Last fall we had a record number of attendees at our Summit and Global Forum in Las Vegas. As I do at all our conferences, I kick off with what we’re seeing in the profession and highlight trends for our member firms to be aware of. During that session I wanted to touch on governance, which keeps coming up in our firm visits.
As we’re seeing record numbers of mergers, plus the entry of private equity into the accounting space, there are firms who ask me constantly what they need to do to remain independent. The answer is simple. The solution, not so much.
New Models Require New Mindsets
At Summit and Global Forum as I was talking about the firm business model, I said, “The partnership model is DEAD. Not dying. DEAD!” This really seemed to catch the audience’s attention far more than I expected. I was in the process of talking about how I’ve seen the most successful firms move to the corporate model, which has a true CEO with some type of board or executive committee that’s a subset of the overall partner group. This way all partners can focus on what they do best, and a smaller subset is charged with governance for the firm.
To challenge the prevailing mindset of the partnership model, first you need to change titling and thinking about what the firm leader does. I’ve recommended that all firms eliminate the title of managing partner. The leader isn’t there to “manage” partners. In fact, I don’t know many partners I’ve met who actually can be managed. The true role is to lead the firm. The firm CEO (as I’ll now refer to the role) is there to develop strategy and vision, always thinking about the firm. Not their own book of business, but the firm.
Next will be fixing partner agreements and governance-related issues. We have to reduce the number of times we go to full partner vote and limit this to the largest of decisions—partner admission, potential mergers, and other items that would affect the entire firm.
What Limits Growth
Part of the issue I’ve seen with limitation of growth in firms has been partners who try to block investment or risk, especially as those partners near retirement age. It’s human nature, and we advise clients all the time to secure investments in less risk as they approach retirement.
But if we truly want the firm to survive, grow, and prosper, we need to make sure the firm keeps up with new lines of service and technology for all service lines. Starting service lines and adding technology takes away from today’s distribution, but it increases the future value of the firm.
Getting to the Next Level
While these issues have been around a long time, private equity has accelerated firm model change even more. The corporate model concept isn’t new, and I’ve witnessed several highly successful firms who made the change growing far faster than their partner-model counterparts.
Now that private equity has entered in and forced any firm backed by private equity or coming in through merger to switch immediately to that model, it’s making other firms consider it. This is a good thing. It’s how we’ll take our firms—and this profession—to the next level.
If you want to embrace a growth mindset, meet like-minded firm leaders who value independence, and leave a lasting legacy for your firm, join me and your fellow Allinial Global firm leaders at the Executive Team Conference.
