Voices

‘Slot shots’ and lateral hires can be hazardous to your firm’s health

Register now

Finding quality talent that has the ability to perpetuate a small or midsized CPA firm is a big challenge, especially when firms admit new partners just because of needs as opposed to qualifications. These admissions, sometimes known as “slot shots,” are understandable, but taken to an extreme, this practice truly undermines the future of a firm.

Some firms heavily depend on contingent and retained-fee search firms — which are usually expensive and have a poor ROI — to find experienced lateral hires. While it’s understandable why they depend on search firms, going outside to find talent can be addictive and distracting when it comes to building bench strength within a firm.

Let’s dissect both dimensions of the talent drain that create short-term gains but usually result in long-term pains.

Admitting “slot slots” as new partners

When it’s time to make decisions about new partner admissions, senior leadership at a small or midsized firm may hear:

  • “If Mary doesn’t make audit partner this year, she will leave the firm. We can’t afford to lose her as she gets all the work done at ABC Manufacturing Corp., who pays us over $300,000 a year. Without Mary, this client will leave the firm.”
  • “We need to make Joe a tax partner this year because he is the only one in the firm who understands C corps. Without him, we will have a big hole in our Tax Department capabilities. It could put a big hurt on the firm.”

In their guts, these leaders know that, while both Mary and Joe are solid professionals, there is little chance that either of them will develop into outstanding client service partners. They have not exhibited, and probably will never exhibit, strong relationship and business development skills — prerequisites that demonstrate outstanding client service and the potential for the next generation of senior leadership. Nevertheless, the firm has client service partner needs to fill because of retiring baby boomers, organic growth, acquisitions, etc., so senior leadership agrees to make Mary and Joe new partners even though they both are “slot shots” who will become good partners but not great partners.

After the meeting, senior leadership looks in the mirror and, once again, acknowledges that they are failing to develop homegrown talent who have the potential to be their future CEO, COO or other senior executives.

Sound familiar?

Heavy dependence on search firms

Unlike larger CPA firms that have long ago figured out that it’s smart business to make significant investments of both money and time in growing their own future leaders (long-term strategies that require a personal commitment of senior leadership), today’s leaders at small and midsized CPA firms instead are heavily dependent upon contingent and retained-fee search firms to find them experienced lateral hires who hopefully will fill their internal players void.

Unfortunately, lateral hires are big risks riddled with morale, cultural, quality, ethical and other problems, as well as expensive management lessons. History shows that many lateral hires don’t make a significant senior leadership impact 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, thanks to these unsuccessful, or, at a minimum, dicey strategies of unsuccessful lateral hires and “slot shot” new partner admissions, the next generation of senior leadership 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’s nothing wrong with merging up for the right reasons, such as attracting and retaining larger clients, leveraging a better-known brand, and monetizing your asset, it can, could and should be avoided if the driver is a lack of next-generation talent (a self-inflicted wound) who have the potential to become your future “C suite.”

It’s time for small and midsized CPA firms to become less reliant on “slot shots” and executive search firms and do a much better job of building their next generation of talent. One effective management technique used by many of the larger firms is offering manager and partner development “academies” to their homegrown all-stars and potential all-stars. It’s smart business that requires firms to make serious commitments of time and money, as these academies require active participation by the firm’s senior leadership and the 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, and sales skills that result in new business originations and cross-selling. They can also foster strategic thinking, dressing for success, and positive influencing of staff. Other benefits may include strong written and oral communication skills, and impressive presentation skills when meeting with clients and potential clients. They can even help employees address personal life issues that may be distractions to their professional development.

Developing homegrown future leaders pays dividends to firms. The strategy creates a proud culture in the firm that’s admired by existing and potential clients and employees. It also develops the necessary “glue” between the leaders of today and tomorrow. In many cases, these academies form mentor/mentee relationships that are long lasting. The strategy can also reduce dependence on expensive search firms, and demonstrate to younger staff that sticking with the firm can, in fact, be their pathway to financial success as they can see smart hard work has paid off for homegrown professionals. It reduces the need to make “slot shot” client service partners with limited potential for upward growth. The strategy promotes a positive morale that can have a lasting impact on both client service and firm profitability. And last but not least, it reduces the dependence on lateral hires or “magic bullets” to perpetuate the firm.

Why do so many firms fail to get to the next level? Arguably the principal reason is the lack of a quality partner group who can perpetuate the firm. That all begins with the quality of your bench and who you select to be your partners.

Launching and maintaining development academies is a major undertaking that cannot be taken lightly. But these academies do help firms reduce involuntary turnover of all-stars and create better-quality next-generation partners, some of them candidates for the future C suite. It’s long overdue at small and midsized CPA firms. Is it time for your firm to shift paradigms when it comes to future partners?

For reprint and licensing requests for this article, click here.