The Audit Opinion Issue #8 - the Partnership Model
Mark Edmondson
Inflo CEO | Audit Technology Expert | ex PwC | Author -> Follow for posts on innovation, leadership, & audit.
Table of Content
1.????? From Partnership to Corporate Model
2.????? In Case You Missed It – My Recent Content
3.????? Resources
4.????? Book Recommendation
5.????? Audit News
1. From Partnership to Corporate Model
The accounting profession has never been changing as fast as it is today.
But change is only getting faster. Today is likely the slowest rate of change we’ll ever see.
Advances in technology. Talent shortages. Private Equity investment. They all combine to present today’s accounting firm leaders with a cocktail of fascinating operational challenges and business opportunities.
This is not only putting pressure on leaders but also on the established leadership structures within accounting firms.
Is the Partnership model a relic of the past? Maybe.
However, a statement as provocative as this requires closer examination.
It is true that most accounting firms that take on Private Equity investments, are replacing the Partnership model with a corporate leadership structure – a CEO, COO, and similar C-suite leaders.
But is this a singular direct correlation? Is the corporate model exclusively for firms with external investors?
No. Other firms that don’t have such investments are also making the transition.
I sat down with Matthew Smith, CPA, CCIFP , Assurance Practice Lead at YHB. YHB has ten offices across Maryland and Virginia and no private equity investment. But they changed to a corporate leadership model five years ago.
In our discussion, we landed upon the key driver for moving to corporate leadership. It was in fact: aspirations for growth.
In 2018, YHB Partners agreed to an ambitious 5-year plan to grow from $20m annual fee income to $60m - breaking into the Top 100 US firms, ranked by fee income.
To achieve their plan through organic and merger growth, they agreed they needed stronger decision making. But perhaps more importantly, they identified their fee earners i.e. Partners – needed to have clearer roles and responsibilities.
Under their Partnership model, every Partner was delivering work, winning new clients, and running the firm. This management role was a significant time investment for every Partner. And while each had a vested interest given how the success of the firm’s operations impacted their profit share, it was impossible for every Partner to be an expert in everything.
I believe one of the secrets to YHB’s successful transition was recognizing that the traditional Partner is truly two roles in one:
1)????? Shareholder
2)????? Client facing
Under their corporate structure, each of these roles has now been formally recognized on the YHB organization chart. This allows the Partners to know which hat they are wearing in each meeting or activity.
For example, a formal shareholders meeting can be held where the CEO or Board reports to the shareholders on results. The shareholders perform a governance and oversight role. But this is more like a corporate shareholder meeting, not to discuss day-to-day tactical matters.
Think about it. It would be chaos if every shareholder in a corporate business was involved in running the business day-to-day in a management capacity!
YHB also had great communication during the transition to a corporate structure. Weekly podcasts, monthly calls, and quarterly all-hands meetings were all used and have continued since.
Now YHB are targeting becoming a $100m fee income firm in 3 years.
What I learnt from the conversation:
There is no value in making the change to a corporate leadership model if status quo is the goal and you don’t aspire for growth. But making the change is critical for firms with strong growth plans.
So, to work out when to move from a partnership to a corporate model, all you need to decide is: do you aspire to grow?
Mark
领英推荐
You can listen to the 29-minute conversation between Matt and I here. Join Matt, YHB CEO Thomas Milburn , and I for a special 1-hour fireside chat and open Q&A on this issue - exclusive to my newsletter subscribers on Feb 13th at midday (east coast)! Register here.
2. In Case You Missed It – My Recent Content
3. Resources
?
4. A Book Recommendation – Liberating Leadership, Dr. Derek Biddle & Ali Stewart
Considering the move from a partnership to a corporate model is really all about leadership. This book is one of the more practical leadership books I have read!
The simple graphics to summarize potentially complex topics allow you to quickly translate the key learnings in your role.
One of the main points, on creating a high-challenge, high-support environment pushes you to ensure you’re developing future leaders.
5. Audit News
Top Story:
The big recent news story has been Citrin Cooperman’s new investment from Blackstone. Because now the largest Private Equity house in the world is investing big in US accounting. And because this is one of the first “flips” in the US, from one Private Equity investor to another.
New Mountain sold their majority stake in the firm to Blackstone at a valuation of over $2 billion, benefiting from both growth in the business, during just over three years of involvement, and a higher valuation multiple.
Read more here.
Other News:
Collaborative Digital Transformation Change Leader
3 周Thanks for sharing Mark. A big leap for many accounting firms, but needed in order to foster innovation and growth.