Does Your P&L Structure Align with Your Values?

CEO of Grant Thornton, the 7,000 person accounting and advisory firm, Mike McGuire radically redesigned the profit and loss (P&L) structure of the organization to align with the firm’s purpose and values.  Until recently, the firm had “hundreds of P&Ls,” he shared with me. “Our tax practice had 133 P&Ls. Tax doesn’t have one P&L today. We have one P&L called Grant Thornton. It's a lot simpler to operate that way and we feel like our clients get a better solution. It is organized completely differently.” 

The P&L Matrix

Like most professional services firms, Grant Thornton had created P&Ls to break down accountability for financial performance to individual partners in the firm. Typically, they slice the overall P&L down into a matrix that is defined by offices and practices. For example, one P&L would be for the tax practice in the Los Angeles office and another would be for an advisory practice in that same office. 

As more and more offices and different practices are opened, the number of P&Ls expands quickly to account for the matrix. A partner is assigned to each P&L and owns it - like a mini-business - and their compensation is tied to that performance. It creates a level of autonomy and ownership that is believed to drive performance.

McGuire explained that, when he took the helm, Grant Thornton had “56 offices and each office had a P&L and then within each office, they had a P&L for audit, one for tax, and one for consulting.” And he realized that, too often, the proliferation of P&Ls – which were created to drive individual accountability – were, in fact, undermining the firm’s desired culture of collaboration. 

The Family Business

When McGuire was 10, his father bought a grocery store.

“I would say my dad was really smart because he had two things going for him. He was able to have really cheap labor (he and his brothers!) and he also was able to feed a growing family at cost by owning a grocery store.”

McGuire and his two brothers worked in the store until he was a sophomore in college and his father sold the business. Decades later, he recalled the culture of the family-run business. “If one had a light truck one week, it wasn’t like they'd just say, ‘I'm going to go home.’ They would come in and pitch in and help for the overall good.”

“If my brother didn’t do his job and made a customer of our store mad and they never came back, that affected me too. It affected our whole family's success.”

At Grant Thornton,

“when we have somebody new start with our firm, it's always, ‘Welcome to the Grant Thornton family.’”

But this corporate family wasn’t operating like the family business he had grown up loving. The P&L structure was creating a culture where partners saw their job as a silo rather than focusing on being part of the bigger team - or family.

"How big is the team you're playing on?"

One of Grant Thornton’s culture principles is, “How big is the team you’re playing on?” With the old P&L system, partners staffing projects for clients were being rewarded to think about the talent they could deploy from their practice in their office. So, when you are staffing a team for a manufacturing tax project in Chicago, you are likely to ask “Who's the best person in the Chicago office who does manufacturing?”

That was the opposite of Grant Thornton’s talent strategy and values. McGuire realized that the P&L was actually undermining the organizational culture. It was causing people to think in “silos or what office someone is from.” Instead, he wanted them to “think about how we have the most diverse team that can bring the most value to this client.” 

"Why are we doing that to ourselves? We want to have a culture where everybody is all for one and one for all in a teaming environment. Let's not put barriers up called P&L that actually prevent us from accomplishing what we want."

McGuire believed that their success required them to be client-centric and not P&L centric. He wanted every partner staffing projects to ask, “Who is the best team in the firm?’” He wanted it to operate like his father’s grocery store.

Who Moved My P&L?

In August of 2017, Grant Thornton moved to a single P&L. It was the final step in a multi-year process. “I intentionally did it in two steps so we could absorb it rather than just rip the band-aid off at once.”

The first step was to collapse the geographic P&Ls from 56 offices into 11 regions. “It was easier to manage 11 than 56 and to get consistency across the platform.” He added, “I wanted to make sure that if it wasn’t going to work we could correct course quickly.”

“Plus, I had a lot of explaining to do,” he shared recounting the sales job he had to do to partners who had tied their role and identity to “managing a P&L.” It was jarring for many of the partners. “I used to manage a P&L and now I'm not managing a P&L – what do I do now?”

He told them, "instead of having to do three things, now you just do two and you get to concentrate that much more on our people and spending more time with your clients, as opposed to worrying about following up on P&L variances and things like that."

The verdict is still out, but McGuire is seeing early signs of success, including partners who at first resisted the change finding they love it. “Gosh, I never realized that I wouldn’t miss managing a P&L, but I don’t miss this for a minute. In fact, if you gave it back to me, I wouldn’t be very happy. I like doing what I'm doing, focusing my time on teammates and clients.”

McGuire is seeing signs that the firm is starting to operate more like his father’s grocery store.  “Instead of somebody saying, ‘I did my job recruiting in the Carolinas,’ they are beginning to look at the overall team recruiting goal as a success, even though you might have met your individual responsibilities.”

Mike McGuire’s Purpose - The Builder: Purpose is to help groups overcome social barriers by providing tools and support.

Learn more about purpose-driven leaders in the workplace in this eBook.