Steve Samek, a 30-year veteran of the accounting profession, recently took over the helm of UHY Advisors Inc. after six months of consulting work for the accounting firm consolidator.

UHY Advisors was formed in 2000 following the merger of Houston-based Mann Frankfort Stein & Lipp and four large regional firms. The firm and its subsidiaries have more than 1,000 professionals providing services from 19 offices across the United States and was ranked No. 16 on Accounting Today's 2005 list of Top 100 Firms, with revenues of $174 million.

Samek is the former head of Arthur Andersen's U.S. operations and left Andersen in 2001 after a failed bid to become the Big Five firm's chief executive. He spent the next few years as a marketing consultant before returning to the accounting world.

In an interview with WebCPA, Samek talked about how he landed at UHY, the firm's strategic vision, the historical turning point the industry faces in the coming years and whether there's room for more roll-ups in the future.

How'd you end up with UHY and where do you see the firm heading under your tenure?

In spite of the fact that I was an auditor by trade, I had a soft spot in my heart for strategy work and something that I like to call transformation -- companies that are at the precipice of some major change. I've written a number of books on strategy, particularly as it related to the wholesale industry, which is where I spent a lot of my time. And I got to do a lot of strategy work for companies, whether it was a consulting project, or in my role as a partner on an engagement, and I got to like that a lot.

I wrote a book in 2000 called "Cracking the Value Code" ... There's an interesting phenomenon going on right now and we are literally in the middle of a transformation in the world ... the movement from one age to another. Trust me, I'm going to get you to a point here. And it's never happened in our business careers. We took 20,000 years to go through the Stone Age, we went through the Iron Age, we went through the Agricultural Age, the Industrial Age and the Technology Age -- which we entered in October 1955 -- and we entered the Knowledge Age at the end of 1998 [the first time Microsoft's market capitalization exceeded that of IBM, at the time having one-fortieth the physical assets].

What we know as a race is going up exponentially, but how you create value in each of these ages changes based on the assets of the age. In the Industrial Age, it was machines that created the value. ... Today, your ability to assemble knowledge, connect it, and use it to create new business models that grow value, is what is going to create real value.

You start doing different things in each phase. In the growth phase, you've got to hire a lot of salespeople. As the product matures, you start getting productivity gains. Then you start re-inventing your product. ... It's the same thing here -- as we get to the end of the Technology Age and have started the Knowledge Age, we're in the eye of the storm. We have never been in an age in our business careers where we have to manage both the old curve and the new curve. In other words, you have to squeeze productivity gains out of the old while you're inventing a new way to go to market. Every industry is operating on both curves.

Then you add Sarbanes-Oxley to the mix.

You've got an industry that was fairly mature and now there's been a whole new set of ways to look at how value is created. Therefore, internal controls have to change. Therefore, auditors have to do different work. Back in 2000, when I wrote this, part of the reason we wrote it as a firm was to start getting the message across to the SEC, the public, Congress, whoever, to say, "The way we audited before is not enough anymore."

When you created your value with the brick and mortar, all you had to do is go look at the plant and you could audit it. Now you've got complex contracts, revenue recognition -- think of all the complexities in the start of a new age in how value is created. We were trying to convince the world you needed to pay more attention to other things beyond the balance sheet.

You left Arthur Andersen, and turned to consulting work.

I never really thought that I would come back to the industry. I had a good run, enjoyed what I did, but I was at a point in my life where I was trying some different things and I was focused on three things -- some personal investments, sitting on a few small boards and then I'd take on one client a year, guiding them through this transformation and helping their management with some strategy work. I'd worked with a couple of companies and UHY called me this past summer to ask me about being the CEO and I said I wanted to understand them better, make sure we were philosophically aligned.

We did a strategic planning process from June until about October, November. They had their meeting in Las Vegas of all the partners and the intent of that meeting was to put together a plan of where they wanted to take the firm ... I got to see the firm up close, the firm liked me and I liked what I saw ...

If you think of the enormous number of dynamic, mid-market companies -- that's a term we use internally to define the upper end of the midmarket where they've got complex needs -- they have just as many needs as the Global 500. But they don't have the resources. If we have a good international network made up of dynamic, midmarket-focused firms with the right partner skill set, we could help in that transformation... .

Before you adopted this new strategic plan, how would you describe that firm? What did you see as a consultant coming in?

First of all, the last couple of years and the next couple of years is a golden age for the accounting industry. A lot of firms are doing well, including UHY. When I looked at it, it wasn't a firm that was broken and needed to be fixed. The question was, is this a firm like a lot of the firms in the mid-market that have followed the makeup of the firms they were before they merged or rolled up and haven't been able to make that transformation themselves to serving different kinds of clients, different kinds of needs?

The firm that I saw on the day we rolled this strategic plan out is one that's on the journey. And it started a little slower. Anytime you put together six equal firms ... it's almost human nature for it to take a couple of years to realize that the mission of this was to integrate, be able to serve the clients better ... I think the symbolic change was the day they decided to come up with one name. And that wasn't any easy thing to come to, they were all very strong regional names ... From that point forward, the investment in their brand, the integration into one audit and tax platform, a lot of what I saw as the strengths of an Andersen -- the common culture -- was beginning to take place. It's not surprising their tag line is: The next level. It applies internally and externally, to the clients and to the firm.

Outside of the firm, though, is that brand recognition and position where it needs to be?

And I won't overstate it. If you did a brand recognition of UHY today, it still isn't where it needs to be. We're doing advertising and we need to do thought leadership. I'm going to focus very heavily on thought leadership in the markets. We're going to do some things to put UHY as a frontrunner.

Have you heard of Metcalf's Law? If knowledge is value, your network is what's important. ... There is a point that's driving this industry right now, somewhere around 1,000 to 1,500 people in a network, gets you to the second standard deviation of the best in the world. In other words, when you get to 1,500 people in your network, if you're using it right, you can get to 98 percent of the biggest firms, you've got enough knowledge.

What's happening is the $10- to $30-million firms now are realizing that they are vulnerable. Looking at it this way, they see their network isn't strong enough to serve this marketplace. I think those [top 100] firms, from No. 7 to 15, that UHY is in, I think they stand to get some significant upside over the next three or four years. Capturing the network of their firm -- they can no longer be a group of 300 people in Houston, a group of 300 people in Detroit, 200 people in New York ... we have to pull that together into a network.

But practically pulling those six areas together, how is that going to be done? A lot of other firms I've seen have to jettison partners, change staffing, or suddenly discover their business model doesn't work anymore. How do you get there with your current personnel?

There's really two or three things that help make that journey. First of all ... you've got to realize that you have to make that change [into a network]. Then you've got to train people on it. ... Things don't happen where 99.9 percent of your people have to change overnight. It happens in migration. If you look at what auditors are literally doing today compared to four years ago, there's probably 25 or 30 percent change. You may not see it because what you see as the end product is still called an audit report. ...

The industry is going through that same transformation. Some are not going to make it, some of them are going to be reduced. ... Back at the heyday of the technology age, IBM had 40 percent of the market cap of all the companies in the technology industry. Today, they're less than 1 percent. So, 39 percent of the cap when to someone else, a Google or whomever. The same could happen to our industry if they don't make the change. It's mindset changes. It's changing training. Some of it's day to day. And some of it's hiring new skills. The good news is we have a base assurance product that is valued and is needed. We need to migrate from that business model to a new one.

Do you feel there's still room in the industry for the roll-up model?

I feel there's a lot of white spaces in the country, geographically and in networks, that there is going to be a period in the next few years -- both in the larger firms and the smaller firms -- where you look at the age of the CPA profession and see it aging with the Baby Boomers and there hasn't been a lot of new blood coming in. We need to look at the demand and the supply and see an opportunity to merge. We have a solid network, but we'd like a footprint in Atlanta, in Chicago. ... It's not for the sake of getting bigger. Part of it before, I think, was both geographic and to get into all these ancillary services. But if they don't make sense strategically, corporate America proved the conglomerate game was over in the 1960s. ... It's about providing outstanding service to clients and protecting the public's trust. It's not grow at all costs. It's grow to make sure it fits within your business model and what you need to serve your clients.

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