Intelligent succession

By L. Gary Boomer, CPA, CITP

Great leaders develop successors. Where is your firm’s intelligence? Is it in the partner group? Is it in your staff? Or is it in both your staff and partner group? The answer is a significant indicator of your firm’s destiny.

If you can honestly say it is in both, your firm likely has economic value and partners are entitled to a reasonable deferred compensation and buyout. If your firm has not developed successors -- and many firms have not -- the value of your firm is probably diminishing. Depending upon the age of your partners, it may not be too late to change. This article provides a few suggestions for how you can increase the value of your firm through succession planning combined with a training / learning culture.

Don’t lock away your brainpower

Too often a firm’s intelligence is locked away in its partner group, especially within smaller firms. Knowledge is often viewed as power. As a result, it is not leveraged to the extent it should. If this is the case in your firm, your systems, processes and culture may need to improve if you want to compete, maintain profit levels and increase value.

While this doesn’t have to be an either-or situation, many firms choose to maximize current profits but don’t make the necessary investments in planning, people and processes. Systems, processes and culture evolve around information, knowledge, experience and wisdom. The speed, leverage and scale at which your firm can transfer its intelligence are determined by the quality of its training /learning program. If the firm’s intelligence is locked within the partner group, it is very difficult to grow beyond current profit levels and the value of the firm may decrease as partner(s) approach retirement. This is an issue in the accounting profession. According to the AICPA, 75 percent of its members are 50 years of age or older.

Creating a link to the future

Many firms fail at strategic and succession planning. While some conduct what they call an “annual retreat,” they often leave with great ideas but don’t hold anyone accountable. Even more alarming is the number of firms that don’t share their plans with managers and staff.

We recommend these exercises:

Prepare a succession worksheet specifying the projected years at which partners will retire and how many future owners are required to accommodate firm growth.
Partners over age 50 should prepare a one-page succession plan with objectives, measurements of success, initiatives, due dates and assignments as appropriate. Review and update this plan at least annually until retirement. This exercise is healthy for both partners and the firm.

Because many partners have not planned adequately, they often push out normal retirement. This may also be attributed to the short supply of quality people as well as financial considerations. Another consideration is that people, in general, are living longer and many simply don’t want to retire at age 65. Retirement can be phased if properly planned.

Many deferred compensation plans put into place 10 or more years ago are being tested by market conditions. This is another reason we are seeing an increase in mergers. It may take care of one or more senior partners, but will the merged firm be able to provide the same type of retirement to other partners 10 to 20 years down the road? Mergers usually occur for one of three reasons: lack of leadership, lack of funded retirement and lack of technology.

A longer-term plan involves planning, people and processes, with technology acting as the accelerator. Retaining and attracting quality people is not something that just happens. It requires a training / learning culture, forward-thinking attitude and action.

Why a training / learning culture is essential

A training and learning culture is a two-way street that bolsters the intelligence quotient of the entire firm, enabling it to appreciate rather than depreciate in value. Unfortunately, firms often talk about training, but most fail to invest the necessary resources in order to ensure its success and consistency.

If partners are too busy to train or lack the confidence to transfer knowledge and wisdom, training programs typically fall short. In fact, partners’ attitudes toward training are the best predictors of its success. It is often viewed as only CPE, but that is no longer the case.

Technology is the accelerator for growth, but some overlook it as the answer to succession and the transfer of intelligence. It has opened incredible doors for some while causing a crisis in personal confidence in others. We all know people with poor technology skills and have probably heard some of them boast about how they don’t even care. What these people are really expressing are fear and lack of confidence.

Commitment to the cause

Confidence with technology is critical when it comes to education in today’s workplace. Firms that demand partners to be teachers rather than just problem-solvers will be dominant in the 21st century. Think about the characteristics of your best teachers. The following likely describes some of these:

They are prepared.
They are energized and motivated.
They are straightforward.
They are good communicators.
They are interactive with students.
They are confident, yet open to learning themselves.
They hold high expectations.

Because a leadership committed to education is vital, consider how many of your partners possess the characteristics above. Do you look for these characteristics when you hire? Do your partners fly solo, or do they work as a team? These are important questions and ones that you should not ignore if you sincerely want to improve your firm and facilitate a learning culture.

If your firm wants to improve its training and learning, here are several suggestions that can have a positive impact on culture and productivity.

Develop a training needs assessment based upon a desirable body of knowledge for each job description in your firm.
Hire a professional learning coordinator to administer the training / learning program.
Implement a two-way mentoring program between partners and staff.
Hold people accountable, especially partners. Accountability starts at the top.
Define your firm’s standards, processes and procedures. You will be surprised at the inefficiencies within most firms.

The “old way” is not necessarily the best and most profitable way. Start by reviewing your tax return preparation, financial statement preparation and billing and collection processes.

Shifting to a training / learning culture is not easy and is generally met with resistance from those who promote mediocrity. It won’t take long to identify the weak links. Those who most need training are often the ones who ignore opportunities for it. Implementing a curriculum for employees and holding each one accountable will result in a significant upswing in overall performance. Don’t be afraid to terminate those who don’t comply with the firm culture, even if they are partners!

In conclusion, if your firm’s intelligence is located only within a partner group closing in on retirement, training and succession issues must be addressed. Your actions now will ultimately determine the firm’s ability to retain and attract people, as well as the value of deferred compensation and ownership buyouts.

L. Gary Boomer is CEO of Boomer Consulting.

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