Senior partners, you’re out of touch and out of time
It’s obvious that the Top 20 or so firms long ago figured out that it’s smart business for them to pass the baton from senior partners who have successfully transitioned client relationships to the next generation.
They also realized they need to make significant investments of both money and time in growing their own future leaders (a long-term strategy that requires a personal commitment of senior leadership).
The proof is in the pudding. Look at the brands that these larger firms have built. Look at the quality and demographics of their partner groups and the quality of their client lists. Look at partner compensation levels and retirement packages. All very impressive!
The Daryl Hall and John Oates song, “Out of Touch,” on the other hand, reminds us that too many small and midsized firms continue to do a less than adequate job in passing the baton from senior partners to junior partners. It’s also obvious these firms haven’t grappled with the basic fact that the depth and quality of their future partners is the lifeline that will perpetuate their firms. Without future partners, a firm eventually dies or merges up.
So why aren’t many more firms doing a better job of blending their partner group with a healthy mix of senior and junior partners? The answer is embedded, at least in part, in the following factors: Many senior partners are narrow-minded, looking out for their own best interests and not the firm’s. They want to hold onto client relationships too long, even though they know their responsibility is to transition those relationships to junior partners. This is an unhealthy environment that prevails at many firms.
While there are, at times, good reasons to extend a partner’s employment, this should be done only on an exception basis and only when the firm believes it is appropriate -- not because the senior partner holds the firm “hostage” by not letting go of client relationships.
Managers and senior managers who have the potential of becoming partners look up the totem pole and come to the conclusion that there is little, if any, opportunity for admission to the partnership. As a result, they leave the firm after all the years that the firm invested in them. It is very expensive to replace that investment.
Firm management lacks the discipline to enforce provisions in the partnership agreement that address retirement and obligations to transition client responsibilities.
Management often plays only lip service to developing the next generation of partners. Instead of building and growing their own future partners, today’s leaders at many small and midsized firms usually turn to contingent and retained-fee search firms to find lateral hires who will hopefully fill their void of internal players.
Lateral hires, while sometimes necessary, are big risks riddled with morale, cultural, quality, ethical and other problems and expensive management lessons. Simply speaking, history shows that many lateral hires don’t make significant senior leadership impacts on firms. Some last for only short stints and only create disruption to client service. After all, every firm is looking for high-quality talent and no firm is going to let it walk out the door to join the competition. As a result, using search firms to find “free agents” oftentimes is like pouring hard-earned dollars down the proverbial drain. Arguably this unsuccessful, or, at a minimum, dicey strategy of “buying vs. building” the next generation of partners, particularly those with senior leadership potential, is the No. 1 shortcoming of many small and midsized CPA firms, and it’s a major reason why many are merging up into larger, more established brands. While there is nothing wrong with merging up for the right reasons, such as attracting and retaining larger clients, leveraging off a better-known brand, and monetizing your asset, it can and should be avoided if the driver is a lack of next-generation talent who can become your future C suite.
Is your firm straddled with an aging partnership and with clients who might drop off the client roster because they haven’t been properly transitioned to the next generation? And is your next generation saying the senior leadership at the firm is “out of touch, so we’re out of time?”
It’s time for more small and midsized CPA firms to do a better job of both succession planning and “building vs. buying” the next generation of talent. Don’t take your eyes off the prize, which is passing the baton from the current generation to the next generation. When it comes to building your future leaders, one effective management technique used by many of the larger firms is offering partner development training to all-star senior managers and managers. This training is usually packaged in what is often referred to as a partner development academy or university dedicated to improving soft skills, maximizing strengths and minimizing weaknesses. It’s smart business that requires firms to make serious commitments of time and money, as this kind of training requires active participation from the firm’s senior leadership and hiring of professional outside coaches.
Designed to help high-potential professionals demonstrate a proven track record of steady and increasingly improved performance, these development academies provide real-time training in soft skills such as long-term client relationship building, peer-to-peer team building, resilience and agility when operating in dynamic environments, selling skills that result in new business originations and cross-sales, strategic thinking, and strong written and oral communication skills. They can also include dressing for success, addressing personal life issues that may be distractions to professional development, building impressive presentation skills when meeting with clients and potential clients, and positively influencing staff.
Successfully passing the baton from the current generation to the next generation of partners and developing homegrown future leaders pay dividends. It creates a proud culture in the firm that is admired by both existing and potential clients and employees. Passing the baton develops the necessary “glue” between leaders of today and tomorrow. In many cases, these academies form mentor/mentee relationships that are long-lasting. They can reduce dependence on expensive search firms, and demonstrate to younger staff that sticking with their firm can, in fact, be their pathway to financial success.
Development academies can help reduce the need to make “slot shot” client service partners with limited potential for upward growth. How many times have we heard that, “We must make Mr. or Miss Accountant a partner, because if we don’t, we will lose our largest client.”
The development academies can promote positive morale that has a lasting impact on both client service and firm profitability, as well as reducing the dependency on lateral hires or “magic bullets” to perpetuate the firm. Last but not least, they can help minimize the loss of clients during a partner transition.