CEO succession plan and process two years or so before you actually need to make the selection.

Here’s an example of a process to follow:

1. Identify Potential Candidates, Process and Timeline
• In anticipation there is a good chance you will need a new CEO in two or three years, identify partners in your firm who might have the potential to become CEO one day. Mentor these people, give them increasingly important responsibilities, let them be responsible for a P&L, and let them develop rising stars. Give them the opportunity to demonstrate if they have the right stuff or not.

• As time approaches, assign responsibility to select the new CEO to the executive board with the understanding that partners at large need to ratify the selection.

• Request partners’ input on required CEO attributes and areas of particular emphasis.

• Create a formal CEO job description based on partner feedback.

• Seek expressions of interest from those who would like to be considered.

• Select final candidates and request their vision statements.

• Get an external evaluation of candidates by outside consultant.

• Seek individual interviews of final candidates by senior partners.

• Have the executive board select CEO and seek ratification by partners at the annual meeting.

• Transition period (about four months).

• Effective date

2. Ranking Key Attributes that Next CEO Should Possess
After compiling a list of key attributes, survey your partners and rank the most important attributes they expect the next CEO to possess. Rank the top five. In addition, if a partner believes that any key attribute is missing from the compilation, indicate that with any other comments that might be helpful.

 


Ranking

Attribute

Description/Skill Set

 

Integrity

  • Has the respect and trust of the partners
  • Possesses sound character and moral principles
  • Is truthful and honest
 

Leadership

  • Previously led a region, office, industry group or department
  • Leads by example
  • Ability to build consensus among management and the partnership
    • Is dependable
 

Visionary

  • Understands the profession and where it is heading
  • Maintains awareness of internal and external factors affecting the business
  • Ability to recognize and adjust to changing market conditions

 

Understands Business

  • Understands the firm’s business lines and partners
  • Understands the firm’s finances
  • Can create, communicate and implement the firm’s vision, business plan and overall strategic direction

 

Strength and Personal Power

  • Is decisive and has the ability to make tough decisions promptly and communicate them in a clear and dynamic manner
  • Works well in stressful situations
  • Works well in a growth environment
  • Solicits advice and guidance
  • Has the mental and physical stamina and perseverance necessary to address challenges

 

Confidence

  • Will stand by a decision but is willing to correct it if proven wrong
  • Willing to take calculated but not careless risks

 

Firm First

  • Understands and is able to balance entrepreneurial spirit and risk
  • Is a team builder
  • Has the ability to source new and existing business to qualified partners

 

Communication

  • Is a good speaker—can speak “off the cuff”
  • Is a good listener and is open-minded
  • Is a “people person”
  • Can interact and deal with all personalities
  • Displays intensity while maintaining control and without being offensive

 

Executive Presence

  • Creates a favorable impression both internally and externally (e.g., appearance and personal conduct)
  • Possesses poise and courage
  • Is comfortable externally representing firm
  • Shows proper enthusiasm
  • Is selfless

 

Ability to Generate Business Leads

  • Actively and optimistically pursues new opportunities
  • Ability to develop leads
  • Ability to sell business and close sales

 

Sound Judgment and Justice

  • Ability to evaluate facts and possible solutions for sound business decisions
  • Ability to reward and discipline others, impartially and consistently

 

3. Develop Areas of Particular Emphasis
Below are areas of particular emphasis that need to be addressed by the next CEO in a vision statement:

• What are your initial thoughts about immediate and long-term goals and priorities?

• What major issues are facing the firm over the next 24 months and how would we deal with them?

• How do we improve average and median partner earnings?

• What is your view of our strategic plan and your initial thoughts on what needs to change, if anything? Also, describe your thoughts on how this should be accomplished.

• What are your thoughts on how we currently compensate partners?

• What are your thoughts on partner selection, development and counseling?

• Describe how you would protect the firm’s professional reputation?

A process similar to the above has been proven and tested at larger firms and while every component may not fit your firm, we encourage you to use the example as a starting point for your own CEO selection. Being unprepared for the inevitable with a knee jerk reaction to the selection of your next CEO, may result in a fatal blow to your firm.

Dom Esposito, CPA, is the CEO of Esposito CEO2CEO, LLC, a boutique advisory firm consulting with small and midsized CPA firms on strategy, practice management, mergers and acquisitions. Dom was voted one of the most influential people in the profession for two consecutive years by Accounting Today. He has written a book, “8 Steps to Great,” a primer for CEOs, managing partners and other senior partners, published by www.CPATrendlines.com. Dom welcomes questions and can be contacted at desposito@espositoceo2ceo.com or (203) 292-3277.

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