Last
week, I had the opportunity to spend my time at a CPA managing partner
conference. It was a great opportunity to meet with some managing partners and
to gain an understanding of the major issues they are facing. As it turns out,
CPA firms are very much like law firms in their organization and practices, so
much so that their WIP and AR management issues are almost mirror images of
each other. After two days of meetings, and round table discussions it dawned
on me that the problems faced by law firms and CPA firms, are deeply rooted in
their organizational structure.
As
we all know, law firms are built of varying legal acumen of the practitioners.
At the bottom rung are the students who must learn the ropes; higher up the
tier are varying levels of senior associates. The top of the firm is made up of
department heads, non-equity partners, equity partners and the managing
partner. In the accounting world, the names are different but the structure is
somewhat the same. As I can deduce, the role of the managing partner is
basically to manage the firm based on direction of the various committees. Now,
depending on the firm, the managing partner may have their own practice; which
really doesn’t lend itself to ‘managing the firm’. Then one must question, what
really requires ‘management’ in today’s firm?
In
his book, Collecting your Fee, Ed Poll makes a very blunt statement that
law firms are the product of their own actions. They have no one to blame but
themselves for the slowness of collections of their bills. I believe Ed is very
accurate in this conclusion, however, I must take it a step further. The
managing partner of the professional service firm is solely responsible for all
of the delinquencies associated with collections of outstanding receivables.
The managing partner must face the reality that they and only they can make a
change.
You
must be wondering how such a bold statement can be made without some support.
Support really isn’t needed, as the managing partner is responsible for the
‘management’ of the firm. So having garbage receivables and poor cash flow is
directly their responsibility! I feel that the managing partner is either
spread too thin or simply doesn’t have enough power in making a change.
Therefore, the firm continues day-by-day, month-by-month and year upon year to
have sloppy accounts receivable management practices.
If
you take a moment to examine how law and accounting firms are built you will
begin to see where the flaws exist. It is these core flaws in the structure
that leads to an ineffective managing partner. These firms come about
principally by mergers, acquisitions or organic growth. For the most part,
M&A, activity has lead to large national and global firms. During these
activities, small firms become bigger firms, which become bigger firms and so
on. However, with each M&A activity different cultures are forced together.
It is the failure of these, often heterogeneous cultures to meld that is the
basis for all of the problems.
Following
an M&A event, there is the existing culture and the new culture. Well both
cultures have ‘always’ done things a certain way. Who is going to change now
that they are a single firm? The problem is exacerbated when the new culture is
in a different location. It is much more difficult to discern if the cultural
differences is a necessity of the local economy, the firm exclusively or some
combination of both, therein lies some of the challenges. Post M&A
activity, often the cultures don’t gel and the firms now have the essence of
two companies under one name. As the firm continues in its expansionary plans
each successive M&A activity increases the number of cultures that continue
to do things ‘their-way’, all the while; operating as a single entity.
On
a macro-level there can be several cultures, by virtue of the M&A activity,
but what about firms who have grown organically? Firms also fall victim to
micro-cultures. In the organically grown firm and also the M&A grown firm,
all the partners make up the ownership of the organization. To that end, they
each believe in how they should manage their practice and how the firm as a
whole should operate. After all, they do own a piece of ‘the pie’. The
compensation of the partnership structure acts to create an information hording
mentality, where each partner is more focused on his or her own practice,
through billable hours and client intake, rather than on the overall well being
of the organization.
It
is the presence of these multitudinous cultures that makes the managing partner
completely ineffective. Essentially the managing partner is faced with the task
of managing (depending on the number of partners) his or her own peers; who
like them, have a practice and must generate revenue. So the difficulty of the
task to keep all the partners playing the same game is almost impossible. All
of this is compounded with the many active committees in the firm, each pushing
or pulling for their own political agenda.
An
example of this came to light during a recent conversation I had with a
colleague, I found that the managing partner has no control on his firm; it
simply continued as it had for decades. My colleague is the managing partner of
a national firm. His firm has grown principally by M&A activity and with 10
offices across the United
States the culture
is radically different between offices. In each of the offices there is an
office managing partner, to whom all local partners report. However, the
situation that I used to bring reality to light is in the firm’s practice of
expert witness in accounting/financial litigation.
In
the firm, one partner in the head office manages a practice of expert witnesses
for white-collar crime litigation. This partner has agreements in place with
insurance carriers for this type of work and all such work throughout the firm
goes through this partner, except for their west coast office. This head office
partner sets her own rate in which the insurance company sometimes fails to
pay. She then seeks compensation from the insured. The reality of the failure
of the firm to act consistently was a bit of a surprise to my colleague;
however, he didn’t want to address the issue, simply because, the ‘cultures’
are different. As dinner progressed, I brought to light how the firm was
basically acting as two different firms when it came to this practice group. At
the end of the night I closed with, if a single practice group is so
heterogeneous, what is going on between all office practice groups and within
practice groups? To that, I received a blank stare. It is no wonder that they
have AR issues in the various practices in the organization.
With
firms’ blatant failure to ‘gel’ and have one codified practice throughout the
organization, the managing
partner becomes nothing more than the tour guide for
a group of fishermen; someone who simply makes ‘suggestions’. Each partner
simply fishes in the sea of revenue to get his or her own catch. Instead, firms
could reap tremendous rewards through leadership, direction and focus. All the
partners must be focused and operating under a single codified set of rules.
Once that is achieved, the managing partner now becomes the leader of the
firm’s destiny; a farmer. As a fisherman, each person takes his or her chances.
As a farmer, the foundation is laid; the rules are in place, everyone is in
lock step together, and the end result – a bountiful harvest. Sadly, in today’s
practice most partners are casting their lines into the sea of revenue, when
they could be harvesting from the fields of profitability!
