Small and midsized CPA firms that are striving to stay independent need to avoid the potential “sand traps” that can stump their growth and eventually threaten their independence.
Regardless of your firm’s size, it’s absolutely essential that you avoid ineffective governance and operating models that will get in the way of achieving growth at an acceptable rate of 6 to 8 percent per year (which is easier said than done organically) and staying independent. If you land in this sand trap, your firm will eventually stagnate and ultimately die or have to merge up with a larger firm.
Today, more often than not, larger firms (and those that aspire to be larger firms) look to one partner group to govern (usually referred to as an executive board, partner board or executive committee) and a second group of partners (the senior operating leadership team) to drive strategy and to oversee day-to-day operations. To be most effective, these two groups need to complement each other. In many firms with highly regarded brands, these two groups comprise different partners to foster healthy checks and balances within the firm.
Unfortunately, all too often, at many of the small and midsized firms, these two groups and their responsibilities are vested with just a single governance and operating committee appointed by the CEO or managing partner. While it’s easy to fall into this trap, this isn’t a healthy way to run a firm. Sometimes it creates a mentality of us versus them. It also creates a good old boys club that becomes inbred. This unhealthy environment often results in favoritism (which is terrible for morale), hampers revenue growth (which is terrible for the partners’ wallets), and makes it difficult to nurture future leaders (which threatens the viability of a firm).
So, let’s take a look at a model for effective governance and operations:
Executive board
Effective governance at any size firm can be achieved by an executive board comprising both senior partners and more junior, high-potential partners — perhaps five to nine in total, depending on the size and complexity of your firm. Generally, the CEO or managing partner is an appointed member, and other members are elected by the partners at large to rotating three-year terms with a limit of two years. The executive board usually meets one day a month (twice when it gets close to compensation time). In the interim, between face-to-face meetings, the executive board holds a video conference or conference call to discuss matters that can’t wait for the next regularly scheduled meeting. The responsibilities of the executive board usually include: (a) approving the firm’s strategic plan and holding the CEO and other firm leaders accountable for the plan’s implementation, (b) approving mergers, acquisitions or a firm name change, and (c) overseeing the successful resolution of partner matters (such as compensation, lateral hires outplacements and new internal admissions).
Senior operating leadership team
Depending on the size of your firm, effective day-to-day operations are best accomplished through a senior operating leadership team comprising the CEO, COO, regional managing partners, office managing partners, audit, tax and consulting leaders, and a go-to-market leader. Again, some of these positions may not be appropriate in your firm today because of its critical mass, number of service lines and/or number of locations. Nevertheless, regardless of size, in addition to the CEO, every firm, at a minimum, should have an office managing partner, three functional leaders (in audit, tax, and consulting or advisory services), and a go-to-market leader (many firms do not have this position today).
While all positions are important, I want to emphasize the importance of a go-to-market leader, who is typically responsible for driving industry and consulting strategies both at the operating office and individual partner levels. This partner, who generally has a small client load and a reduced number of billable hours compared to other partners, is the partner shepherd who leverages their strategic skills into others. If you don’t currently have such a partner in your firm, I highly recommend you consider one.
The senior leadership operating team usually meets one day a month, like the executive board. These meetings create subtle peer competition and promote the sharing of best practices. In between face-to-face meetings (typically held to handle an opportunity that requires quick collaboration), the operating team usually holds a video conference or a conference call. The operating team’s responsibilities usually include reviews of key management tools that enable a firm to execute success.
Trying to grow and staying independent requires a firm to avoid the many potential traps in practice management. Effective management is the key to success, but unfortunately many small and midsized CPA firms do not follow the best practices for corporate governance and operations.
